Microsoft has announced it will cut about 4,800 jobs – roughly 2% of its global workforce – in a sweeping restructuring that hits its Xbox gaming division hardest, as the company tries to balance heavy artificial intelligence spending with a “not healthy” games business.
Microsoft said around 3,200 roles tied to gaming will go over the coming fiscal year, in what it described as the deepest overhaul in Xbox’s history.
The company plans to spin off or sell four game studios, while a fifth is entering a review that could end in closure.
In internal messages, executives linked the layoffs to a wider shift in how the business works as Microsoft pours tens of billions of dollars into AI‑ready data centres and computing power.
Executive vice president Amy Coleman told employees, “Our business is changing because the world around it is changing.”
She added, “Companies don’t get to choose whether their industry changes; they only get to choose whether they change with it.”
Deep Cuts at Xbox and Commercial Units
Coleman said the cuts fall mostly within Microsoft’s commercial operations and Xbox, reflecting where the company sees the need to reshape its cost base and structure.
She insisted the eliminated roles are “not being replaced by AI,” but acknowledged that automation is already changing how work is done across the organisation.
On the commercial side, she said the changes build on a recently announced $2.5 billion push to embed 6,000 engineers inside enterprise customers to help them adopt AI tools they have often been slow or reluctant to embrace.
At Xbox, a separate memo from CEO Asha Sharma said 1,600 jobs are being cut immediately, with the rest to go in stages through fiscal year 2027.
Sharma, who took over from longtime Xbox chief Phil Spencer after his retirement in February, has pledged to return the division to growth by 2027 and has set out a diagnosis of why the business needs drastic surgery.
‘Not Healthy’ Xbox, Studios Spun Off Or Sold
Sharma wrote that Xbox’s business is “not healthy,” saying its profit margins are “3‑10 times lower” than those of rivals in the gaming industry.
She warned against complacency, saying, “History is full of companies that mistake longevity for inevitability.”
She added, “We will not be one of them.”
As part of the restructuring, four studios will leave the Xbox organisation.
Compulsion Games and Double Fine Productions are set to become independent, keeping their intellectual property and game catalogues.
Ninja Theory and Undead Labs have agreed terms to join new owners who will fund their current projects, giving them a chance to continue development outside Microsoft’s structure.
In France, Arkane has begun a mandatory consultation with its Works Council to examine “potential strategic options,” in Sharma’s words.
That review could lead to a sale, further downsizing or closure, depending on the outcome of talks between management and staff representatives.
Xbox has already faced several rounds of cuts since Microsoft completed its $68.7 billion acquisition of Activision Blizzard in 2024, after a lengthy regulatory review focused on competition concerns.
For staff and players, this latest wave of layoffs and studio changes raises questions about how Microsoft will reconcile its aggressive AI investments with the need to keep its gaming division creative, profitable and stable over the long term.
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