Microsoft slashes nearly 5,000 positions as part of Xbox restructuring effort

Microsoft announced on Monday that it would be cutting approximately 4,800 jobs, which accounts for roughly two percent of its global workforce, as part of a major cost-cutting effort that will significantly restructure its struggling Xbox gaming division.

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The company revealed that the Xbox division would undergo its most extensive overhaul in history, with around 3,200 gaming jobs expected to be eliminated over the coming fiscal year, in addition to four game studios being spun off or sold, and a fifth studio facing a review process that could potentially lead to closure.

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The latest round of layoffs is part of a series of mass job cuts by the technology giant as it invests heavily in the artificial intelligence race, with companies pouring tens of billions of dollars into AI-ready data centers and computing power.

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Amy Coleman, Microsoft's executive vice president, stated in a memo to all employees that the company's business is evolving in response to changing global circumstances, and that companies must adapt to these changes in order to remain relevant.

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Coleman noted that companies do not have the option to choose whether their industry undergoes change, but rather whether they choose to change alongside it, and that the layoffs primarily affected Microsoft's commercial business and Xbox division.

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She clarified that the eliminated roles would not be replaced by artificial intelligence, but acknowledged that automation is transforming the way work is done across the company, with significant implications for various sectors.

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On the commercial side, Coleman explained that the cuts would build on Microsoft's recent $2.5 billion initiative to embed 6,000 engineers within enterprise clients to accelerate AI adoption among often hesitant customers.

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Xbox CEO Asha Sharma informed employees in a separate memo that 1,600 positions would be cut immediately, with the remaining job cuts to be implemented throughout fiscal year 2027.

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Xbox has undergone successive rounds of cuts since Microsoft's $68.7 billion acquisition of Activision Blizzard was finalized in 2024, following an extended review process by regulators due to competition concerns.

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Sharma described Xbox's current business as "not healthy," with profit margins significantly lower than those of its competitors, ranging from 3-10 times lower.

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Sharma, who succeeded longtime Xbox chief Phil Spencer after his retirement in February, has pledged to return the division to growth by 2027, emphasizing the need for the company to adapt and evolve in order to remain competitive.

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She cautioned that companies should not assume their longevity guarantees their success, stating that "history is full of companies that mistake longevity for inevitability," and affirmed that Xbox would not fall into this category.

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As part of the restructuring, four studios will be leaving Xbox, with Compulsion Games and Double Fine Productions set to become independent, retaining their intellectual property and game catalogs.

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Ninja Theory and Undead Labs have entered agreements to join new owners, who will provide funding to continue their current projects, while Arkane's management in France is initiating a required consultation with its Works Council to review potential strategic options.