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Microsoft says it will eliminate around 2.1% of its global workforce, with XBOX set to cut approximately 3,200 roles through FY27, transfer several studios to new management, and overhaul its operating model in a bid to restore growth.
Microsoft has announced plans to cut around 4,800 jobs globally, representing approximately 2.1% of its workforce, as the company begins a major restructuring across its Commercial and XBOX businesses.
In a message to employees, Amy Coleman, Microsoft’s EVP and Chief People Officer, said the company was “aligning our investment, people, and energy” around the priorities it believes are needed to serve customers in a fast-changing technology market.
The cuts include a significant restructuring of XBOX, described by Asha Sharma, XBOX's newly appointed Chief Executive Officer as “the most significant restructure in XBOX history”. In a separate message to Xbox employees, Sharma said the gaming division would reduce its team by approximately 3,200 roles throughout FY27, including around 1,600 role eliminations immediately.
Four gaming studios will also leave XBOX to operate under new management, with Microsoft saying the move is intended to preserve their intellectual property and ongoing projects.
Coleman said the affected employees had made “meaningful contributions” to Microsoft and stressed that the company had sought to reduce the number of compulsory job losses where possible. She said Microsoft had redeployed more than 4,000 employees into new roles over the past year, including 500 this month, while more than 30% of eligible employees had participated in a recent voluntary retirement programme.
The company also addressed the role of artificial intelligence in the restructuring. Coleman said the eliminated roles were “not being replaced by AI” but acknowledged that AI is changing how work is performed 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 XBOX restructuring is particularly wide-ranging. Sharma said the business “is not healthy”, citing margins that are “three-10x lower than comparable platform and publishing businesses”, a smaller console install base entering the current generation, and a cost structure that has become too high.
XBOX had bet on Game Pass, multi-platform releases and a broader content portfolio to drive growth, but those areas, Sharma stated, “did not grow at the pace we expected”. She added that the wider games industry is now facing “the most severe hardware crisis in its history”.
As she told employees:
“We must reset XBOX."
The reset will focus on three areas: content, platform and operations.
On content, XBOX will reduce parts of its studio portfolio and shift investment toward higher-priority projects. Compulsion Games and Double Fine Productions are set to return to management and transition into independent studios with their IP, catalogues and development runway.
Ninja Theory and Undead Labs have entered terms to join new ownership, with funding to complete and grow Senua and State of Decay 3.
In France, Arkane’s management will begin the required consultation process with its Works Council to review potential strategic options.
Sharma said reductions would also take place across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and XBOX Game Studios, although she stated that no publicly announced first-party games or projects are being cancelled as part of the process.
Additionally, Mojang and King will now report directly to Sharma. She described the two studios as increasingly platform-like businesses and said they are XBOX's largest by monthly active players.
The second part of the restructuring will focus on simplifying XBOX's platform operations. Sharma said some areas of the company currently involve as many as 14 layers of management, while platform teams are 40% larger than they were at the start of the current console generation despite declines in player base and playtime.
XBOX plans to reduce management layers to no more than five, and where possible, three. The company will also aim to streamline its tools, clean up its code base, expand shared services and reduce vendor spend by 50%.
The third part of the reset will introduce a new operating model. Helen Chiang has been promoted to Chief Operating Officer, with end-to-end profit and loss responsibility across content, hardware, platform and services. Chiang, who has spent nearly two decades at XBOX and previously led Mojang and the Minecraft franchise, will report directly to Sharma.
Dave McCarthy, a long-serving XBOX executive, is retiring after 17 years with the business.
Despite the scale of the cuts, Sharma framed the restructuring as a move toward long-term growth rather than retrenchment.
“These changes are about a bigger future for XBOX, not a smaller one,” Sharma wrote. “This year, we’ll invest as much in XBOX as we ever have, but we’ll invest with greater focus, greater discipline, and greater clarity, all in service of making XBOX where the world plays and creates.”
Microsoft cautioned that more changes are likely across other parts of the business. Coleman said:
"We are still early on this journey, and there will be more changes ahead; other parts of our business will need to make similar changes."
For employees affected by the layoffs, Microsoft said it would provide financial support and resources to help them transition to their next step.
READ MORE: Microsoft to offer voluntary buyouts to eligible US employees under a one-time retirement programme
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