Xbox blasted with 20% staff reduction in latest round of Microsoft layoffs
To reduce costs, Microsoft is cutting its total workforce by 4,800 employees, which amounts to 2.1% of its global staff. Amy Coleman, the company’s chief people officer, attributed these changes to the unprecedented pace at which technology is currently developing and being implemented.
The Xbox division is the hardest hit by these cuts: around 20% of its staff are being laid off. Xbox CEO Asha Sharma explained that 3,200 jobs will be cut by the 2027 financial year, starting with 1,600 redundancies today.
Sharma noted that the gradual nature of the restructuring was necessary and expressed optimism that the division would return to growth by 2027.
In addition to the staff reductions, the gaming sector is undergoing a far-reaching reorganisation. Microsoft is spinning off four studios to restore their independence or bring them under new owners.
Specifically, this means that Double Fine Productions and Compulsion Games will become independent again, while Undead Labs and Ninja Theory will get new owners. In addition, the company is discussing strategic alternatives for Arkane Studios. Cuts are also expected within the commercial sales departments.
The measures come at a time when Microsoft is under financial pressure; the share price has fallen by 19% so far in 2026, making it one of the worst-performing tech companies.
Investors are concerned that generative AI could disrupt business software and that the company’s own AI initiatives have not yet achieved widespread success. While LinkedIn and cloud services continue to grow, the company has seen declining revenues from Surface hardware, Windows licences and Xbox.
This latest wave follows several previous rounds of lay-offs, including a 9,000-job reduction last year.
The company also recently launched its very first voluntary retirement scheme for US employees at or below the senior director level, with more than 33% of eligible staff making use of the scheme.
In response to concerns about the role of automation, Coleman clarified that AI is not directly replacing the employees who are being laid off.
However, she did acknowledge that AI is fundamentally transforming professional workflows. She stressed that as day-to-day tasks become automated, employees will need to continually reskill to keep pace with the changing technological landscape.
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