Microsoft has reduced its workforce by approximately 4,800 employees, which accounts for about 2.1% of its global staff. The hardest hit was the Xbox division, which lost 1,600 positions. The company described this as the most significant restructuring in the history of the gaming division.
The announcement came through two memos shared with staff. Amy Coleman, Microsoft’s EVP and Chief People Officer, told employees that the company’s business is changing because the world around it is changing.
“The way technology is built, deployed, and used is transforming faster than at any point in my time here,” she wrote, adding that Microsoft must shift how it operates to stay relevant. Coleman stressed that the roles being eliminated “are not being replaced by AI,” but acknowledged that AI is changing how work gets done and that some tasks that employees perform daily can now be automated.
Asha Sharma, the CEO of Xbox, was more direct. In her memo to Xbox staff, she said plainly: “Our business today is not healthy.” She noted that Xbox is operating at margins that are three to ten times lower than comparable platform and publishing businesses, and that strategies including Game Pass and a wider content portfolio did not grow at the expected pace.
“As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome,” she wrote. “And now the industry is facing the most severe hardware crisis in its history. We must reset Xbox.”
What the Microsoft restructuring is actually changing at Xbox
The restructuring involves more than just job cuts. Sharma announced that Xbox will reduce its management layers from as many as 14 to a maximum of five, ideally having just three layers.
Additionally, four game studios will be leaving Xbox: Compulsion Games and Double Fine Productions will regain their independence along with their intellectual property, while Ninja Theory and Undead Labs have agreed to new ownership arrangements, securing funding to complete their respective projects, State of Decay 3 and Senua’s Saga: Hellblade II.
Mojang and King, the companies behind Minecraft and Candy Crush, will now report directly to Sharma. She described them as platforms rather than studios, noting they bring the largest monthly active player numbers in the Xbox ecosystem. Helen Chiang has been promoted to Chief Operating Officer with full profit and loss authority across content, hardware, platform, and services, the first time Xbox has created such a role.
The total number of Xbox role eliminations is expected to reach approximately 3,200 through fiscal year 2027, with 1,600 of those taking effect today. The remaining 1,600 cuts beyond Xbox bring Microsoft’s total for the day to 4,800.
These layoffs are part of a broader wave sweeping the technology industry. Close to 154,000 tech workers lost their jobs in the first half of 2026 alone, with Meta, Oracle, Amazon, and Cognizant among the companies cutting staff.
The pattern is consistent: job cuts are correlating directly with increased spending on artificial intelligence infrastructure. Microsoft recently launched its Frontier Company business unit, focused on enterprise AI deployments, backed by a $2.5 billion investment, announced around the same period as these cuts.
Microsoft said it has redeployed more than 4,000 employees into new roles over the past year and is continuing to work on re-skilling programmes for affected staff.
Read also: Meta to reassign 7,000 employees to new AI roles after 8,000 job cuts
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