The company announced the layoffs in employee messages on Monday, July 6. The cuts represent about 2.1% of Microsoft's global workforce, with most of the layoffs affecting the company's Commercial and Xbox organizations.
Xbox plans to eliminate about 3,200 jobs through fiscal year 2027, including approximately 1,600 positions on Monday. The cuts will ultimately affect about one-fifth of the gaming division's workforce, CNBC reported.
In her letter, CEO Asha Sharma called the layoffs "the most significant restructure in Xbox history."
"Our business today is not healthy," wrote Sharma. "We are operating at margins that are 3-10x lower than comparable platform and publishing businesses. We entered [the ninth generation of video game consoles] with a smaller install base and a higher cost structure."
Sharma said the monthly subscription service called Game Pass and other content additions failed to grow Xbox financially.
"As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome," she said. "And now the industry is facing the most severe hardware crisis in its history. We must reset Xbox."
Microsoft will spin off four gaming studios as part of the reductions. Compulsion Games and Double Fine Productions will become independent studios again, while Ninja Theory and Undead Labs have entered agreements to join new ownership.
The cuts come as Microsoft looks to reduce costs as more tech giants push AI products.
"Our business is changing because the world around it is changing," wrote Amy Coleman, Microsoft's executive vice president and chief people officer. "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 organized – has to transform too."
Coleman said the jobs are not being replaced by artificial intelligence, although AI is changing how employees work.
"At the same time, what is true is that AI is changing how work gets done," she said. "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. Our customers are navigating this same shift, and they're counting on us to help them through it. We can't do that well unless we're doing it ourselves."
The layoffs also come after Microsoft launched its first voluntary retirement program for US employees in April.
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