Microsoft announced Monday that it is eliminating approximately 4,800 jobs—roughly two percent of its global workforce—as part of an aggressive cost-cutting strategy and a sweeping restructuring of its struggling Xbox gaming division. The mass layoffs mark the tech giant’s latest effort to free up capital as it pours tens of billions of dollars into AI-ready data centers and computing infrastructure to maintain its edge in the artificial intelligence race.
In an internal memo to staff, Amy Coleman, Microsoft’s executive vice president, framed the decision around an evolving market. “Our business is changing because the world around it is changing,” Coleman wrote. “Companies don’t get to choose whether their industry changes; they only get to choose whether they change with it.”
Coleman noted that the workforce reductions fell primarily within Microsoft’s commercial business and its gaming sector. While she clarified that the eliminated positions were “not being replaced by AI,” she acknowledged that automation is heavily reshaping operations across the entire company. On the commercial side, the job cuts build upon Microsoft’s recently announced $2.5 billion initiative to imbed 6,000 engineers within corporate clients to accelerate AI adoption among hesitant enterprise customers.
The most severe changes are occurring at Xbox, which is undergoing the deepest overhaul in its history. The gaming division will shed 3,200 roles over the coming fiscal year, with 1,600 positions cut immediately and the remainder rolling out through fiscal year 2027. Xbox has faced successive rounds of downsizing since Microsoft finalized its tumultuous $68.7 billion acquisition of Activision Blizzard in 2024 following extensive regulatory scrutiny.
Xbox CEO Asha Sharma, who succeeded longtime division chief Phil Spencer following his retirement in February, described the current business model as “not healthy” and revealed that profit margins are three to ten times lower than those of Xbox’s industry rivals. In a separate memo to employees, Sharma pledged to return the division to growth by 2027, warning that “history is full of companies that mistake longevity for inevitability. We will not be one of them.”
As part of the gaming contraction, Microsoft is offloading four prominent development studios and placing a fifth under review. Compulsion Games and Double Fine Productions will spin off to become fully independent entities, retaining their intellectual property and existing game catalogs. Meanwhile, Ninja Theory and Undead Labs have entered terms to be sold to new owners, with funding secured to continue their active projects. In France, Arkane’s management has initiated mandatory consultations with its local Works Council to evaluate “potential strategic options,” a legal process that Sharma indicated could ultimately result in a sale or the studio’s closure.