In a move to adapt to the rapidly changing tech industry, Microsoft has announced a major restructuring effort, including the elimination of 4,800 jobs globally. This represents just over 2% of its workforce and is part of a broader strategy to revamp its sales and consulting division, as well as overhaul its Xbox business for long-term growth and profitability.
The tech giant’s decision comes amid record capital spending on AI infrastructure and pressure from Wall Street to keep operating expenses in check. The company has also faced a 30% stock slide over the past nine months, wiping out roughly $1.2 trillion in market value.
Xbox Division Faces Significant Changes
The Xbox division is at the heart of these changes, with about 1,600 of the 4,800 job cuts being announced on Monday, July 6. Additional layoffs in the months ahead are expected to bring total job reductions in the gaming division to roughly 3,200, or about 20% of the global Xbox workforce, this fiscal year.
In an internal memo, Xbox CEO Asha Sharma called it the biggest restructuring in Xbox history, noting that the division has been operating at margins that are 3-10x lower than comparable platform and publishing businesses. Studios have been losing 64 cents for every dollar invested.
Four Gaming Studios to Operate Independently
Microsoft is also spinning off four Xbox game studios to operate independently. The studios impacted by these changes include Ninja TheoryCompulsion GamesDouble Fine ProductionsUndead Labs and Arkane Lyon. The closure of these studios has raised concerns about the future of highly anticipated games like Marvel’s Blade.
Adapting to the AI Era
Microsoft’s top executives have emphasized that the cuts were minimized by the redeployment of more than 4,000 employees into new roles over the past year and a voluntary retirement program that allowed thousands more to exit by their own choice. This approach contrasts with the more than 15,000 jobs cut globally in two rounds of layoffs in spring and summer 2026.
Brad Smith Microsoft’s president and vice chair, stated, “Microsoft can only be a strong employer if it has a successful business. We have to adapt to change.”
The company’s chief people officer, Amy Coleman acknowledged that AI is changing how work gets done. She noted, “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.”
Reskilling Engineers for New Roles
Coleman confirmed that about 30% of roughly 8,750 eligible U.S. employees accepted Microsoft’s first-ever voluntary retirement program in recent weeks. This reduced the size of the reduction in force announced on Monday. The cutbacks and changes in the company’s sales and consulting teams build on last week’s launch of the Microsoft Frontier Company a $2.5 billion initiative to embed 6,000 engineers inside customers to deploy AI.
“We’re seeing that we need more engineering excellence in the customer space,” Coleman said. Smith added that software development is undergoing its biggest shift in the more than 50 years since Microsoft’s founding. The widespread use of AI is making code cheaper and faster to produce, but it’s also creating demand for new kinds of roles and work.
“Some things like coding require less time of software developers,” Smith said. “At the same time, there’s new parts that are growing, whether it’s the product management or software design, or perhaps most importantly, working directly with customers.”
