Microsoft’s head of gaming, Phil Spencer, is leaving the software maker following a 38-year tenure, as the company’s Xbox business faces increased challenges.

“Last year, Phil Spencer made the decision to retire from the company, and since then we’ve been talking about succession planning,” Microsoft CEO Satya Nadella wrote in a memo to employees that was published on Friday. “I want to thank Phil for his extraordinary leadership and partnership.”

Spencer’s exit follows the departures of business development chief Chris Young and GitHub CEO Thomas Dohmke in 2025. Charlie Bell, who had been Microsoft’s most high-ranking security leader, switched to an individual contributor role earlier this month.

Revenue from video games at Microsoft declined about 10% in the December quarter from a year earlier, a steeper drop than the company expected, while total revenue grew nearly 17%. Microsoft announced an unspecified impairment charge in its gaming business in January.

The company made a $75 billion bet to expand its games business with the 2023 acquisition of Activision Blizzard, and it released Call of Duty titles as a cloud service. But current generation Xbox consoles haven’t been as popular as Sony’s PlayStation or Nintendo’s Switch, and Microsoft has shuttered studios working on new games.

Nadella said in the memo that Spencer, who took charge of Xbox in 2014 after running the company’s gaming studios, nearly tripled Microsoft’s gaming business, in part through acquisitions like Activision Blizzard. Spencer also pushed for Microsoft to take over Minecraft developer Mojang.

“Over 38 years at Microsoft, including 12 years leading Gaming, Phil helped transform what we do and how we do it,” Nadella wrote.

Asha Sharma, who joined Microsoft in 2024 from Instacart, will take over for Spencer, becoming CEO of gaming and reporting to Nadella. Until now, she has been president of product in Microsoft’s Core AI business, which former Meta executive Jay Parikh runs. Before arriving at Instacart in 2021 and serving as operating chief, Sharma spent four years as a vice president of product and engineering at Meta and two years in marketing at Microsoft.

“We will recommit to our core Xbox fans and players, those who have invested with us for the past 25 years, and to the developers who build the expansive universes and experiences that are embraced by players across the world,” Sharma wrote in a message to Microsoft’s gaming employees.

She has worked on artificial intelligence products such as the Foundry for incorporating AI models into third-party applications.

“As monetization and AI evolve and influence this future, we will not chase short-term efficiency or flood our ecosystem with soulless AI slop,” Sharma wrote. “Games are and always will be art, crafted by humans, and created with the most innovative technology provided by us.” 

Sharma said Microsoft will renew its commitment to console gaming. Microsoft’s original Xbox came out in 2001.

Matt Booty, head of Microsoft’s gaming studios, will report to Sharma as executive vice president and chief content officer.

“Together, Asha and Matt have the right combination of consumer product leadership and gaming depth to push our platform innovation and content pipeline forward,” Nadella wrote.

Sarah Bond, president and operating chief of the Xbox unit, will leave Microsoft, Nadella said.

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