Undead Labs is leaving the Xbox umbrella and will be sold to new owners, with Microsoft agreeing to provide development funding for State of Decay 3.
Undead Labs is one of four studios affected by Microsoft's July 2026 restructuring of its Xbox first-party development. The studio will leave the Xbox umbrella and be sold to new owners, distinguishing it from Compulsion Games and Double Fine Productions, which are becoming independent with their IPs. Microsoft Gaming CEO Asha Sharma announced the changes as part of an "Xbox Reset" aimed at improving profitability, which she described as far below industry peers.
The divestiture comes alongside significant layoffs: approximately 1,600 Xbox employees were cut on July 6, 2026, with a total of 3,200 planned through the 2027 fiscal year. The internal memo stated that previously announced first-party games will not be canceled, and Microsoft agreed to provide development funding for Undead Labs' State of Decay 3. The studio's sale follows a pattern of Microsoft shedding acquired studios after a wave of acquisitions in recent years.
The two stories about the restructuring do not provide additional details about Undead Labs' internal operations, staff changes, or timeline for the sale. The coverage focuses on the broader corporate shift rather than the studio's specific situation.
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2d ago
Microsoft Gaming CEO Asha Sharma announced a "reset" of the business, with 3,200 layoffs planned through the 2027 fiscal year, starting with 1,600 immediate cuts. Four studios-Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs-will leave the Xbox umbrella. Compulsion and Double Fine will become independent with their IPs; Ninja Theory and Undead Labs will go to new owners. Arkane France is in consultation. The company aims to reduce management layers and appoint a COO.
6d ago
On July 6, 2026, Microsoft laid off approximately 1,600 employees in its Xbox division, the largest workforce reduction in the division's history. The company plans to cut a total of 3,200 Xbox positions by the end of the current fiscal year. Xbox CEO Asha Sharma sent an internal memo describing the move as an "Xbox Reset," citing the division's profit margin being one-third to one-tenth of industry peers and slowed growth relative to rising costs. Four studios acquired by Microsoft in recent years will regain independence: Double Fine and Compulsion Games under their founders' leadership, and Ninja Theory and Undead Labs through sales. The memo stated that previously announced first-party games will not be canceled, and Microsoft agreed to provide development funding for Ninja Theory's "Senua" and Undead Labs' "State of Decay 3." Arkane Studios has begun labor-management consultations about its future. Employees across Bethesda Game Studios, ZeniMax Online Studios, and Obsidian Entertainment also reported layoffs, with some saying they received no prior warning. The reductions follow earlier Microsoft gaming layoffs of 1,900 in 2024 and over 6,000 in May 2025. The layoffs on July 6 represent half of the 3,200 planned; the remaining cuts are expected within the fiscal year.