Microsoft is eliminating 4,800 jobs, representing 2.1% of its workforce, with the Xbox division losing about one-fifth of its staff in the software giant's latest cost-cutting effort. Amy Coleman, Microsoft's chief people officer, announced the cuts in a message to employees on Monday, stating that technology is transforming faster than at any point in her 27-year tenure. The layoffs come as Microsoft has been the worst performer among megacap tech stocks in 2026, falling 19% as of Friday's close, amid concerns about generative AI's impact on enterprise software and the company's lagging performance in Windows, Surface devices, and Xbox.
Xbox Division Cuts 3,200 Jobs Through Fiscal 2027
Xbox is cutting 3,200 people through fiscal year 2027, Xbox CEO Asha Sharma wrote in an email to division employees, noting that 1,600 roles would be axed on Monday. The cuts amount to 20% of Xbox employees leaving, according to a person familiar with the matter. "I recognize that a year-long restructuring creates additional challenges," Sharma wrote. "Unfortunately, it is not possible to make all the necessary changes in a single day." Sharma stated that the division "will return to growth in 2027."
Microsoft has recorded accelerating growth in cloud services and LinkedIn in recent quarters, but is lagging in other areas, such as Windows operating system licenses, Surface devices and the Xbox gaming unit, where revenue has been shrinking. Last year Microsoft conducted several rounds of layoffs, including one that cut 9,000 jobs.
Microsoft Spins Out Four Gaming Studios
Four gaming studios will be spun out of Microsoft as part of the announced changes. The Compulsion Games and Double Fine Productions studios, which Microsoft acquired in the 2010s, will become independent again, Sharma said in her note. Ninja Theory and Undead Labs, which joined Microsoft in 2018, "have entered terms to join new ownership." France-based Arkane Studios, which arrived at Microsoft through the $8.1 billion ZeniMax Media acquisition in 2021, is in touch with its works council regarding strategic options, Sharma wrote.
Voluntary Retirement Program Sees One-Third Acceptance Rate
In April, Microsoft introduced a one-time voluntary retirement program, a first for the company. The effort has targeted U.S. employees at the senior director position and below. Over one-third of eligible employees have accepted the offer, and the company "will continue exploring similar approaches in the future," Coleman wrote. "Decisions like these are never easy, and you have my commitment that we are constantly looking for ways to reduce the need for job eliminations," Coleman wrote.
Microsoft Clarifies AI's Role in Workforce Changes
AI is not replacing laid-off workers, Coleman wrote. "At the same time, 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. We can't do that well unless we're doing it ourselves."
FAQ
How many jobs is Microsoft cutting in this round of layoffs?
Microsoft is eliminating 4,800 jobs, representing 2.1% of its workforce. The Xbox division is cutting 3,200 jobs through fiscal year 2027, with 1,600 roles eliminated on Monday. This amounts to 20% of Xbox employees leaving.
Which gaming studios is Microsoft spinning out?
Microsoft is spinning out four gaming studios: Compulsion Games and Double Fine Productions will become independent again, while Ninja Theory and Undead Labs have entered terms to join new ownership. Arkane Studios is in touch with its works council regarding strategic options.
What was the result of Microsoft's voluntary retirement program?
Microsoft introduced a one-time voluntary retirement program in April targeting U.S. employees at the senior director position and below. Over one-third of eligible employees accepted the offer, and the company will continue exploring similar approaches in the future.
