REDMOND, Washington: Microsoft announced that Phil Spencer is retiring after 38 years at the company, stepping down as head of its gaming division in a significant leadership transition.

The software giant named company veteran Asha Sharma as executive vice president and CEO of Microsoft Gaming. Sharma most recently led product development for AI models and services at Microsoft.

In a statement, Sharma said she plans to refocus the business on the Xbox console and its core audience, aiming to "recommit to our core Xbox fans and players."

The gaming division has faced mounting challenges, including tariff-related cost pressures, strong competition, and cautious consumer spending. Microsoft has raised prices on Xbox hardware, and last month reported a roughly 9.5 percent decline in gaming revenue for the December quarter, along with undisclosed impairment charges in the unit.

Microsoft significantly expanded its gaming footprint in 2023 with the US$69 billion acquisition of Activision Blizzard, maker of the "Call of Duty" franchise, after prolonged regulatory scrutiny. Even so, the company continues to compete intensely with Sony's PlayStation in the console market share and exclusive game offerings.

Spencer will remain in an advisory capacity through the summer to help ensure a smooth transition.

"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 said.

The company also announced that Sarah Bond, president and chief operating officer at Xbox, is leaving "to begin a new chapter."

Matt Booty has been appointed executive vice president and chief content officer for the gaming division. Booty previously served as president of game content and studios at Microsoft, according to his LinkedIn profile. He will report to Sharma.

Sharma brings experience from previous roles at Meta and online grocery delivery firm Instacart.

Analysts said the leadership shift comes at a pivotal time for the industry.

"Microsoft's leadership transition is appropriate as it comes at a time when the technology underlying gaming is shifting. As AI becomes a bigger element in game development, Microsoft needs a new generation of leaders to manage through this transition," said D.A. Davidson analyst Gil Luria.