The 'Ambitions' star's debut album Wide Awake reached number three in the charts upon release last October, but Syco is allegedly disappointed with the sales.
McElderry's record deal officially expires next month. However, a source at Syco told New! magazine that the company is not planning to renew it.
The X Factor winner previously confessed that he is not worried about the future of his music career.
The 19-year-old singer also teased that he is "very excited" about an upcoming project.
Watch the music video for Joe McElderry's single 'Someone Wake Me Up' below: