Microsoft has announced another round of layoffs, eliminating around 4,800 jobs, or roughly 2.1% of its global workforce, as the company begins its 2026 fiscal year.
The reductions affect multiple business units, with Microsoft's Xbox gaming division facing the deepest cuts. The company says the move is part of a broader effort to simplify operations, focus investments and position itself for long-term growth in an industry increasingly shaped by artificial intelligence.
Microsoft cuts 4,800 jobs
In a memo to employees, Microsoft's Executive Vice President and Chief People Officer, Amy Coleman, said the company is reorganising teams to better align with its future priorities.
She said Microsoft is focusing its people, investments and resources on areas that will help the company continue delivering for customers in a rapidly changing technology landscape.
Before the layoffs, Microsoft employed more than 220,000 people worldwide.
Coleman also addressed growing speculation around artificial intelligence, saying the eliminated positions are not being replaced by AI. However, she acknowledged that AI is changing how work is performed across the company.
Why is Microsoft laying off employees?
The latest layoffs coincide with the start of Microsoft's fiscal year, a period when the company has historically announced organisational changes.
The restructuring comes as Microsoft continues investing billions of dollars in AI infrastructure while also seeking to improve operational efficiency.
The company had earlier introduced voluntary retirement packages for eligible US employees, allowing some workforce reductions through buyouts before announcing broader layoffs.
The move also follows investor concerns over the cost of AI investments and pressure on large technology companies to improve profitability while continuing to invest in future technologies.
Xbox faces the biggest impact
Microsoft's gaming business is undergoing its largest restructuring to date.
Xbox plans to eliminate 3,200 jobs during FY27, representing around 20% of its workforce. The first 1,600 employees will leave immediately, while the remaining reductions will take place over the course of the fiscal year.
In a message to employees, Xbox CEO Asha Sharma described the restructuring as the most significant in the division's history.
She said the company was taking difficult decisions because the business is no longer operating sustainably.
According to Sharma, Xbox's margins are three to ten times lower than comparable gaming platforms and publishing companies. She also revealed that the business has been losing 64 cents for every dollar it invests, making a reset necessary.
Sharma said the layoffs are not a reflection of employees' performance or commitment but rather a response to the financial realities facing the gaming business.
This is an important email I sent today to all employees at XBOX:
— ASHA (@asha_shar) July 6, 2026
Team,
We are beginning the most significant restructure in XBOX history. After careful consideration, I've made the difficult decision to reduce our team by approximately 3,200 throughout FY27. This will include…
Xbox to spin off studios and simplify operations
Alongside the workforce reduction, Xbox is making sweeping structural changes.
Microsoft will transition four game development studios to operate independently under new ownership:
Compulsion Games
Double Fine Productions
Ninja Theory
Undead Labs
The company is also preparing to separate from another studio as part of the restructuring.
Sharma said Xbox will focus on rebuilding its content portfolio, strengthening its gaming platform and creating a more efficient operating model.
Flatter management and lower costs
Xbox also plans to simplify its organisational structure.
According to Sharma, some parts of the company currently have as many as 14 layers of management, making decision-making slower and more complicated.
Microsoft plans to reduce management layers to no more than five, and in some teams, only three, creating a flatter organisation.
The gaming division will also reduce vendor spending by 50% as part of its efforts to improve profitability.
Leadership changes at Xbox
As part of the restructuring, Microsoft has promoted Helen Chiang to the newly created role of Chief Operating Officer for Xbox.
She will oversee content, hardware, platform and services with end-to-end profit-and-loss responsibility, bringing the gaming business under a single operating model.
Sharma also announced that Mojang, the developer behind Minecraft, and King, the studio behind Candy Crush, will now report directly to her.
She said both studios have evolved into major gaming platforms with Xbox's largest monthly active player communities and will play a central role in the company's future strategy.
Is Microsoft replacing employees with AI?
Microsoft says the answer is no.
While AI remains one of the company's biggest investment priorities, Coleman said the eliminated positions are not being replaced by artificial intelligence.
Instead, Microsoft says AI is changing how employees work, while the latest job cuts are primarily part of a broader organisational restructuring aimed at improving efficiency and focusing on long-term growth.
Part of a wider technology industry trend
Microsoft joins several major technology companies that have reduced their workforces while increasing investment in artificial intelligence.
Across the industry, companies are restructuring businesses, simplifying management and reallocating resources toward AI, cloud computing and other high-growth areas.
For Microsoft, the latest round of layoffs reflects an effort to balance continued AI investment with improving financial performance across its businesses.
TL:DR?
The story, at a glance
Why did Microsoft lay off 4,800 employees?
Microsoft said the layoffs are part of an organisational restructuring designed to simplify operations, focus investments and adapt to a rapidly changing technology industry.
How many jobs is Xbox cutting?
Xbox plans to eliminate 3,200 positions during FY27, representing about 20% of its workforce.
Is Microsoft replacing employees with AI?
No. Microsoft says the eliminated roles are not being replaced by AI, although artificial intelligence is changing how work is performed across the company.
Which Xbox studios are being spun off?
Microsoft plans to transition Compulsion Games, Double Fine Productions, Ninja Theory and Undead Labs to independent ownership as part of the restructuring.
Why is Xbox restructuring?
According to Xbox CEO Asha Sharma, the gaming business has lower profit margins than comparable companies and has been losing 64 cents for every dollar invested, making significant operational changes necessary.
