Microsoft cuts 4,800 jobs as Xbox sheds 20 per cent of staff in major overhaul

NEW YORK: Microsoft has pressed the reset button on another round of cost cutting, announcing 4,800 job losses across the company as it reshapes its business for the artificial intelligence era, with its Xbox division bearing the biggest hit.

The layoffs represent about 2.1 per cent of the software giant’s global workforce and come as investors continue to question whether the company’s massive AI investments will translate into meaningful commercial growth.

The biggest changes will be felt at Xbox, where around 3,200 jobs, or roughly one-fifth of the division’s workforce, will be eliminated. About 1,600 roles are being cut immediately as part of Monday’s announcement, while the remaining 1,600 employees will leave over the course of Microsoft’s 2027 fiscal year.

The restructuring also includes plans to separate four game development studios from Microsoft’s gaming business. Compulsion Games and Double Fine Productions will once again operate as independent studios, while Ninja Theory and Undead Labs are set to move under new ownership.

Addressing employees, Microsoft chief people officer Amy Coleman said the pace of technological change is transforming how software is built, deployed and used faster than at any other point during her nearly three decades with the company.

She acknowledged that workforce reductions are difficult but said Microsoft remains committed to finding alternatives wherever possible, including voluntary retirement programmes introduced earlier this year for eligible US employees.

Meanwhile, Microsoft Xbox chief executive officer Asha Sharma told employees that spreading the restructuring over the next year would inevitably create uncertainty but said it was not feasible to implement all necessary changes at once. Sharma added that the gaming business is expected to return to growth in 2027.

The latest cuts follow several rounds of layoffs during 2025, including one that affected about 9,000 employees. Earlier this year, Microsoft also launched its first voluntary retirement programme, with more than one-third of eligible employees reportedly accepting the offer.

The announcement comes during a challenging year for Microsoft’s shares, which have fallen around 19 per cent so far in 2026, making it the weakest performer among the largest US technology companies. Investors have become increasingly concerned that generative AI could disrupt traditional enterprise software faster than Microsoft can monetise its own AI offerings.

While businesses such as cloud services and LinkedIn have continued to deliver healthy growth, other segments including Windows licensing, Surface devices and Xbox have struggled with weaker demand and declining revenue.

Responding to speculation that AI is directly replacing workers, Amy Coleman stressed that artificial intelligence is changing how work is performed rather than simply replacing employees. She said automation is taking over some routine tasks, making it increasingly important for workers to develop new skills as roles evolve.

The latest restructuring also adds pressure on Microsoft chief executive officer Satya Nadella, whose long-term AI strategy continues to face close scrutiny from investors despite the company’s leadership in cloud computing.

Microsoft shares slipped about 1 per cent following the announcement even as the Nasdaq Composite moved higher, highlighting investor caution over the company’s near-term outlook.

For Microsoft, the latest overhaul signals that the race to lead the AI era is proving just as much about trimming old structures as building new ones. Whether those changes deliver stronger growth in 2027 will be the next score that both investors and employees will be watching closely.