Undead Labs Confirms “Significant” Layoffs as State of Decay 3 Pushes to 2027

State of Decay 3 developer Undead Labs has confirmed that it carried out “significant” layoffs after becoming an independent studio, a move that comes as part of Microsoft’s broader restructuring of its gaming brands. The studio announced the departures on LinkedIn, stating that the cuts will not affect the game’s development or its scheduled 2027 release. The layoffs follow the developer’s separation from Xbox, which was made public earlier this summer as part of Microsoft’s wider reset of the brand.

According to the announcement, the studio is parting ways with a “significant number of staff,” a decision that the company framed as difficult given the talent involved. “It’s difficult to reach this moment knowing that not everyone who helped get us here gets to make the rest of the journey with us,” the statement read. The message went on to describe the departing employees as “exceptionally talented developers who have poured years into the State of Decay franchise,” noting that their contributions “remain part of Undead Labs and part of State of Decay 3, regardless of where their careers take them next.”

A Restructuring Ripple Effect

The layoffs arrive in the wake of Microsoft’s sweeping reorganization of its gaming division, which saw several teams reassess their future under the newly consolidated Xbox brand. Undead Labs chose to go independent rather than remain under the Microsoft umbrella, a path that many other Xbox teams also pursued earlier this year. However, the studio’s independence has not shielded it from the broader industry shakeup, and questions remain about the scale of the cuts and their long-term implications.

IGN reached out to the studio for clarity on how many staff members were affected and whether the departures will impact either the release or the ongoing development of State of Decay 3. The company did not provide a specific headcount, and it remains unclear whether other companies considered acquiring Undead Labs. While most of the Xbox teams at risk of closure managed to go independent, the situation is not without precedent for instability in the sector.

“Independence brings us closer to our community and lets us focus on what matters most: making the best games we can and earning the continued support of the people who choose to spend their time with us,” said Philip Holt, Studio Head of Undead Labs. “State of Decay exists because millions of players have made that choice over the years, and we’re dedicated to honoring their trust.”

Philip Holt, Studio Head of Undead Labs

Despite the personnel losses, Holt emphasized that the studio remains committed to its roadmap. “State of Decay 3 remains in active development, and these changes will not impact the game’s launch,” Holt said. “The team is continuing its work on schedule, and we remain committed to delivering the experience our community has been waiting for. We’re grateful to everyone who has contributed to the game.”

The announcement has drawn mixed reactions from the community, with many players expressing concern over the human cost of the restructuring even as they acknowledge the studio’s right to reorganize. Fans of the survival-horror franchise have long supported Undead Labs, and the departure of experienced developers raises questions about how the remaining team will carry the project forward. The studio’s decision to retain the departing staff’s work on State of Decay 3 suggests an effort to minimize disruption to the game’s pipeline, though the practical impact of losing key personnel in the final stretch before a 2027 launch remains to be seen.

Looking Ahead

State of Decay 3 remains slated for a 2027 release, and Undead Labs has publicly expressed enthusiasm about its future as an independent studio. The franchise, which has enjoyed a long-running presence in the survival-horror genre, now faces the challenge of maintaining momentum while navigating the fallout from Microsoft’s brand reset. As the studio continues its work on schedule, the coming months will be a critical test of whether Undead Labs can preserve the quality and stability that its community has come to expect.

For now, the studio stands by its commitment to the players who have followed the series for years, and the focus remains firmly on delivering the experience that State of Decay 3 promises. The industry will be watching closely to see how the remaining team handles the transition and whether the game’s development stays on track through its extended release window.