Microsoft cuts 2.1% of its workforce as Xbox unit plans to create studios

Microsoft is cutting 4,800 jobs, representing 2.1% of its workforce, as the company’s Xbox division loses about a fifth of its workforce in the software giant’s latest effort to cut costs in the age of artificial intelligence.

“The way technology is built, deployed and used is transforming faster than ever since I arrived here,” Amy Coleman, Microsoft’s chief human resources officer and 27-year company veteran, wrote in a statement. message to employees on Monday.

Xbox will cut 3,200 positions through fiscal 2027, Xbox CEO Asha Sharma wrote in a statement. e-mail to employees of the division, specifying that 1,600 positions would be eliminated on Monday. The other 1,600 leavers add to the total of 4,800 immediate departures company-wide.

“I recognize that a year-long restructuring creates additional challenges,” Sharma wrote. “Unfortunately, it is not possible to make all the necessary changes in a single day.”

The cuts amount to 20% of Xbox employee departures, according to a person familiar with the matter, who asked not to be named in order to discuss internal changes.

“We will return to growth in 2027,” Sharma wrote.

Microsoft has been the worst performer among large-cap technology stocks so far in 2026, down 19% as of Friday’s close, as investors worry that generative AI models will replace large swathes of enterprise software, while Microsoft’s AI models and services have yet to become big hits. Last year, Microsoft carried out several rounds of layoffs, including one that eliminated 9,000 jobs.

While Microsoft has seen accelerated growth in cloud services and LinkedIn in recent quarters, it has lagged in other areas, such as Windows operating system licensing, Surface devices and the Xbox gaming unit, where revenue has declined.

Under the changes announced Monday, four game studios will be spun off from Microsoft, Coleman said. Business activities focused on selling to customers will also see reductions.

Studios Compulsion Games and Double Fine Productions, acquired by Microsoft in the 2010s, will become independent again, Sharma said in his note. Ninja Theory and Undead Labs, which joined Microsoft in 2018, “have entered into terms to join new ownership.”

French company Arkane Studios, which came to Microsoft via the $8.1 billion acquisition of ZeniMax Media in 2021, is in contact with its works council regarding strategic options, Sharma wrote.

In April, Microsoft introduced a unique voluntary retirement program, a first for the company. The effort targeted U.S. employees at the senior manager level and below. More than a third of eligible employees accepted the offer and the company “will continue to explore similar approaches in the future,” Coleman wrote.

“Decisions like these are never easy, and you have my commitment that we will constantly look for ways to reduce the need for job cuts,” Coleman wrote.

Although much of Wall Street’s concerns about Microsoft relate to the company’s position in AI and CEO Satya Nadella’s failure to develop a coherent strategy for its approach to developing models, agents and other services, AI is not a replacement for laid-off workers, Coleman wrote.

“At the same time, what is true is that AI is changing the way work gets done,” she writes. “Some of the tasks we do every day can now be automated, which means we all need to keep learning, keep developing new skills and keep adapting as work evolves. Our customers are going through this same change and they are counting on us to help them through it. We cannot achieve this if we do not do it ourselves. »

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