Microsoft Cuts Nearly 5,000 Jobs Across Xbox and Commercial Sales Teams

Microsoft has reduced its global workforce by approximately 4,800 employees, representing about 2.1% of its staff worldwide. The layoffs, announced on Monday, mark the latest round of job reductions at a major technology company and have intensified ongoing discussions about the impact of artificial intelligence on the future of work.

The largest share of the cuts affects Microsoft’s Xbox division and commercial sales operations. Internal memos shared with employees indicate that approximately 1,600 of the eliminated positions are within Xbox.

In a message to employees, Amy Coleman, Microsoft’s Executive Vice President and Chief People Officer, said the company is adapting to significant changes across the technology industry.

“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. Our customers’ needs are shifting, the business models that serve them are shifting, and that means the work itself — what we do, where we focus, and how we’re organised — has to transform too.”

Coleman continued by explaining that businesses cannot avoid industry-wide change but must instead evolve alongside it.

“Companies don’t get to choose whether their industry changes; they only get to choose whether they change with it. That means we will need to adjust resources and roles and shift how we operate so we can have the greatest impact for our customers.”

She emphasised that the positions being eliminated “are not being replaced by AI,” while acknowledging that artificial intelligence is significantly reshaping how work is performed throughout the company.

“What is true is that AI is changing how work gets done,” Coleman wrote. “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.”

For employees losing their jobs, however, many may see little practical difference between work disappearing due to restructuring and due to automation changing how organisations operate.

The latest layoffs also follow Microsoft’s recent launch of its Frontier Company business unit, which focuses on large-scale enterprise AI deployments using the company’s existing AI technologies, alongside teams of forward-deployed engineers. The initiative is backed by a $2.5 billion investment, reinforcing a broader trend across the technology sector where workforce reductions have coincided with increased spending on AI.

Addressing the restructuring within Xbox, Coleman said only that Microsoft is reorganising the gaming division to position it for long-term growth better.

“We are restructuring to position the business for long-term success. Engineering teams across the company will also evolve their structure and priorities to meet customer needs and innovate for the future,” she said.

Of the approximately 4,800 positions eliminated company-wide, around 1,600 are within Xbox. According to Xbox CEO Asha Sharma, the gaming division expects to reduce its workforce by roughly 3,200 employees through fiscal year 2027. In a memo distributed to staff on Monday, Sharma described the changes as “the most significant restructure in Xbox history.”

“Our business today is not healthy,” Sharma wrote. “We are operating at margins that are 3–10x lower than comparable platform and publishing businesses.”

She explained that Xbox had previously invested heavily in initiatives such as the Game Pass subscription service, expanded its gaming content portfolio, and pursued multiplatform strategies to strengthen long-term growth. However, those efforts failed to expand at the anticipated pace, leaving the core business under pressure despite increasing investment and staffing.

“And now the industry is facing the most severe hardware crisis in its history,” Sharma wrote. “We must reset Xbox.”

As part of the restructuring, Microsoft plans to move four gaming studios under new ownership structures while preserving their intellectual property and ongoing game development. According to Sharma, Compulsion Games and Double Fine Productions will once again operate as independent studios. Meanwhile, Ninja Theory and Undead Labs will transition to new ownership arrangements that include continued funding to support development of some of their most successful franchises.

Sharma also outlined a major organisational overhaul aimed at simplifying management. Xbox intends to reduce its existing 14 management layers to no more than five, with the long-term objective of operating with only three layers. As part of that restructuring, longtime executive Helen Chiang will become Chief Operating Officer, overseeing profit-and-loss responsibility across Xbox’s content, hardware, platform, and services businesses.

The strategy behind the reorganisation focuses on narrowing Xbox’s priorities by reducing investment in broad creative initiatives that have not produced large-scale platform returns. Instead, Microsoft intends to concentrate resources on core businesses such as Mojang and King, the studios responsible for Minecraft and Candy Crush.

The restructuring comes as the wider gaming industry adjusts to growing investment in generative AI technologies. Companies developing AI-powered world models—including Google DeepMind, World Labs, General Intuition, Luma AI, and Runway—have collectively attracted hundreds of millions of dollars in funding during the past year while generating significant interest with demonstrations of AI-generated interactive gaming environments. Many of these businesses see video games as one of the first major commercial applications for their technology.

Earlier this year, in April, Microsoft also offered voluntary separation packages to an undisclosed number of employees. Some estimates suggested that the programme involved roughly 5,500 workers as the company sought to reshape its workforce around high-performing teams. Last year, Microsoft eliminated approximately 15,000 jobs across two separate rounds of layoffs.

The reductions also reflect a broader trend throughout the technology industry. During the first half of 2026 alone, nearly 154,000 technology employees lost their jobs, with major companies including Meta, Oracle, Amazon, and Cognizant all announcing significant workforce reductions.

Despite the latest cuts, Microsoft said it continues to explore ways to retain employees where possible, including retraining opportunities and internal job transfers.

“Over the past year, we have redeployed more than 4,000 employees into new roles, including another 500 this month,” Coleman said.

Microsoft did not immediately respond to requests for additional comment or provide further details beyond the internal communications.