Microsoft has announced another round of workforce reductions, confirming that 4,800 employees, or around 2.1% of its global workforce, will leave the company. The latest restructuring significantly impacts the Xbox gaming division, where approximately one-fifth of employees will be affected over the next two years. Company executives said the changes are part of a broader effort to streamline operations and prepare the business for long-term growth while adapting to rapid technological shifts, including artificial intelligence. Microsoft also confirmed plans to reorganize several gaming studios and continue restructuring across selected business units as it adjusts its operations for the future.
Xbox division sees the biggest impact
The Xbox business will experience one of the largest restructuring efforts within Microsoft. According to company leadership, around 3,200 positions will be reduced across the division through fiscal year 2027.
The first phase includes approximately 1,600 job reductions taking place immediately, while the remaining reductions will occur over the coming months. Company executives acknowledged that extending the restructuring over a longer period may create uncertainty for employees but said the phased approach is necessary to complete the transition.
Microsoft expects the Xbox business to return to growth in 2027 following the restructuring.
Microsoft says technology is changing rapidly
In a message to employees, Microsoft’s leadership said the pace of technological change has accelerated significantly, making it necessary for the company to adapt.
Executives explained that the way technology is developed, deployed and used is evolving faster than ever before. As a result, Microsoft is adjusting its workforce, business priorities and organizational structure to remain competitive.
The company emphasized that these decisions are intended to position Microsoft for future growth while responding to changing customer needs.
Gaming studios to operate independently
As part of the restructuring, Microsoft confirmed that several gaming studios will no longer remain under its existing ownership structure.
Compulsion Games and Double Fine Productions will become independent companies once again. Meanwhile, Ninja Theory and Undead Labs have entered agreements to move under new ownership.
Arkane Studios, which joined Microsoft through its acquisition of ZeniMax Media, is also reviewing strategic options in consultation with its employee representatives.
The restructuring represents one of the most significant organizational changes within Microsoft’s gaming business in recent years.
Other business units also affected
The workforce reductions extend beyond Xbox.
Microsoft confirmed that its commercial business responsible for customer sales will also experience staff reductions as part of the broader restructuring.
Earlier this year, the company introduced its first voluntary retirement program for eligible U.S. employees at the senior director level and below. According to Microsoft, more than one-third of eligible employees accepted the offer.
Company leadership indicated that similar voluntary programs may continue to be explored in the future to reduce the need for additional layoffs.
Microsoft continues to adjust business performance
While Microsoft has reported solid growth in areas such as cloud services and LinkedIn, some of its other businesses have experienced slower performance.
The company noted that Windows licensing, Surface devices and the Xbox gaming segment have faced weaker revenue trends compared to its stronger-performing divisions.
The latest restructuring reflects Microsoft’s effort to align resources with business priorities while improving operational efficiency.
AI is changing work, but not replacing these jobs
Microsoft clarified that artificial intelligence is not directly replacing the employees affected by the layoffs.
Instead, company leadership said AI is changing how work is completed by automating certain routine tasks. Employees are encouraged to continue developing new skills as job responsibilities evolve alongside advances in AI technology.
According to Microsoft, customers are also adapting to these technological changes, making it important for the company to evolve its own workforce and operations.
Company says difficult decisions are necessary
Microsoft acknowledged that workforce reductions are challenging for employees and emphasized that efforts continue to minimize job eliminations whenever possible.
Executives stated that the company remains focused on balancing operational efficiency with long-term business growth while navigating rapid changes across the technology industry.
The latest restructuring represents another major workforce adjustment following several rounds of layoffs conducted over the past year.
Read More: Microsoft layoffs 2026: Xbox division cuts 20% of workforce
FAQs:
Why is Microsoft cutting 4,800 jobs?
Microsoft said the layoffs are part of a broader restructuring aimed at improving efficiency and adapting to changing technology and business priorities.
How many Xbox employees are affected?
Approximately 3,200 Xbox employees will leave through fiscal year 2027, representing about 20% of the division’s workforce.
Are AI tools replacing these employees?
Microsoft said AI is changing how work is performed but stated that AI is not directly replacing the affected employees.
Which gaming studios are affected?
Compulsion Games and Double Fine Productions will become independent, while Ninja Theory and Undead Labs are moving to new ownership. Arkane Studios is reviewing strategic options.
When does Microsoft expect Xbox to grow again?
Microsoft expects the Xbox business to return to growth in 2027 following the restructuring.
