Microsoft announced Monday it is laying off 4,800 employees, or 2.1% of its global workforce, in a sweeping cost-cutting restructuring that hits its Xbox division particularly hard. The cuts include 1,600 positions eliminated immediately from the gaming unit, with an additional 1,600 expected over the next fiscal year as the company describes a fundamental “reset” of the Xbox business.
In an internal memo, Xbox CEO Asha Sharma said the division would cut a total of 3,200 roles — roughly 20% of its staff — throughout fiscal 2027. Four game studios acquired by Microsoft — Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs — are being spun off to operate independently. The reductions come alongside a broader pivot toward artificial intelligence, even as the company’s chief people officer, Amy Coleman, told employees that “the roles eliminated today are not being replaced by AI.”
“Our business today is not healthy,” Sharma wrote. “We are operating at margins that are 3-10x lower than comparable platform and publishing businesses.” She pointed to a severe “hardware crisis” as console component costs surge, intensifying the competitive pressure from Sony’s PlayStation and Nintendo’s Switch.
The layoffs mark the latest in a series of workforce reductions for the software giant, following 9,000 job cuts last year. While Microsoft’s cloud and AI businesses have posted strong growth, its gaming segment has lagged, prompting the company to reassess its strategy in a sector where hardware margins remain razor-thin and development costs continue to climb.
The shakeup signals a broader recalibration among Big Tech firms that poured heavily into gaming acquisitions but now face pressure to show profits. For Microsoft, the decision to shed studios it acquired in recent years — and to shrink a division once seen as central to its consumer ecosystem — suggests even deep-pocketed players are rethinking their gaming bets in an era defined by AI investment.
Sharma, who took over the gaming division earlier this year, declined to specify future product plans but said the company is “resetting Xbox” to focus on fewer, higher-impact projects. The moves also underscore how even the most aggressive acquisition strategies can be reversed when market realities shift.