Microsoft Cuts 4,800 Jobs as Xbox Loses One-Fifth of Staff and Spins Off Four Gaming Studios

Microsoft is eliminating 4,800 positions — representing 2.1% of its global workforce — with its Xbox gaming division bearing the deepest cuts, losing roughly one-fifth of its staff as the company continues to restructure costs in the era of artificial intelligence.

Xbox CEO Asha Sharma told division employees Monday that the unit would cut 3,200 roles through fiscal year 2027. Of those, 1,600 positions are being eliminated immediately, with the remaining 1,600 departures coming on top of the companywide total, according to Sharma's email.

"I recognize that a year-long restructuring creates additional challenges," Sharma wrote. "Unfortunately, it is not possible to make all the necessary changes in a single day."

As part of the restructuring, four gaming studios will be spun out of Microsoft. Compulsion Games and Double Fine Productions — both acquired in the 2010s — will return to independent status, Sharma said. Ninja Theory and Undead Labs, which joined Microsoft in 2018, "have entered terms to join new ownership." France-based Arkane Studios, which arrived through the $8.1 billion ZeniMax Media acquisition in 2021, is consulting with its works council on strategic options.

Amy Coleman, Microsoft's chief people officer and a 27-year company veteran, addressed the broader workforce in a memo Monday, framing the reductions as part of the company's adaptation to shifting technology demands.

"The way technology is built, deployed, and used is transforming faster than at any point in my time here," Coleman wrote.

Coleman pushed back on the notion that AI is directly displacing affected workers, while acknowledging its growing role in how tasks are performed. "Some of the tasks we do every day can now be automated, and that means we all need to keep learning, keep building new skills, and keep adapting as the work evolves," she wrote.

The cuts also affect the company's commercial sales organization, with reductions planned across the unit that handles direct customer sales.

Monday's action follows a voluntary retirement program Microsoft introduced in April — the first in company history — targeting U.S. employees at the senior director level and below. More than one-third of eligible employees accepted the offer, Coleman said, adding that the company "will continue exploring similar approaches in the future."

The restructuring comes as Microsoft has lagged behind its megacap peers on the stock market, falling 19% year-to-date as of Friday's close. Investors have grown concerned that generative AI models could displace enterprise software broadly, while Microsoft's own AI products and services have yet to achieve substantial commercial traction, analysts say.

Xbox revenue has been among the weakest segments, alongside Windows operating system licenses and Surface devices. Sharma offered a note of forward guidance in her message: "We will return to growth in 2027."

Last year, Microsoft conducted several rounds of layoffs, including one that eliminated 9,000 jobs. Monday's announcement underscores the pace at which the company is reorienting its business, signaling that the gaming unit — long a lower-margin operation within a software-first enterprise — faces the most acute pressure to rationalize its cost structure as Microsoft sharpens its focus on cloud and AI.

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