Microsoft will cut around 4,800 jobs, with Xbox accounting for 1,600 immediate losses. The gaming division also plans another 1,600 reductions through fiscal year 2027 as it cuts costs, removes management layers and narrows its game strategy.
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Xbox CEO Asha Sharma called the plan “the most significant restructure in Xbox history” and gave staff a blunt assessment.
“Our business today is not healthy,” Sharma wrote.
Microsoft spent heavily on Game Pass, new studios, multiplatform releases and a larger content portfolio. However, those bets grew more slowly than expected. Sharma said Xbox margins now sit three to 10 times below comparable publishing and platform businesses.
Xbox will respond by concentrating resources around operations with wider scale, including Mojang and King, the teams behind Minecraft and Candy Crush. Projects that cannot produce platform level returns face cancellation or reduced funding.
Management will also change. Xbox plans to cut its current 14 layers to no more than five, with three preferred. Helen Chiang will become chief operating officer with profit and loss control across hardware, content, platform and services.
Four studios will leave direct Microsoft ownership. Compulsion Games and Double Fine Productions will return to independent operation. Ninja Theory and Undead Labs will transfer to new owners, with funding provided for selected games and ongoing projects.
The wider Microsoft cuts equal about 2.1% of the global workforce and will also affect commercial sales.
Amy Coleman, Microsoft Executive Vice President and Chief People Officer, said changing customer needs and business models forced the company to reorganize.
“Our business is changing because the world around it is changing. The way technology is built, deployed, and used is transforming faster than at any point in my time here.”
Coleman said AI did not directly replace the eliminated roles.
“Some of the tasks we do every day can now be automated, and that means we all need to keep learning, keep building new skills, and keep adapting as the work evolves,” Coleman wrote.
The explanation may not satisfy affected staff. Microsoft continues to increase AI spending, including a $2.5 billion investment tied to its Frontier Company unit and enterprise AI deployments.
The company said it has transferred more than 4,000 employees into new jobs over the past year, including 500 during the latest round. Microsoft also offered voluntary exits earlier in 2026 and cut about 15,000 jobs during 2025.