Microsoft is cutting around 4,800 jobs, equivalent to approximately 2.1% of its global workforce, as the technology giant restructures its commercial sales and Xbox operations amid heavy investment in AI.

The reductions announced on Monday will affect Xbox particularly heavily, with around 1,600 gaming employees losing their roles immediately. Microsoft plans to eliminate approximately 3,200 Xbox positions throughout its 2027 financial year in what the division’s chief executive, Asha Sharma, described as “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,” Sharma wrote in an email to employees. “This will include approximately 1,600 role eliminations today, and in addition, four studios will leave XBOX to new management.”

Microsoft’s commercial division will also be affected by the company-wide reductions.

Microsoft executive vice president and chief people officer Amy Coleman said the cuts reflected changes in how technology is developed and used.

“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 organized – has to transform too.

“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.”

Coleman stressed that the positions being eliminated “are not being replaced by AI”, although she acknowledged that the technology was changing the nature of work across the business.

“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,” she wrote.

The cuts come as Microsoft continues to increase spending on AI infrastructure while looking for efficiencies elsewhere in the organisation. The company has projected spending of $190 billion during 2026, driven partly by the cost of building the data centres needed to operate AI services.

Microsoft has also launched its Frontier Company business unit, supported by a $2.5bn investment and focused on helping enterprise customers deploy the company’s existing AI technology.

Coleman said Microsoft was attempting to reduce the number of compulsory job losses by retraining employees and moving them into different areas of the business.

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

Xbox Faces Major Reset

The Xbox division is undergoing the deepest overhaul, with Sharma telling staff that its existing financial performance was unsustainable.

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

Sharma said investments in areas including the Game Pass subscription service, an expanded portfolio of content and a move towards publishing games across multiple platforms had failed to grow as quickly as anticipated.

The division continued to add teams and investment despite the weakening of its underlying business, while rising memory chip prices and soft console demand placed further pressure on the company’s hardware operations.

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

Microsoft has also disclosed that, excluding Activision Blizzard King, Xbox has invested more than $20bn in content, platforms and hardware subsidies over the past five years while annual revenue declined by almost $500m.

“Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform and hardware subsidy, but our annual revenue has declined nearly half a billion during that time,” Sharma said. “Going forward, this cannot continue.”

As part of the restructuring, four Microsoft-owned gaming studios will move under new management.

Compulsion Games and Double Fine Productions are expected to return to operating as independent studios, while Ninja Theory and Undead Labs will move under new ownership. Funding agreements will allow development to continue on some of their established games – with Ninja Theory in production for the latest title in its Senua series.

The company is also substantially reducing the number of management levels within Xbox. Its existing structure of 14 layers will be cut to no more than five, with three described as the preferred number.

Long-serving Xbox executive Helen Chiang has been appointed chief operating officer and will hold responsibility for profit and loss across the division’s content, hardware, platform and services operations.

Recommended reading

• Ana Stewart Appointed as Chief Entrepreneur as Ecosystem Fund Reopens
• Scotland Secures Record Share of UK Investment
• EY: London Tops Europe for Foreign Tech Investment

Microsoft is expected to narrow Xbox’s focus around businesses capable of delivering returns at platform scale. Mojang and King, the studios behind Minecraft and Candy Crush respectively, will become increasingly central to that strategy and report directly to Sharma.

The changes signal a move away from the broad programme of studio acquisitions and creative investments Microsoft previously pursued as it sought to expand the Xbox Game Pass catalogue.

The company will instead concentrate resources on larger franchises, simplify its platform teams and reduce spending on external vendors.

The latest cuts follow a voluntary separation programme offered to Microsoft employees earlier this year. The company said the programme was designed to support the development of teams capable of operating with greater speed and efficiency.

Microsoft’s announcement also comes during a wider contraction across the technology industry, with Meta, Amazon, Oracle and Cognizant among the businesses to have reduced their workforces during 2026.