Microsoft is laying off 4,800 employees, which is about 2.1% of its total workforce. Most of the job cuts are happening in Microsoft’s Xbox gaming division and its commercial sales business, Inside Xbox, the company is starting what it calls “the most significant restructure in XBOX history,” according to Xbox CEO Asha Sharma’s official statement.
Xbox plans to cut around 3,200 jobs during fiscal year 2027 (FY27). Out of those 3,200 jobs, around 1,600 employees are losing their roles immediately, while the remaining cuts will happen over the rest of FY27, according to the company’s official statement.
XBOX LAYOFFS
These Xbox layoffs are separate from Microsoft’s company-wide 4,800 immediate job cuts, meaning another 1,600 Xbox employees will leave later during FY27. Overall, about 20% of Xbox employees are expected to leave because of the restructuring. Asha Sharma, the Executive Vice President and CEO of Microsoft Gaming, admitted that spreading layoffs over a year will be difficult for employees.
“I recognize that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessary changes in a single day”, said Asha Sharma. Sharma said the layoffs are not because employees lacked talent or worked poorly. “Today’s decisions do not reflect their talent or dedication”, she added.
According to Sharma, the real problem is that Xbox’s business is not financially healthy. She said Xbox is operating with profit margins that are 3 to 10 times lower than similar gaming platforms and publishing companies. Xbox entered the current gaming generation with fewer console users and higher operating costs. The company invested heavily in Game Pass, multi-platform gaming and a bigger game portfolio, hoping these businesses would grow faster, according to Xbox’s official statement.
Sharma said those businesses created value but did not grow as quickly as Xbox expected. Instead of improving, Xbox’s main gaming business became weaker, even after adding more employees, spending more money and giving projects more time. The gaming industry is facing “the most severe hardware crisis in its history,” making it necessary to completely reset Xbox. Because of these problems, Xbox says it must “reset” the business, according to the official statement.
RESETTING XBOX’S GAME STUDIOS
Xbox says it has bought many game studios since 2018, but the number of games released across the gaming industry has grown much faster. The company said it is not possible or necessary to own every successful independent game studio. Sharma also admitted Xbox is not the best home for every type of game studio. She revealed that, on average, Xbox lost 64 cents for every dollar it invested in some studios.
Also read: Why are companies still laying off workers despite strong profits? AI, cost cutting and automation explained
Xbox says it now wants to support more independent developers instead of trying to own them. As part of the restructuring, Compulsion Games and Double Fine Productions will leave Microsoft and become independent studios again. Both studios will keep their intellectual property (IP), game catalogues and funding for their next games. Ninja Theory and Undead Labs are also leaving Xbox ownership and moving to new owners. The new owners will provide funding so that Senua and State of Decay 3 can continue development
In France, Arkane Studios has started discussions with its Works Council to review possible future options for the studio. Xbox also confirmed that there will be staff cuts across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios. However, Xbox said none of its publicly announced first-party games have been cancelled because of these layoffs.
CHANGES INSIDE XBOX
Xbox is also changing how the company is managed because it believes the organization has become too large and too complicated. Sharma said that in some parts of Xbox, work currently passes through as many as 14 layers of management. She also said platform teams have grown 40% bigger, even though player numbers and gaming time have gone down.
This extra complexity has slowed decision-making and reduced accountability. Xbox plans to reduce management levels to no more than five, and ideally three. The company also plans to simplify its technology, share more services across teams and cut vendor spending by 50%.
LEADERSHIP CHANGES
Xbox is creating a Chief Operating Officer (COO) role for the first time. Helen Chiang has been promoted to this position and will oversee Xbox’s content, hardware, platform and services, according to Xbox’s official statement.
Sharma said Helen Chiang helped build important Xbox businesses such as Xbox Live and later led Mojang and the Minecraft franchise. Long-time Xbox executive Dave McCarthy is retiring after 17 years with the company.
MICROSOFT’S VIEW ON AI
Microsoft says these layoffs are happening during a period when AI is changing the technology industry, according to Amy Coleman, Microsoft’s Chief People Officer, reported by CNBC.
Coleman said,”The way technology is built, deployed, and used is transforming faster than at any point in my time here.” However, she stressed that AI is not directly replacing the employees who are losing their jobs. “I also want to be direct that the roles eliminated today are not being replaced by AI.” At the same time, she said AI is changing how employees work. “At the same time, what is true is that AI is changing how work gets done.”
She added, “Some of the tasks we do every day can now be automated, and that means we all need to keep learning, keep building new skills, and keep adapting as the work evolves.”
MICROSOFT PERFORMANCE
Microsoft has been the worst-performing megacap technology stock in 2026, with its shares down 19% as of Friday’s close. Investors are worried that generative AI could reduce demand for traditional enterprise software, while Microsoft’s own AI products have not yet become major commercial successes, according to CNBC.
Although Microsoft’s cloud business and LinkedIn have continued growing, other businesses such as Windows licenses, Surface devices and Xbox have been struggling. Microsoft had already laid off about 9,000 employees last year, and these latest cuts are another major round of job reductions, according to The Verge.
WHAT MICROSOFT SAYS ABOUT THE FUTURE
The restructuring is meant to create “a bigger future for XBOX, not a smaller one”. Microsoft will continue investing heavily in Xbox but with greater focus, discipline and clarity. Sharma’s goal is for Xbox to become one of the few companies that entertains more than one billion people every day. “We will return to growth in 2027”, she added.
Sharma ended the message by warning that long-standing companies cannot assume they will always succeed. “History is full of companies that mistake longevity for inevitability. We will not be one of them”, Sharma added.
