microsoft is cutting 4,800 jobs, or 2.1% of its workforce, with its Xbox division losing about a fifth of its workforce in the software giant’s latest efforts to cut costs in the age of artificial intelligence.
“The way we build, deploy, and use technology is changing more rapidly than at any point in my time here,” Amy Coleman, Microsoft’s chief human resources officer and a 27-year veteran of the company, said in a message to employees Monday.
Xbox will cut 3,200 jobs by fiscal year 2027, Xbox CEO Asha Sharma said in an email to department employees Monday, with 1,600 roles being cut. The remaining 1,600 employees will retire, bringing the total company-wide to 4,800 employees with immediate effect.
“I recognize that a year-long restructuring will create additional challenges,” Sharma wrote. “Unfortunately, it is not possible to make all the necessary changes in one day.”
The cuts will mean 20% of Xbox employees will leave the company, said the people, who requested anonymity to discuss internal changes.
“We will see a return to growth in 2027,” Sharma wrote.
Microsoft has been the worst performing mega-tech stock so far in 2026, down 19% as of Friday’s close. This comes as investors worry that generative AI models could displace a wide range of enterprise software, while Microsoft’s own AI models and services have yet to become blockbusters. Last year, Microsoft made several cuts, including 9,000 layoffs.
Microsoft has posted accelerated growth in its cloud services and LinkedIn in recent quarters, but has lagged in other areas such as Windows operating system licensing, Surface devices and its Xbox gaming division, and its revenue has shrunk.
Microsoft stock price chart.
Four game studios will be spun out of Microsoft as part of the changes announced Monday, Coleman said. Commercial operations, which focus on selling to customers, will also be cut back.
Sharma said in the memo that Compulsion Games and Double Fine Productions studios, which Microsoft acquired in the 2010s, will become independent again. Ninja Theory and Undead Labs, which joined Microsoft in 2018, “have entered into terms to join the new ownership.”
France-based Arkane Studios, which joined Microsoft with its $8.1 billion acquisition of ZeniMax Media in 2021, is in contact with the works council about strategic options, Sharma wrote.
In April, Microsoft introduced the company’s first one-time voluntary retirement program. The initiative targets U.S. employees at the level of senior director and below. More than a third of eligible employees have accepted the offer, and the company “will continue to explore similar approaches in the future,” Coleman wrote.
“Decisions like these are never easy, and please understand my determination that we are always looking for ways to reduce the need for layoffs,” Coleman wrote.
While much of Wall Street’s concerns about Microsoft have to do with the company’s position in AI and CEO Satya Nadella’s failure to set out a coherent strategy for its approach to developing models, agents and other services, AI is not replacing laid-off workers, Coleman wrote.
“At the same time, it is true that AI is changing the way we work,” she wrote. “Some of the tasks we do every day can now be automated. This means we all need to keep learning, keep building new skills, and keep adapting to the evolution of work. Our customers are experiencing the same changes and are counting on us to help them navigate it. We can’t do it well if we don’t do it ourselves.”
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