Microsoft cuts 4,800 jobs and overhauls Xbox, divesting four studios

Microsoft announces 4,800 job cuts

Microsoft is eliminating approximately 4,800 positions, or 2.1% of its global workforce, at the start of its new fiscal year. The move follows a previous round of layoffs that saw between 9,100 and 15,000 employees depart last year, depending on the source. The cuts are concentrated in commercial sales and the gaming division, with the company citing rapid market changes and the need to realign resources.

Xbox faces its largest restructuring

The gaming division will lose 3,200 jobs over the coming fiscal year, with 1,600 eliminated immediately and another 1,600 planned over the next 12 months. Xbox CEO Asha Sharma, appointed in February, described the business as "not healthy" and said margins are 3 to 10 times lower than comparable platforms. "We must reset XBOX," she wrote in a memo to employees.

Our business today is not healthy. We are operating at margins that are 3-10x lower than comparable platform and publishing businesses.

The restructuring also includes reducing management layers and cutting vendor payments by 50%. Sharma acknowledged that previous bets on the Game Pass subscription service and an aggressive acquisition strategy "did not grow at the pace we expected."

Four studios divested, a fifth under review

As part of the overhaul, Microsoft is divesting four game development studios: Compulsion Games (Montreal), Double Fine Productions (California), Ninja Theory (UK), and Undead Labs (US). A fifth studio, France-based Arkane, is undergoing a strategic review. Sharma said it is "neither possible nor desirable to own every great independent studio," noting that Xbox lost 64 cents for every dollar invested in a typical year.

It is neither possible nor desirable to own every great independent studio. We have also learned that we are not the best home for every type of studio; in a typical year, we lost 64 cents for every dollar we invested.

AI spending and industry pressure

The layoffs come as Microsoft projects to spend $190 billion in 2026, a 61% jump over the previous year, much of it on AI infrastructure. Chief people officer Amy Coleman said the eliminated roles are not being replaced by AI, but acknowledged that "AI is changing how work gets done." Xbox will also raise console prices, following competitors Sony and Nintendo, due to a component-cost surge fueled by AI.

The roles eliminated today are not being replaced by AI. At the same time, what is true is that AI is changing how work gets done.

Impact on workers and the Puget Sound region

A notice filed with Washington state shows 605 jobs will be permanently eliminated in the state, including 493 in Redmond, effective September 4. The company has offered a voluntary retirement program in the U.S. with incentives such as extended health coverage and partial stock vesting; over 30% of eligible employees enrolled. Additionally, more than 4,000 workers were relocated internally over the past year to limit forced layoffs. The cuts also affect the Elder Scrolls Online development team, where up to half the team could be impacted, according to Kotaku.