Microsoft Lays Off 4,800 Workers, Cuts Xbox Jobs and Spins Off Four Studios

Microsoft announced it will lay off 4,800 employees, a cut of 2.1% of its global workforce, with the job losses especially pronounced in its Xbox department.

“Update as of July 6, 2026: Microsoft has just announced the layoff of 6,400 jobs, including 4,800 with immediate effect”

01net

In a memo to employees, Amy Coleman said, "AI is changing how work gets done," while also noting that none of the terminated roles will be replaced by AI.

01net

Xbox CEO Asha Sharma wrote that Microsoft is "beginning the most significant restructure in XBOX history," and said Xbox would slash 1,600 jobs immediately and an additional 1,600 through the end of fiscal year 2027.

Sharma said the company would not cancel any of its first-party, publicly announced games or projects as part of the new plans, even as four game studios would leave Xbox to new ownership or management structures.

The BBC reported that four Xbox game development studios—Compulsion Games, Double Fine Productions, Ninja Theory and Undead Lab—would be spun off as part of the changes.

Coleman told employees that the company needed to focus on areas that can deliver for customers amid a "fast-changing industry," and she said the layoffs were not a direct consequence of AI displacing workers.

In the same memo, Coleman said, "Companies don't get to choose whether their industry changes; they only get to choose whether they change with it," framing the cuts as a response to shifting technology and customer needs.

ABC News

Sharma described Xbox’s business as "not healthy" and said the division needs a "reset" across its content portfolio, platform and operations.

The BBC quoted tech analyst Paolo Pescatore saying the changes marked a "major reset" and that the challenge was defining what Xbox stands for across console, PC, cloud and subscription platforms.

NBC News reported that Sharma’s email to Xbox employees said the company would reduce the team by approximately 3,200 throughout FY27, including approximately 1,600 role eliminations on Monday and four studios leaving Xbox to new management.

Microsoft said it would provide affected employees with financial support and career resources as they transition to new opportunities, while also emphasizing that "Some of the tasks we do every day can now be automated."

Coleman wrote that employees "need to keep learning, keep building new skills, and keep adapting as the work evolves," linking the restructuring to ongoing changes in how work gets done.

The BBC said the studio shake-up would also include Mojang and King reporting directly to Sharma, as part of Xbox’s vision for studios and content focused on the biggest IP and audiences.

In France, Daily Sabah reported that Arkane’s management was beginning a required consultation with its Works Council to review Sharma’s "potential strategic options," a process that could lead to further closures or a sale.

CNBC quoted DA Davidson analyst Gil Luria saying, "This is not a business Microsoft needs to be in, or should be in," as Microsoft continued its cost-cutting and AI investment push.