Microsoft Cuts 4,800 Jobs as Xbox Unit Undergoes Major Restructuring

Microsoft is eliminating 4,800 positions, representing approximately 2.1% of its global workforce, as the software giant navigates a broader shift toward artificial intelligence (AI) and seeks to stabilize underperforming hardware and gaming segments, CNBC reported Monday (July 6).

The restructuring hits the company’s Xbox division particularly hard. According to an internal memo from Xbox CEO Asha Sharma, the unit will shed 3,200 roles through fiscal year 2027. Half of those reductions—1,600 positions—were finalized Monday, accounting for roughly one-fifth of the division’s total staff. Sharma characterized the multi-year downsizing as a difficult but necessary step, stating that it is “not possible to make all the necessary changes in a single day.”

As part of the consolidation, Microsoft is spinning off several game development studios. Compulsion Games and Double Fine Productions, both acquired in the 2010s, will return to independent status. Ninja Theory and Undead Labs have reportedly entered terms to join new ownership, while Microsoft is exploring “strategic options” for France-based Arkane Studios.

The workforce reductions come amid a period of market volatility for Microsoft. The company has been the worst-performing megacap tech stock in 2026, declining 19% as of Friday’s (July 3) close. While cloud services and LinkedIn have shown growth, the company is grappling with shrinking revenue in Windows licenses, Surface devices and Xbox. Furthermore, investors remain concerned that generative AI could displace traditional enterprise software before Microsoft’s own AI services become major contributors to the bottom line.

Amy Coleman, Microsoft’s chief people officer, noted in the memo that while AI is not directly replacing laid-off workers, it is fundamentally “changing how work gets done” through the automation of daily tasks. To mitigate the impact of the cuts, Microsoft in April utilized a voluntary retirement program for U.S. employees at the senior director level and below, an offer accepted by more than one-third of those eligible, CNBC reported.

These layoffs reflect a failure of the subscription-focused model Microsoft had previously employed for its gaming division under former CEO Phil Spencer. In 2023, Xbox announced a $1 billion investment in Game Pass, its subscription service where users could enjoy unlimited games, including new releases, for a flat monthly fee. Although the program saw initial success, price hikes over the years led to millions of users unsubscribing.