Microsoft is laying off thousands of employees in a new round of job cuts, and its struggling Xbox division is bearing the brunt of the reductions.
On July 6, a week into Microsoft’s 2027 fiscal year, the tech giant said it would eliminate 4,800 jobs, or about 2.1 percent of its global workforce, as part of what it described as a necessary shift in resources in response to the evolving technological landscape.
Xbox Bears the Brunt of Cuts
The cuts are concentrated largely in Microsoft’s business units and Xbox division. Xbox is eliminating approximately 1,600 positions on July 6 and plans to cut as many as 1,600 more over the course of fiscal 2027.“Our business today is not healthy,” Xbox CEO Asha Sharma wrote in a separate message to employees.
Sharma said Xbox’s platform teams are now 40 percent larger than they were at the beginning of the current gaming console generation, even as the player base and total playtime have declined.
Some parts of the business have as many as 14 layers of management, she said. Xbox plans to reduce that number to “no more than five, and where possible, three.”
As part of the restructuring, Microsoft will also divest itself of several Xbox studios. Four studios will be spun off or sold, according to Sharma’s message, and a fifth studio has been asked to begin a process to “review potential strategic options.”
The cuts at Xbox have been expected for some time as the division’s financial performance has deteriorated.
In June, Xbox reported that its profit margin had fallen to 3 percent in fiscal 2026, far below the roughly 30 percent Microsoft expects from its major divisions. Gaming revenue fell by 7 percent in the most recent quarter to $5.3 billion, and hardware sales plunged by 33 percent after price increases for Series X and S consoles in the United States.
Excluding Microsoft’s $68.7 billion acquisition of Activision Blizzard, the publisher of the popular Call of Duty franchise, the Xbox division spent more than $20 billion over five years on content, platforms, and hardware subsidies. Over the same period, its annual revenue shrank by nearly $500 million.
In a June memo to employees, Sharma said the company’s studio system had become “over-extended,” while flagship franchises were never “adequately funded to compete and win.”
She also pointed to a memory shortage driven by surging demand for artificial intelligence infrastructure, which she said has pushed the cost of key hardware components to several times their 2025 levels and prevented Xbox from manufacturing enough consoles.
Microsoft Looks Beyond Layoffs
The latest reductions follow several rounds of layoffs at Microsoft last year, including one that eliminated 9,000 jobs.In April, Microsoft also introduced a one-time voluntary retirement program, the first of its kind in the company’s history. The program targeted U.S. employees at the senior director level and below.
More than one-third of eligible employees accepted the offer, Coleman said on July 6, and she said that Microsoft “will continue exploring similar approaches in the future.”
The cuts come as Microsoft faces growing questions from Wall Street about its position in the AI race. Coleman, however, said AI is not directly replacing the employees whose jobs are being eliminated.
“What is true is that AI is changing how work gets done,” she wrote. “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.”
“Our customers are navigating this same shift, and they’re counting on us to help them through it,” she said. “We can’t do that well unless we’re doing it ourselves.”
