Microsoft is cutting around 4,800 jobs, or 2.1% of its global workforce, in another round of layoffs that will hit Xbox and commercial sales especially hard. The cuts come as the company continues to invest heavily in AI while reshaping parts of its business around automation, cloud services and enterprise AI deployment.
The company said the eliminated roles are not being directly replaced by AI. However, Amy Coleman, Microsoft’s executive vice president and chief people officer, told employees that AI is changing how work gets done and that some everyday tasks can now be automated.
The layoffs follow Microsoft’s recent launch of Microsoft Frontier Company, a new enterprise AI deployment unit backed by a $2.5 billion investment and 6,000 industry and engineering experts. The unit is designed to help large customers deploy AI systems using Microsoft’s existing tools and infrastructure.
Xbox Faces Its Largest Restructuring
Xbox will take one of the biggest hits, with 1,600 employees cut immediately and around 3,200 roles expected to be eliminated through fiscal year 2027. Xbox chief executive Asha Sharma described the plan as the most significant restructuring in the division’s history.
In an internal memo, Sharma said the Xbox business is not healthy and is operating at margins far below comparable platform and publishing companies. She said investments in Game Pass, multiplatform releases and a larger content portfolio had not grown at the expected pace.
The restructuring will also change the future of several Xbox studios. Compulsion Games and Double Fine Productions are expected to return to independent studio status, while Ninja Theory and Undead Labs will move under new ownership with funding to continue selected projects.
Xbox is also flattening its management structure. The division plans to reduce 14 management layers to no more than five, with an internal goal of moving closer to three.
Microsoft Links Cuts to Changing Work
Coleman said Microsoft’s business is changing because customer needs, business models and technology are changing. She said the company must shift resources and roles to focus on areas with the greatest customer impact.
The company is trying to reduce the number of employees leaving through redeployment. Coleman said Microsoft has moved more than 4,000 workers into new roles over the past year, including another 500 this month.
Still, the cuts add to wider concerns that AI spending is rising while tech jobs shrink. Microsoft is not alone, with Meta, Amazon, Oracle and other major technology companies also reducing headcount this year.
For Xbox, the reset is tied to broader pressure across the gaming industry. Hardware costs remain high, subscription growth has slowed, and game development budgets have become harder to justify unless titles can produce platform-scale returns.
Microsoft said it will focus Xbox around stronger business pillars, including major franchises and studios such as Mojang and King. The company is betting that a leaner structure can help the division return to more sustainable growth.
Featured image credits: Wikimedia Commons
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