Amid reports that Microsoft is planning massive layoffs in its Xbox gaming division, first-party studios like Double Fine, Compulsion Games, and Ninja Theory have been rumored to be in talks to avoid total closure. Now, State of Decay developer Undead Labs is said to be facing the same fate if a potential buyer can’t be found.
According to GamesBeat and Windows Central, Undead Labs is one if the studios that Microsoft may unload following the end of its current fiscal year on June 30. What makes this move so surprising is that Undead Labs’ State of Decay 3 has been given a promotional push by Xbox, including a new trailer that debuted earlier this month. That title is believed to be nearly finished, and it’s unclear if State of Decay 3 will even be released if Undead Labs closes beforehand.
Bloomberg’s Jason Schreier offered some clarification about the studios reported to be on Microsoft’s chopping block. Schreier didn’t confirm Undead Labs to be among them, but he stated that it’s “possible (even likely) … that some of the studios that are lined up for closure will be spun out and taken independent again by their management, potentially saving some jobs.” However, it appears that some layoffs will be inevitable.
State of Decay 3 is currently expected to hit Xbox Series X|S, PlayStation 5, and PC in 2027. In the meantime, developers from numerous first-party Xbox studios have called for Microsoft to provide them with layoff protections before any potential cuts this summer. Even the future of Xbox itself may be on the line, as rumors suggest that the division may be spun out of Microsoft as a separate company.
Microsoft recently raised the price of Xbox consoles again and more price hikes may be coming in 2027. Microsoft CEO Satya Nadella has indicated that Xbox has to begin pulling its weight financially. That may mean more drastic steps are ahead to achieve that goal.