Microsoft cuts 4,800 jobs, as Xbox unit downsizes and plans to spin off four gaming studios

In a significant restructuring move, Microsoft has announced the elimination of 4,800 jobs, which accounts for 2.1% of its total workforce. This decision comes as the company’s Xbox division prepares to downsize, shedding approximately one-fifth of its staff as part of an effort to streamline operations amid evolving technological demands. Amy Coleman, Microsoft’s Chief People Officer, shared insights in a message to employees, indicating that the pace of technological change is unprecedented. The Xbox division is set to see a reduction of 3,200 positions by fiscal year 2027, with 1,600 roles being cut immediately. This restructuring is a continuation of Microsoft's broader strategy to reduce costs in light of the accelerating influence of artificial intelligence. CEO of Xbox, Asha Sharma, acknowledged the challenges of such extensive layoffs, emphasizing that transforming the workforce cannot be accomplished in a single day. Reports suggest that these cuts represent a staggering 20% of the Xbox team's total workforce. Sharma expressed optimism, stating, "We will return to growth in 2027." Microsoft's stock performance has been under scrutiny, having dropped 19% so far in 2026, primarily due to investor concerns regarding the potential impact of generative AI on traditional enterprise software. Despite experiencing growth in cloud services and LinkedIn, the company has struggled in several other areas, including its Windows operating system licenses, Surface devices, and the Xbox gaming unit, which have all shown declining revenue. In addition to the job cuts, Microsoft is set to spin off four gaming studios, including Compulsion Games and Double Fine Productions, which were acquired in the 2010s. Ninja Theory and Undead Labs, which joined the Microsoft family in 2018, are also transitioning to new ownership arrangements. Meanwhile, Arkane Studios is exploring strategic options following its acquisition through the $8.1 billion ZeniMax Media deal in 2021. Microsoft recently introduced a voluntary retirement program aimed at senior directors and lower ranks, with over one-third of eligible employees accepting the offer. Coleman noted that while these decisions are difficult, the company remains committed to minimizing job losses in the future. Despite concerns about AI’s role in the workforce, Coleman clarified that AI is not directly responsible for the layoffs. Instead, she emphasized the importance of adapting to changing work environments and the necessity for ongoing skill development to meet the needs of customers navigating similar shifts.