Undead Labs, the studio behind the State of Decay franchise, has reportedly become the latest Xbox first-party developer facing an uncertain future amid Microsoft’s ongoing restructuring.
A new report claims Microsoft is actively looking for a buyer for the studio, with closure remaining a possibility if no acquisition takes place.
Undead Labs Reportedly Facing an Uncertain Future
According to a report from GamesBeat, Microsoft is attempting to find a buyer for Undead Labs as part of its wider restructuring of Xbox Game Studios.
If a sale cannot be secured, the report claims the studio could be shut down, potentially affecting around 110 employees.
Microsoft has not publicly commented on the report, and no official decision regarding the studio’s future has been announced.
What Happens to State of Decay 3?
The biggest question surrounding the report is the future of State of Decay 3.
The survival horror sequel was originally announced during the Xbox Games Showcase 2020, but remained largely absent for several years before finally receiving its first gameplay trailer during the 2026 Xbox Games Showcase.
According to Microsoft’s current plans, State of Decay 3 is still scheduled to launch in 2027 for:
- Xbox Series X|S
- PlayStation 5
- PC
If the GamesBeat report proves accurate, it’s currently unclear whether development would continue under new ownership or another Xbox studio.
Another Xbox Studio Under Pressure
Undead Labs joins a growing list of Xbox-owned studios that have recently been linked to restructuring reports.
Over the past several weeks, industry insiders have claimed that studios including:
- Compulsion Games
- Ninja Theory
- Double Fine
have all faced varying levels of uncertainty as Microsoft continues reviewing its first-party portfolio.
Microsoft has yet to officially confirm any of these reports.
Xbox Layoffs Still Unconfirmed
While multiple reports suggest Microsoft is preparing significant workforce reductions following the end of its fiscal year, the company has not announced the size or scope of the reported layoffs.
Industry insiders believe hundreds of employees across Xbox’s publishing, support, and development teams could ultimately be affected, but official details remain unavailable.
Until Microsoft provides a formal statement, the future of Undead Labs and several other Xbox studios remains uncertain.
