Microsoft cuts 4,800 jobs and overhauls Xbox division to reduce costs

Microsoft cuts 4,800 jobs and overhauls Xbox division to reduce costs

Microsoft announced the elimination of some 4,800 roles on Monday, July 6, 2026, as part of a broader reorganization to address a shifting technology landscape and a struggling gaming division. The cuts represent approximately 2.1 percent of the company's global workforce.

According to Amy Coleman, Microsoft's chief people officer, the layoffs are necessary because the business of technology is changing. In a letter to employees, Coleman stated that the way technology is built, deployed, and used is transforming faster than at any point in my time here.

The workforce reductions follow a voluntary buyout program launched in May that was offered to 8,750 people. Coleman noted that more than 30 percent of eligible employees accepted those retirement offers.

Xbox restructuring and studio spin-offs

The Xbox division will be among the hardest hit. Asha Sharma, the Xbox CEO who took over the role in February following the retirement of Phil Spencer, described the division's business as not healthy. Sharma cited a hardware crisis across the industry, with soaring costs for console components and profit margins that are 3-10x lower than comparable publishing and platform businesses.

The restructuring will result in a total headcount reduction of 3,200 people during the 2027 fiscal year, which began on July 1. Of that total, 1,600 staff members were cut on July 6, with another 1,600 set to be eliminated during the current financial year.

As part of this effort to reduce costs and reset the business, Microsoft is parting with four game studios it had previously acquired. The studios are being separated as Sharma admitted that buying every promising independent studio is neither possible nor desirable.

• Compulsion Games and Double Fine Productions: Transitioning to full independence.
• Ninja Theory and Undead Labs: Have entered terms to join new ownership.

All intellectual properties and upcoming games associated with these studios will leave Microsoft. Additionally, other studios including Activision, Blizzard, King, Mojang, Bethesda/ZeniMax, and Xbox's own internal studio are trimming staff and shifting focus toward higher-priority projects. The restructuring also includes reducing management layers and the appointment of the division's first-ever chief operating officer.

AI and commercial strategy

While Coleman acknowledged that AI is changing how work is performed and that some daily tasks can now be automated, she was direct in stating that the roles eliminated on July 6 are not being replaced by AI.

The layoffs also heavily impacted the Microsoft Commercial Business (MCB), which covers operations, marketing, and sales. These cuts build on a previous announcement regarding the creation of the Microsoft Frontier Company, a new MCB subsidiary designed to help customers deploy AI and realize returns on their investments.

The corporate shakeup occurs as Microsoft's stock price has fallen by nearly a quarter over the last 12 months. In response to the component-cost surge fueled by AI, Microsoft will also raise the prices of Xbox consoles, following a similar path taken by competitors Nintendo and Sony.

Sharma has promised to return the Xbox brand to growth by 2027, warning employees that the company will not be one of those that mistake longevity for inevitability.