REDMOND, Washington: Microsoft is cutting 4,800 jobs, or about 2.1 percent of its global workforce, as the technology giant restructures its business to adapt to the rapid expansion of artificial intelligence (AI), with its Xbox gaming division bearing the brunt of the reductions.
The company announced on Monday that around 1,600 positions in Xbox would be eliminated immediately, while a further 1,600 jobs would be cut through fiscal year 2027, bringing total reductions in the gaming division to about 3,200 positions, or roughly 20 percent of its workforce.
In a message to employees, Microsoft’s Chief People Officer Amy Coleman said the technology industry was undergoing rapid change.
“The way technology is built, deployed, and used is transforming faster than at any point in my time here,” Coleman wrote.
She said the roles being eliminated were not being directly replaced by AI but acknowledged that artificial intelligence was changing how work was performed.
“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.
Xbox undergoes biggest restructuring
Xbox Chief Executive Asha Sharma described the changes as the biggest restructuring in the division’s history.
In an email to employees, Sharma said the gaming business had been operating at significantly lower profit margins than comparable platform and publishing businesses.
“We will return to growth in 2027,” Sharma wrote, while acknowledging that the year-long restructuring would create additional challenges for employees.
According to a person familiar with the matter, about one in five Xbox employees will leave the division.
As part of the overhaul, Microsoft will spin off four gaming studios. Sharma said Compulsion Games and Double Fine Productions would become independent companies again, while Ninja Theory and Undead Labs had entered agreements with new owners. France-based Arkane Studios is also exploring strategic options through consultations with its works council.
AI investment drives organisational changes
Microsoft said the job cuts form part of a broader restructuring of its sales and consulting operations as the company shifts resources towards AI-focused engineering and customer-facing technical roles.
The changes build on the company’s recently launched Microsoft Frontier Company initiative, a $2.5 billion programme aimed at embedding 6,000 engineers within customer organisations to deploy AI technologies.
Coleman said Microsoft had redeployed more than 4,000 employees into new roles over the past year, while around 30 percent of approximately 8,750 eligible US employees accepted the company’s first voluntary retirement programme introduced earlier this year.
She said Microsoft would continue exploring similar voluntary exit programmes in the future as part of its workforce planning.
Microsoft President and Vice Chair Brad Smith said the company had to adapt to fundamental technological changes.
“Microsoft can only be a strong employer if it has a successful business,” Smith said in an interview with GeekWire. “We have to adapt to change.”
He said software development was experiencing its biggest transformation since Microsoft’s founding more than five decades ago, with AI making coding faster and cheaper while creating demand for new roles in product management, software design and customer engagement.
Microsoft carried out more than 15,000 job cuts globally during two rounds of layoffs in 2025, including about 3,200 positions in Washington state.
