Microsoft Layoffs: Xbox cuts 4,800 jobs and plans to spin off five gaming studios

Microsoft has initiated what industry insiders are calling the largest single layoff cycle in gaming history, cutting 4,800 jobs, 2.1% of its workforce, on Monday, July 6. Xbox division is reportedly losing about one-fifth of its staff amid Microsoft's latest push to cut costs in the artificial intelligence era.

The restructuring of its gaming division will involve 3,200 job cuts, including laying off 1,600 employees on Monday.

Microsoft shares fell 1.7% at 9:55 a.m. in New York.

In all, planned cuts across Microsoft announced Monday total 6,400. That amounts to less than 3% of total headcount of about 228,000.

“The way technology is built, deployed, and used is transforming faster than at any point in my time here,” Amy Coleman, Microsoft’s chief people officer and a 27-year company veteran, wrote in a message to employees.

Xbox has laid off thousands of staff and canceled many projects since closing its $69 billion acquisition of Activision Blizzard in the fall of 2023. Even subsidiaries that make popular games like Candy Crush and Call of Duty have been impacted by the ongoing job cuts.

Xbox to cut 3,200 jobs

Xbox is cutting 3,200 people through fiscal year 2027, the gaming division's new head, Asha Sharma, said in an email.

She noted that 1,600 roles would be axed on Monday. The other 1,600 exiting is in addition to the companywide total of 4,800 leaving immediately.

“I recognise 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.”

The cuts amount to 20% of Xbox employees leaving, according to a person familiar with the matter, who asked not to be named in order to discuss internal changes.

“We will return to growth in 2027,” Sharma wrote.

She said last month the business needed a "reset" and that its profit margin had declined to 3%, forcing a restructuring that could include potential M&A.

"Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform and hardware subsidy, but our annual revenue has declined nearly half a billion during that time," she said in a memo to employees published on Microsoft's website. "Going forward, this cannot continue."

Studios impacted by the layoffs:

Five gaming studios will be spun out of Microsoft, Coleman said. The commercial business that focuses on selling to customers will also see reductions.

According to a Tech Times report:

Ninja Theory: The Cambridge-based developer behind the Hellblade franchise was informed of its closure on June 15, shockingly just nine days after its team presented a new series entry at the Xbox Games Showcase.

Compulsion Games & Double Fine Productions: Both the Peabody Award-winning Montreal studio (South of Midnight, We Happy Few) and Tim Schafer’s renowned San Francisco developer are currently in closure or buyout negotiations.

Undead Labs: The studio behind the highly anticipated State of Decay 3, which employs roughly 110 people, is currently under corporate review.

Arkane Lyon: The acclaimed studio responsible for Dishonored and Deathloop is reportedly facing closure. Consequently, the highly anticipated superhero action game, Marvel's Blade—which had already slipped from a 2026 launch to late 2027—faces outright cancellation. Microsoft has yet to officially confirm the details regarding Arkane Lyon.

Veteran gaming insiders, including George Broussard, noted that the combined scale of these cuts across corporate positions and the distinct studios marks a grim, unprecedented milestone for the global gaming industry.

‘Decisions like these are never easy’

“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.

While much of Wall Street’s concerns about Microsoft are tied to the company’s position in AI and CEO Satya Nadella’s failure to lay out a coherent strategy for its approach to developing models, agents and other services, AI isn’t replacing laid-off workers, Coleman wrote.

(With agency inputs)