On Monday, Microsoft announced it will eliminate roughly 4,800 positions, equal to about 2.1% of its global workforce. Internal memos shared with employees show the biggest impact will be at Xbox and in commercial sales; Xbox is losing 1,600 roles today.
Company rationale
Amy Coleman, executive vice president and chief people officer at Microsoft, told staff in a memo that the company must adapt because the environment around its business is changing faster than before. She said customers' needs and the business models that serve them are shifting, and therefore the company must change what it does, where it focuses, and how it is organized:
"Companies don't get to choose whether their industry changes; they only get to choose whether they change with it. That means we will need to adjust resources and roles and shift how we operate so we can have the greatest impact for our customers."
Coleman stressed the roles eliminated "are not being replaced by AI," while acknowledging that "AI is changing how work gets done." She added that some daily tasks can now be automated, and employees must continue learning and acquiring new skills as work evolves.
Xbox restructuring and scale of cuts
Asha Sharma, CEO of Xbox, said in a Monday email that of the 4,800 cuts announced today, 1,600 will affect Xbox, and that roughly 3,200 cuts are expected in total through fiscal year 2027. Sharma described the plan as "the most significant restructure in Xbox history," and bluntly assessed the division's condition: "Our business today is not healthy. We are operating at margins that are 3–10x lower than comparable platform and publishing businesses."
She noted that prior strategic moves—such as the Game Pass subscription, expanding content portfolios, and investing in multi‑platform—did not deliver growth at the expected pace, even as the organization and investments expanded. Sharma also warned the industry is facing "the most severe hardware crisis in its history," which she said makes a reset necessary.
Studio moves, leadership changes, and focus
As part of the reorganization, Microsoft will transition four gaming studios to new management arrangements while preserving intellectual property and ongoing projects. Compulsion Games and Double Fine Productions will return to independent studio status, and Ninja Theory and Undead Labs will move to new owners with funding to complete and grow their titles.
Xbox will also sharply reduce management layers, cutting from 14 layers to no more than five—and ideally to three. Helen Chiang will be promoted to chief operating officer for Xbox with end‑to‑end profit and loss responsibility across content, hardware, platform, and services.
Strategically, Xbox plans to narrow its focus, pulling back from sprawling creative bets that do not produce platform-scale returns and concentrating on core pillars such as Mojang and King (the companies behind Minecraft and Candy Crush).
AI investment and workforce moves
The layoffs follow Microsoft's recent launch of the Frontier Company business unit, focused on delivering enterprise AI deployments with existing AI tools and a team of forward‑deployed engineers. That initiative is backed by a $2.5 billion investment. Observers have noted a pattern this year of companies cutting jobs while increasing AI spending.
In April, Microsoft offered voluntary separations to an undisclosed number of employees—some estimates put that figure at around 5,500—to reshape teams. Last year the company conducted two rounds of layoffs that affected about 15,000 employees.
Coleman said the company is working to redeploy affected staff through reskilling or placement in new roles: "Over the past year, we have redeployed more than 4,000 employees into new roles, including another 500 this month."
Broader industry context
Microsoft's reductions are part of a wider wave of tech sector job cuts; nearly 154,000 people lost jobs in the technology industry in the first half of 2026, with large firms such as Meta, Oracle, Amazon, and Cognizant among those making substantial cuts. At the same time, several companies building world models and generative AI tools—seen by many as near‑term commercial opportunities for gaming—have attracted significant funding.
Microsoft did not immediately provide additional comment after the announcement.
(This article was updated with more details about the Xbox layoffs. It was originally published July 6, 2026 at 8:08 am PT.)
