Microsoft to Cut 4,800 Jobs as Major Xbox Restructuring Begins

Microsoft has announced plans to eliminate around 4,800 jobs, representing nearly 2% of its global workforce, as part of a broader cost-cutting strategy that includes a major restructuring of its Xbox gaming division.

The company said approximately 3,200 of the job cuts will affect its gaming business over the next fiscal year, marking the largest shake-up in Xbox’s history. As part of the overhaul, four game studios will either be sold or separated from Xbox, while a fifth studio is under strategic review and could face closure.

The latest layoffs come as Microsoft continues investing heavily in artificial intelligence, committing tens of billions of dollars to AI infrastructure, including advanced data centres and high-performance computing, while seeking to streamline costs across other parts of the business.

In a company-wide memo, Executive Vice President Amy Coleman said the organisation is adapting to rapid industry changes.

“Our business is evolving because the world around us is evolving,” Coleman wrote, adding that companies must adapt to changing market conditions rather than resist them.

She said most of the affected positions are within Microsoft’s commercial operations and Xbox. Although she stressed the eliminated jobs are not being directly replaced by AI, she acknowledged that automation is changing how work is carried out across the company.

Coleman also highlighted Microsoft’s recently announced $2.5 billion initiative to place 6,000 engineers within enterprise customer organisations to accelerate AI adoption and support businesses integrating artificial intelligence into their operations.

Meanwhile, Xbox CEO Asha Sharma informed employees that 1,600 positions will be eliminated immediately, with additional reductions taking place gradually through fiscal year 2027.

Xbox has faced multiple rounds of layoffs since Microsoft’s $68.7 billion acquisition of Activision Blizzard was completed in 2024 following lengthy regulatory approval.

Sharma described Xbox as a business facing significant financial challenges, noting that its profit margins remain between three and ten times lower than those of key competitors. After succeeding longtime Xbox chief Phil Spencer earlier this year, she has pledged to restore the division’s growth by 2027.

“History is full of companies that mistake longevity for inevitability,” Sharma wrote. “We will not be one of them.”

As part of the restructuring, Compulsion Games and Double Fine Productions will become independent studios while retaining ownership of their intellectual property and existing game portfolios.

Ninja Theory and Undead Labs are expected to join new owners who will provide funding to continue developing their current projects.

In France, Arkane Studios has begun the legally required consultation process with its Works Council to examine strategic options, including a possible sale or closure, as Microsoft continues reshaping its gaming business.