Microsoft on Monday cut about 4,800 positions, or 2.1% of its global workforce. This is the latest in a series of layoffs that have fueled concerns that AI will replace corporate talent.
The layoffs will hit Xbox and commercial sales the hardest, with Xbox set to lose 1,600 staff today, according to a memo shared with Microsoft staff.
Below is an excerpt from a memo from Amy Coleman, EVP and Chief Human Resources Officer.
“Our businesses are changing because the world around them is changing. The way we build, deploy, and use technology is changing faster than at any point in my time here. Customer needs are changing, and the business models that serve them are changing. That means the work itself has to change: what we do, where we focus, and how we organize.”
Companies cannot choose whether or not their industry changes. They just have to choose whether or not to be changed by it. That means aligning resources and roles and changing the way we operate so we can have the greatest impact for our customers. ”
Coleman stressed that currently eliminated roles “are not going to be replaced by AI,” but noted that “the truth is that AI is changing the way we do work.”
“Some of the tasks we do every day can now be automated, which means we all need to keep learning, keep building new skills, and keep adapting as work evolves,” Coleman wrote.
For many people feeling the pain of unemployment, it’s the difference that makes no difference.
The job cuts will be based on Microsoft’s recently launched Frontier Companies business unit. This business unit is focused on delivering enterprise AI deployments using the company’s existing AI tools and army of forward-deployed engineers. The move is backed by a $2.5 billion investment and reflects a common theme seen in this year’s layoffs: layoffs correlate with increased AI spending.
Coleman had little to say about Xbox’s job cuts, saying, “We are realigning our business for long-term success. Engineering teams across the company will also evolve their structure and priorities to meet customer needs and innovate for the future.”
Of the 4,800 current layoffs at Microsoft, 1,600 will affect Xbox, with a total of about 3,200 expected to be cut by fiscal 2027, according to Xbox CEO Asha Sharma. In an email sent to employees on Monday, Sharma called it “the most significant restructuring in Xbox history.”
“Our business today is not healthy,” Sharma wrote. “We operate on margins that are three to ten times lower than comparable platform and publishing businesses,” she said, adding that Xbox has made bets like its monthly subscription service Game Pass, alongside moves to expand its content portfolio and invest in multi-platform, among other efforts to inject some life into the business. None of these strategies grew at the expected pace and led to a weakening of the core business, even as Xbox added teams and investments.
“And now the industry is facing the most severe hardware crisis in history,” Sharma said. “You need to reset your Xbox.”
As part of the transition, Microsoft will transition four of its game studios to operate under new management, ensuring protection of intellectual property and ongoing projects. According to Sharma, Compulsion Games and Double Fine Productions in particular will return to being independent studios. Ninja Theory and Undead Labs will be under new ownership with funding to complete and grow some of their more popular games.
According to Sharma’s memo, Xbox is also focusing on flattening its operations, reducing its current 14 management layers to five, and ideally three. As part of this major organizational redesign, Xbox will appoint longtime executive Helen Chan as chief operating officer, giving her end-to-end P&L authority across content, hardware, platforms and services.
The gist of Xbox’s restructuring plan is that the company is narrowing its focus by moving away from creative bets that don’t deliver benefits at platform scale and instead focusing on core strategic pillars like Minecraft and Candy Crush.
Xbox’s layoffs come as the gaming industry shrinks amid new generative AI opportunities. Companies that build world models, including Google DeepMind, World Labs, General Intuition, Luma AI, and Runway, have received millions of dollars in funding over the past year and garnered a lot of publicity for their playable world model demos. All of these companies see gaming as a short-term opportunity for commercialization.
In April, Microsoft offered a buyout of an undisclosed number of employees (some estimates put the number at about 5,500) in the form of voluntary redundancies, with the goal of building a high-performing team. Last year, Microsoft laid off about 15,000 employees in two rounds.
The layoffs are part of a series of layoffs in the tech industry, with nearly 154,000 jobs lost in the first half of 2026 alone, with Big Tech companies including Meta, Oracle, Amazon and Cognizant cutting thousands of employees.
In addition to Monday’s cuts, Microsoft said it is working on ways to keep employees employed, including reskilling them and placing them in new roles.
“Over the past year, we have redeployed more than 4,000 employees to new roles, including 500 more this month,” Coleman said.
Microsoft did not immediately respond to requests for comment or further information.
This article has been updated with more details about Xbox layoffs. This article was originally published on July 6, 2026 at 8:08 a.m. PT.
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