Microsoft has announced plans to eliminate 4,800 jobs, representing about 2.1% of its global workforce, as the technology giant intensifies cost-cutting efforts while reshaping its business for the artificial intelligence era.
The layoffs will heavily impact the company’s Xbox gaming division, where about 3,200 employees — roughly one-fifth of the workforce — will lose their jobs. Of those, 1,600 positions will be cut immediately, while the remaining 1,600 employees will leave over the course of Microsoft’s 2027 fiscal year.
The restructuring comes as Microsoft faces growing investor pressure over its artificial intelligence strategy despite continued strength in its cloud computing business. The company’s shares have fallen 19% so far in 2026, making it the weakest-performing megacap technology stock this year amid concerns that generative AI could disrupt traditional enterprise software while Microsoft’s own AI offerings have yet to gain significant commercial traction.
In a message to employees, Microsoft’s Chief People Officer, Amy Coleman, said the company was responding to rapid technological changes.
“The way technology is built, deployed, and used is transforming faster than at any point in my time here,” Coleman, a 27-year company veteran, wrote.
The latest announcement follows several rounds of layoffs last year, including one that eliminated 9,000 positions.
Xbox Chief Executive Asha Sharma told employees the gaming division would undergo a year-long restructuring that would ultimately reduce its workforce by about 20%.
“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.”
She added that the gaming business is expected to recover after the restructuring.
“We will return to growth in 2027,” Sharma wrote.
A person familiar with the matter, who requested anonymity because the changes are internal, said the cuts amount to approximately one-fifth of Xbox’s workforce.
As part of the reorganisation, Microsoft will spin off four gaming studios while trimming its commercial sales operations.
Coleman confirmed that the company’s customer-facing commercial business would also see staff reductions.
Sharma said Compulsion Games and Double Fine Productions, both acquired by Microsoft during the 2010s, will once again become independent companies.
She added that Ninja Theory and Undead Labs, which joined Microsoft in 2018, “have entered terms to join new ownership.”
Reacting to the move, Double Fine thanked Microsoft in a post on X.
“We’re thankful to everyone at Xbox for seven great years together, and for working with us to reach an outcome which preserves our history and culture, and returns ownership of our games to us.”
Sharma also disclosed that France-based Arkane Studios, acquired through Microsoft’s $8.1 billion purchase of ZeniMax Media in 2021, is consulting its works council on strategic options.
The restructuring has renewed speculation about Microsoft’s long-term commitment to its gaming business.
DA Davidson analyst Gil Luria said the company could eventually separate Xbox from its broader operations.
“This is not a business Microsoft needs to be in, or should be in,” Luria said on CNBC, referring to Xbox. “It is very possible that they will spin it off at some point.”
Coleman rejected suggestions that artificial intelligence is directly replacing employees, even as AI increasingly reshapes how work is performed.
Earlier this year, Microsoft introduced its first voluntary retirement programme targeting US employees at senior director level and below. Coleman said more than one-third of eligible staff accepted the offer and that the company would continue exploring similar initiatives.
“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.
She stressed, however, that AI is transforming workplace responsibilities.
“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.”
Despite continued growth in Microsoft’s cloud computing and LinkedIn businesses, the company has struggled in other segments, including Windows operating system licensing, Surface devices and Xbox, where revenue has continued to decline.
Microsoft shares fell about 1% during Monday’s trading session, even as the technology-heavy Nasdaq Composite index gained 1%.
Boluwatife Enome
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