Microsoft cuts 4,800 jobs in Xbox and commercial divisions amid AI push

Microsoft announced a significant restructuring that will result in the elimination of approximately 4,800 jobs, representing about 2% of its global workforce. The most substantial impact will be felt within the Xbox gaming division, which is set to undergo the most drastic changes in its history. This includes the planned elimination of around 3,200 positions over the next fiscal year, the potential sale or separation of four game development studios, and a review process for a fifth studio that could lead to its closure.

Amy Coleman, executive vice president at Microsoft, explained the company's decision in a letter to employees. "Our business is changing because the world around it is changing," she stated. "Companies cannot choose whether their sector changes; they can only choose whether they change with it." The layoffs primarily affect Microsoft's commercial business and the Xbox division. While Coleman assured that the roles of laid-off employees would not be directly replaced by AI, she acknowledged that the technology is fundamentally altering how work is done across the company.

These workforce reductions come amidst Microsoft's substantial investments in artificial intelligence development. The company recently announced a $2.5 billion investment to integrate 6,000 engineers into client companies, aiming to accelerate AI adoption among businesses hesitant to embrace the new technology. In the commercial sector, these layoffs are intended to streamline operations as Microsoft pivots towards AI integration.

Asha Sharma, CEO of Xbox, informed her employees that 1,600 jobs are being cut immediately, with the remaining reductions occurring throughout fiscal year 2027. Sharma described the Xbox business as "unhealthy," noting that its profit margins are significantly lower than those of competitors. She pointed to the company's Game Pass subscription service, often called the "Netflix of video games," as an attempt to drive growth, but acknowledged that subscriber numbers have declined since price increases were implemented.

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Our business is changing because the world around it is changing. Companies cannot choose whether their sector changes; they can only choose whether they change with it.