Microsoft Looks to Make a Major Reset as It Says This Area of Its Business "Is Not Healthy"

Microsoft (NASDAQ: MSFT) has a massive business with many products and services. And while its overall operations continue to grow and do well, some areas of its business are lagging.

One area that frequently posts underwhelming results is gaming, with the company's Xbox segment typically struggling to show much growth. Microsoft hasn't turned a blind eye to that, and recently made a major announcement as it looks to shake up that area of its business.

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Microsoft cuts thousands of jobs as it focuses on improving its Xbox division

On Monday, Microsoft announced it would be eliminating 4,800 positions, representing just over 2% of its workforce. The bulk of those cuts pertain to its Xbox business, with 3,200 job losses in that area. Xbox CEO Asha Sharma was blunt, saying that "our business today is not healthy," pointing out the poor return on its investments in game studios, noting that "in a typical year, we lost 64 cents for every dollar we invested."

Those kinds of losses are alarming, particularly for a company such as Microsoft, which seemingly has no problem turning a profit. Over the trailing 12 months, the tech company has generated $125 billion in profit on $318 billion in revenue.

Sharma said in a memo that "we must reset Xbox" in order to become more efficient. While the job cuts are not due to artificial intelligence, Sharma believes there are significant complexities across many layers of management that can be drastically reduced. Not only could that cut costs, but it may also speed up decision-making and enable the business to be much more competitive.

Restructuring Xbox could be an underrated growth catalyst for Microsoft

Despite being one of the most popular gaming consoles in the world, Xbox's business has struggled to generate consistent growth for Microsoft. During the first three months of this year, the segment's revenue was down 7% on a foreign-exchange-adjusted basis. And in the previous period, it was down by 6%. Gaming is a huge opportunity for Microsoft, as there are about 200 million monthly active Xbox users and more than 500 million across the company's entire gaming ecosystem.

If the company can find a way to enhance that area of its business, it could not only strengthen its growth rate but also improve its bottom line, making this terrific stock an even better investment than it already is today. Microsoft has been doing exceptionally well with a sluggish Xbox division. If it's able to turn that around, then there can be plenty of upside for Microsoft's stock in both the short and long term.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.