State of Decay 3 developer Undead Labs is reportedly among the Xbox-owned studios facing an uncertain future as Microsoft prepares for another major round of layoffs that could reportedly include studio closures and divestitures.
According to GamesBeat, with the report backed by Windows Central, Xbox is exploring the possibility of selling Undead Labs. If no buyer is found, the studio could be shut down and State of Decay 3 may never be released.
Undead Labs is not alone. Reports suggest that Double Fine, Compulsion Games, and Ninja Theory are also under review, with Microsoft considering either selling the studios or allowing them to operate independently. Despite State of Decay 3 being slated for a 2027 launch and planned for both Xbox and PlayStation 5, its future is now reportedly in doubt.
The game's recent appearance during the Xbox Games Showcase should not be taken as a sign that the studio is secure. Earlier reporting from Game File claimed Xbox showcased Ninja Theory's upcoming title, Senua, partly to generate interest from potential investors, indicating that public presentations may not reflect internal decisions.
The reported restructuring comes as Xbox CEO Asha Sharma pushes for sweeping changes aimed at improving the gaming division's financial performance. In an internal memo sent shortly after the Xbox Games Showcase, Sharma reportedly said the business required a "reset," noting that Microsoft had invested more than $20 billion in content, platform development and hardware subsidies over the past five years, excluding Activision Blizzard King, while annual revenue had fallen by nearly $500 million over the same period.
Xbox has struggled with several challenges in recent years. The Xbox Series X/S has lagged behind its rivals in market share, hardware sales have continued to decline, and Microsoft's aggressive acquisition strategy has yet to deliver the consistent commercial successes many expected. Even long-established studios such as Bethesda have reportedly fallen short of performance expectations.
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