Microsoft is planning to lay off 4,800 employees, primarily affecting its Xbox division, as it adjusts to shifts in the technology landscape driven by advancements in artificial intelligence.
This decision follows the company’s substantial investments in AI after a long focus on gaming. Amy Coleman, Microsoft’s chief human resources officer, noted in a memo that the rapid transformation in how technology is developed and utilized is unprecedented.
Notably, 1,600 Xbox workers will be let go immediately, with another 1,600 facing layoffs over the remainder of the fiscal year, according to Xbox CEO Asha Sharma. She expressed that the current state of the business is quite challenging, citing slow growth among other issues.
Sharma mentioned that Xbox’s profit margins are significantly lower than those of similar companies, highlighting a pressing need for a realignment of strategies.
Alongside the layoffs, Microsoft is also looking to offload or restructure four of its game development studios, with a fifth studio’s future still under consideration. In total, these layoffs account for 2.1% of Microsoft’s global workforce, notably impacting one-fifth of Xbox employees.
Layoffs across the tech sector have surged recently, with AI being pointed at as a contributing factor. Reports indicate there were over 52,000 layoffs in tech during the first quarter of 2026, a striking increase from the previous year.
Interestingly, Coleman affirmed that the roles being eliminated won’t just be replaced by AI, but acknowledged the necessity for employees to adapt and continually develop new skills in this evolving environment.
Shares of Microsoft dropped by about 1.5% around midday on Monday amidst these announcements. In light of a global shortage in memory chips, the company, along with competitors like Sony and Nintendo, has raised prices on Xbox consoles.
The video game industry has encountered a wave of job cuts recently. Microsoft had expanded its workforce during the pandemic but has faced adjustments as growth slowed post-pandemic.
Microsoft has also been acquiring game developers, such as Activision Blizzard, to enhance its subscription service, Game Pass. Sharma candidly stated that Game Pass’s growth lagged behind expectations.
In the quarter ending in March, Xbox reported a 5% decrease in revenue compared to the previous year, with profit margins reduced to 3% over the fiscal year ending in June.
Sharma, who was appointed to lead Xbox in February despite her lack of experience in the gaming industry, has shifted the company’s focus to fewer game releases while prioritizing key franchises like Minecraft and Fallout. In response to subscriber losses, she has reduced Game Pass pricing after the service previously saw a price increase that deterred users.
Furthermore, Xbox serves as Microsoft’s digital game store for Windows PCs, and as the company cuts back on game development, Sharma is aiming to enhance Microsoft’s appeal as a distribution platform for independent game developers.
