Microsoft Cuts 4,800 Jobs, Spins Off Four Game Studios

Microsoft is pursuing a sweeping organizational overhaul by laying off 4,800 employees, roughly 2.1% of its total workforce, to manage costs and realign its business with rapid technological shifts in the industry. The Xbox division will bear the brunt of these cuts, shedding 3,200 positions in two waves: 1,600 in the recent July 6 layoff announcement and another 1,600 spread throughout Microsoft's 2027 fiscal year.

Acha Sharma, Xbox's executive vice president, acknowledged that the year-long restructuring would challenge employees but insisted that "we cannot complete all necessary changes in a single day," while committing to Xbox's growth recovery by 2027.

Microsoft is also spinning off four game development studios: Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs. Compulsion Games and Double Fine Productions will return to independence after years under Microsoft, while Ninja Theory and Undead Labs have reached preliminary agreements to move under new ownership. Double Fine Productions expressed gratitude on X for "7 amazing years" and praised the return of ownership rights, while Compulsion Games emphasized supporting its team through the transition. Arkane Studios, part of the ZeniMax Media acquisition, is meanwhile consulting with labor representatives on future strategic direction.

Amy Coleman, Microsoft's Chief People Officer with 27 years at the company, told employees that technology is changing faster than ever before, requiring the organization to adapt rapidly as the methods for building, deploying, and using technology shift dramatically.

Despite growing revenue from Cloud Services and LinkedIn, Microsoft's Windows, Surface, and Xbox revenues have stalled over recent quarters, prompting aggressive restructuring. The company has previously conducted multiple layoff rounds, including a 9,000-position cut last year, and maintains plans to trim commercial business operations.

Beyond job cuts, Microsoft launched a voluntary retirement program for U.S. Senior Directors and above, with participation exceeding one-third of eligible employees. Coleman indicated the company will continue offering such voluntary measures to reduce future layoff necessity.

Regarding AI concerns, Coleman clarified that "AI is not the cause of employee terminations" but acknowledged that technology is unavoidably transforming how work is performed.