Microsoft Sacks 4,800 Employees in Major Restructuring

Microsoft has announced the layoff of approximately 4,800 employees, representing about 2.1% of its global workforce, as part of a sweeping corporate restructuring aimed at improving efficiency and accelerating its artificial intelligence (AI) strategy.

The Xbox division is bearing the brunt of the changes, with 1,600 jobs eliminated immediately. Microsoft described the move as the largest restructuring in the gaming division’s history.

The announcement was communicated through internal memos to employees. Amy Coleman, Microsoft’s Executive Vice President and Chief People Officer, said the company is adapting to rapid technological change.

“The way technology is built, deployed, and used is transforming faster than at any point in my time here,” Coleman wrote.

She emphasized that the eliminated roles are not being directly replaced by AI, but acknowledged that AI is reshaping workflows by automating many routine tasks, requiring Microsoft to evolve how it operates.

Xbox Faces Major Reset

In a separate memo, Xbox CEO Asha Sharma offered a candid assessment of the gaming business.

“Our business today is not healthy,” Sharma wrote.

According to Sharma, Xbox’s operating margins are between three and ten times lower than comparable gaming platforms and publishers. While initiatives such as Game Pass and an expanded content portfolio were expected to drive stronger growth, they failed to meet expectations.

“As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome,” she explained. “And now the industry is facing the most severe hardware crisis in its history. We must reset Xbox.”

What Is Changing at Xbox?

The restructuring extends beyond workforce reductions.

Microsoft plans to streamline Xbox’s leadership structure by reducing management layers from as many as 14 to a maximum of five, with a long-term goal of operating with just three layers.

The company also announced significant changes across its game studios:

Compulsion Games and Double Fine Productions will become independent studios again, retaining ownership of their intellectual property.
Ninja Theory and Undead Labs will transition to new ownership structures while receiving funding to complete Senua’s Saga: Hellblade II and State of Decay 3, respectively.
Mojang and King, the developers behind Minecraft and Candy Crush, will now report directly to Sharma, reflecting their importance as platform businesses with the largest monthly active player bases within the Xbox ecosystem.

Microsoft has also promoted Helen Chiang to Chief Operating Officer for Xbox, giving her full profit-and-loss responsibility across content, hardware, platforms, and services—the first role of its kind within the gaming division.

Overall, Xbox is expected to eliminate approximately 3,200 roles by fiscal year 2027, with half of those cuts taking effect immediately. Combined with reductions across other Microsoft divisions, the company’s total layoffs now stand at roughly 4,800 employees.

AI Investment Continues Despite Layoffs

The latest workforce reduction comes amid a broader wave of job cuts across the technology industry. Nearly 154,000 tech workers have lost their jobs during the first half of 2026, with companies including Meta, Oracle, Amazon, and Cognizant also reducing headcount while increasing investment in AI infrastructure.

Microsoft recently launched its Frontier Company business unit to accelerate enterprise AI adoption, backed by a $2.5 billion investment announced around the same period as the restructuring.

The company said it has redeployed more than 4,000 employees into new positions over the past year and will continue offering reskilling and transition support for affected workers.

As AI reshapes the technology sector, Microsoft says the restructuring is intended to position the company for long-term growth while simplifying operations and focusing investment on strategic priorities.