Microsoft has announced the elimination of about 4,800 jobs, representing roughly two percent of its global workforce, as the technology giant intensifies cost-cutting measures while investing heavily in artificial intelligence.
The layoffs will significantly affect the company’s gaming division, with about 3,200 positions set to be cut from Xbox over the next fiscal year in what Microsoft described as its biggest restructuring of the business.
The overhaul will also see four game studios separated from Xbox operations, with some becoming independent and others moving to new owners, while a fifth studio faces a strategic review that could result in its closure.
In a memo to employees, Microsoft’s Executive Vice President, Amy Coleman, said the restructuring was necessary as the company adapts to rapid changes in the technology industry.
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“Our business is changing because the world around it is changing,” Coleman wrote, adding that companies must evolve with industry shifts to remain competitive.
She said the layoffs were concentrated in Microsoft’s commercial business and Xbox, stressing that the affected positions were not being replaced by artificial intelligence, although automation is increasingly changing how work is carried out across the company.
According to Coleman, the latest job cuts build on Microsoft’s recently announced $2.5 billion initiative to deploy about 6,000 engineers within enterprise customers to accelerate AI adoption.
Xbox Chief Executive Officer, Asha Sharma, said in a separate memo that 1,600 jobs would be cut immediately, while the remaining reductions would be implemented through fiscal year 2027.
Sharma described Xbox’s business as financially challenged, saying its profit margins were “three to 10 times lower” than those of its competitors.
She said the restructuring is aimed at returning the gaming division to sustainable growth by 2027.
The shake-up comes after Microsoft’s $68.7 billion acquisition of Activision Blizzard, which closed in 2024 following lengthy regulatory scrutiny over competition concerns.
As part of the restructuring, Compulsion Games and Double Fine Productions will become independent studios while retaining ownership of their intellectual property and game catalogues.
Meanwhile, Ninja Theory and Undead Labs are expected to join new owners with funding to continue their ongoing projects.
Microsoft also disclosed that the management of Arkane Studios in France has begun consultations with employee representatives over strategic options that could lead to the studio’s sale or closure.
The layoffs are the latest in a series of workforce reductions by Microsoft as major technology companies continue to spend billions of dollars expanding AI infrastructure and computing capacity.
