Microsoft cuts 4,800 jobs, downsizes Xbox unit & plans to spin off 4 gaming studios

Microsoft has cut 4,800 jobs, representing 2.1 per cent of its workforce, in an effort to cut costs.

According to CNBC, Microsoft's Xbox division will lay off around 20 per cent of its staff, including 1,600 jobs on Jul. 6, with additional cuts in the coming months.

Microsoft's chief people officer, Amy Coleman, who has been at the company for 27 years, told employees in a Jul. 6 message that "the way technology is built, deployed, and used is transforming faster than at any point in my time here".

Four gaming studios which were previously acquired by Microsoft will also be spun out of the software giant; two will become independent again.

Xbox to cut 3,200 people

In an email to division employees, Xbox chief executive officer Asha Sharma said Xbox will be cutting a total of 3,200 people, with half of those roles being part of the 4,800 jobs eliminated on Jul. 6.

The other 1,600 people will be leaving throughout Microsoft's 2027 fiscal year.

Sharma said she recognised the additional challenges of a year-long restructuring but added: "It is not possible to make all necessary changes in a single day".

Sharma noted: "We will return to growth in 2027".

According to CNBC, Microsoft conducted several rounds of layoffs last year, including one that eliminated 9,000 jobs.

Microsoft's revenue has seen growth in cloud services and LinkedIn, but revenue in Windows operating system licenses, Surface devices, and Xbox has been shrinking in recent quarters.

Coleman said the commercial business that focuses on selling to customers will also see reductions.

4 gaming studios to be spun out

The four gaming studios that will be spun out of Microsoft are Compulsion Games, Double Fine Productions studios, Ninja Theory, and Undead Labs, reported CNBC.

Compulsion Games and Double Fine Productions studios, acquired by Microsoft in the 2010s, will become independent again. 

Sharma said that Ninja Theory and Undead Labs, which joined Microsoft in 2018, have entered into terms to join new ownership.

In a post on X, Double Fine thanked Xbox for "seven great years" and for returning ownership of its games.

Similarly, Compulsion Games posted its statement to X, thanking Xbox and stating that its immediate priority was to support its team during the transition.

Sharma added that France-based Arkane Studios, which was obtained in Microsoft's US$8.1 billion (S$10.5 billion) ZeniMax Media acquisition deal, is in contact with its work council regarding strategic options.

Voluntary retirement program

In April 2026, Microsoft launched a one-time voluntary retirement program targeting U.S. employees at the senior director position and below.

More than a third of eligible employees accepted the offer.

Coleman said the company will keep exploring similar voluntary approaches and is looking for ways to reduce the need for job cuts.

She added that AI is not replacing laid-off workers but noted: "At the same time, what is true is that AI is changing how work gets done".

"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."