Halo Studios quietly cut as Xbox layoffs pile up, dev says new Halo game is struggling

The fallout from Microsoft’s recent wave of layoffs is still rolling through the Xbox division, and it looks like Halo Studios didn’t escape the damage. A new report confirms that at least five developers from the Halo team were laid off, adding more uncertainty to a series already on shaky ground.

These cuts are part of the larger restructuring that recently saw around 9,000 employees let go from Microsoft. Xbox projects like Everwild were canceled, Perfect Dark was scrapped, and The Initiative — the studio behind it — shut down entirely. In a leaked internal email, Xbox boss Phil Spencer described the layoffs as part of “organizational shifts” meant to improve agility. But for staff on the ground, it didn’t sound that optimistic.

“I’m personally super pissed that Phil’s email to us bragged about how this was the most profitable year ever for Xbox in the same breath as pulling the lever,” said one developer.

That quote came from a Halo Studios employee who spoke anonymously with Engadget. Their frustration wasn’t just about the layoffs, but also about how the team is doing overall. With support for Halo Infinite wrapping up and several new projects underway in Unreal Engine 5, there’s little confidence internally that things are going in the right direction.

The next big Halo release — rumored to be a remake of Halo: Combat Evolved — is apparently far from stable. The developer says the team has faced consistent issues with production, even before the latest cuts happened. Leadership is now trying to keep everyone on board with pep talks, but it’s clear the mood isn’t good.

“I don’t think anybody is really happy about the quality of the product right now,” they said. “There’s been a lot of tension and pep talks trying to rally folks to ship.”

The internal shift toward outsourcing work has also made things more complicated. Instead of working with individual contractors, Halo Studios now relies on full external development studios for support. This move was supposed to help speed things up and reduce overhead, but according to the dev, it hasn’t delivered the results management hoped for.

From their point of view, Xbox is falling behind the rest of the industry in how it builds games. The tools, the workflows, the decision-making — none of it is keeping pace.

“Xbox in general feels years behind the curve in game development, and it leads to a lot of wasted time and effort,” they said.

That’s not all. The same developer claims Microsoft is going all-in on AI to fill the gaps left by staff reductions. The goal now seems to be replacing as many roles as possible with automated tools or AI-assisted workflows. In fact, Microsoft is already planning to phase out some sales roles with “solutions engineers” focused on AI sales. GitHub exec Julia Liuson even said using AI was “no longer optional.”

So while Halo Studios is supposed to be building the future of one of gaming’s most iconic franchises, it's doing so under fewer hands, lower morale, and rising pressure. After the uneven launch of Halo Infinite, the team had a chance to reset. The shift to Unreal Engine 5, combined with the rebranding of 343 Industries to Halo Studios, was pitched as a fresh start. But from this new report, it sounds like the studio’s problems are bigger than just engine tech.

The internal feedback matches long-running frustrations from players and critics. Halo’s recent entries have struggled to land with full momentum. Halo Infinite eventually delivered solid content, like Firefight and Forge, but it took too long to get there. Launches felt thin. Updates were slow. And by the time things improved, much of the player base had already left.

The reality is that Halo hasn’t been on top for a long time. While the franchise still has a loyal following, its mainstream appeal has steadily faded — and each misstep puts more distance between today’s Halo and its legacy. Microsoft needs a definitive, polished, standout release to bring it back. But that’s not what’s taking shape inside the studio right now, at least according to those on the team.

As the Xbox brand continues its aggressive restructuring — and possibly further consolidates its game development pipelines — it’s not just about which games get made, but how. And in Halo Studios' case, the answer may be: slowly, with fewer people, and under a cloud of doubt.