Microsoft said on Friday that Phil Spencer will retire after 38 years at the software group, naming internal executive Asha Sharma as chief executive of its gaming division in a leadership overhaul aimed at refocusing the Xbox business during a period of falling revenues and intensifying competition.

Spencer, who has led Xbox since 2014 and was appointed gaming chief executive in 2022, will remain in an advisory role through the summer to support the transition. In a message to staff published on Microsoft’s website, chief executive Satya Nadella said: “Last year, Phil Spencer made the decision to retire from the company, and since then we’ve been talking about succession planning.”

Sharma, previously responsible for product development for AI models and services at Microsoft, takes on the role of executive vice president and chief executive of Microsoft Gaming, reporting directly to Nadella. In a memo to employees, she said the company would “recommit to our core Xbox fans and players” and renew its focus on console hardware as part of a broader strategy spanning PC, mobile and cloud.

The changes come as Microsoft Gaming faces mounting pressure. Reuters reported last month that gaming revenue fell about 9.5 per cent in the December quarter, with the division recording undisclosed impairment charges, while tariff-related costs and uneven consumer spending have prompted price rises on Xbox hardware.

Microsoft completed its $69 billion acquisition of Activision Blizzard in 2023, expanding its portfolio with franchises including Call of Duty and World of Warcraft after prolonged regulatory scrutiny. The business continues to compete for console market share with Sony’s PlayStation and other platforms, however in recent years the company has shifted away from strict console exclusivity, bringing flagship series such as Forza Motorsport and Gears of War to PlayStation, alongside an upcoming remake of the original Xbox launch title Halo: Combat Evolved. Microsoft meanwhile has focused its gaming business model around the industry-wide shift towards subscription and cloud-based gaming.

The reshuffle includes further departures and promotions. Sarah Bond, president and chief operating officer of Xbox, is leaving the company to begin what Spencer described as “a new chapter”, while Matt Booty has been promoted to executive vice president and chief content officer, overseeing the group’s studios.

In a separate memo reported by The Verge, Booty sought to reassure staff about job security, writing: “To be clear, there are no organisational changes underway for our studios.” His comments follow a period of job cuts across the technology sector and concern among developers about consolidation after major acquisitions.

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