The zombie apocalypse might claim another victim, and this time it’s not a fictional one. Multiple reports this week suggest Microsoft is quietly searching for a buyer for Undead Labs, creators of State of Decay, with talks hinting that closure could be on the table if no takers emerge.
It’s important to separate fact from speculation since rumors are swirling rapidly. What we truly know about Undead Labs and State of Decay 3 paints a mixed but intriguing picture.
The Hard Facts
State of Decay 3 is very much real, having been revealed at the 2024 Xbox Games Showcase with a trailer and in-engine footage. The sequel is confirmed for PS5, Xbox Series X|S, and PC, targeting a 2027 release. Interestingly, it’s currently undergoing active playtests, with players signing up for alpha access right now.
The team at Undead Labs consists of roughly 110 people. Having ended support for State of Decay 2 in 2024 to focus fully on the sequel, the studio even re-released State of Decay 2 on Steam in mid-2025.
Undead Labs itself sits at around 110 employees. The studio wrapped up support for State of Decay 2 back in 2024 to throw everything at the sequel, and that game even got a fresh Steam release in mid-2025.
The Rumor Mill
That’s where the situation gets clouded. Reports from outlets like Windows Central claim Microsoft is looking to sell Undead Labs. If the search for a buyer fails, the studio could face closure, which would jeopardize State of Decay 3 despite it being well into production and testing.
Undead Labs isn’t thought to be the only studio on this rumored sell-off list. Names like Double Fine, Compulsion Games, and Ninja Theory are also mentioned amid what’s being called a company-wide “reset” led by new Microsoft gaming head Asha Sharma.
Further stirring the pot, 3D Realms co-founder George Broussard tweeted about seeing an alleged Xbox closure list, warning it might mark “the largest single-day layoff in gaming history.” This has fueled speculation but lacks official confirmation.
Image via Twitter
What’s Not Confirmed
Despite the chatter, Microsoft has yet to confirm or deny any plans to sell or close Undead Labs. No official word about cancelling State of Decay 3 has been released. The rumored announcement date of July 6 remains unverified, as does the full list of affected studios.
It’s also worth noting Undead Labs’ troubled history with reports of internal culture issues and staff departures in 2022, and layoffs in 2025, which may have slowed development and contributed to the current precarious position.
There’s also history here worth noting, a 2022 report flagged internal toxicity issues at Undead Labs that reportedly caused staff departures and slowed development, and a 2025 report already pointed to layoffs at the studio, though the scale was never made clear. This isn’t the first time Undead Labs has been in the headlines for the wrong reasons.
Bottom Line
For now, State of Decay 3 is alive and actively being tested, with the team aiming for a 2027 release. Whether Undead Labs will survive long enough to deliver the game is unknown, and all reports should be treated as evolving rumors until Microsoft makes an official statement.