Microsoft $MSFT announced the elimination of 4,800 jobs on Monday, representing 2.1% of its total workforce, with the company's Xbox gaming division bearing the heaviest share of the cuts.
A memo from Xbox chief executive Asha Sharma to division employees detailed a phased reduction of 3,200 positions stretched across fiscal year 2027. Half of those departures began Monday, while the second batch of 1,600 is staggered throughout the remainder of the fiscal year, which started this month — and those latter cuts come in addition to the 4,800 companywide eliminations. Altogether, the reductions amount to about 20% of Xbox's workforce. "Our business today is not healthy," Sharma wrote in her memo. "We must reset XBOX."
Alongside the job cuts, four game development studios will be spun out of or sold by Microsoft, chief people officer Amy Coleman said. Sharma's memo identified the four studios by name. Compulsion Games and Double Fine Productions — both brought under Microsoft's umbrella during the 2010s — are set to operate independently again. Ninja Theory and Undead Labs, which arrived at the company in 2018, "have entered terms to join new ownership." A fifth studio, Arkane Studios, is based in France and came to Microsoft through the $8.1 billion ZeniMax Media deal in 2021; its works council is currently in talks with leadership over what comes next for the studio.
Subscription growth for Game Pass has fallen far short of internal targets: The Wall Street Journal reported that the service's active base sits at around 30 million, a steep shortfall against the roughly 77 million Microsoft once expected to reach by this point. Sharma's memo conceded that Game Pass "did not grow at the pace we expected." Financially, the division's struggles are visible in its numbers — a 5% year-over-year revenue decline in the March quarter and a profit margin of just 3% for the fiscal year that closed in June.
The cuts are part of a broader cost-reduction effort. While Coleman was clear that AI is not the direct cause of the workforce reductions, she pointed to the technology's growing role in transforming day-to-day work, adding that certain tasks have become candidates for automation. Coleman also noted that a voluntary retirement program — an unprecedented offering for Microsoft — launched in April, with uptake exceeding one-third of the employees who qualified.
The Xbox restructuring had been signaled for weeks. Sharma, who took over as Xbox CEO in February after the retirement of longtime gaming chief Phil Spencer, had warned employees that the business "cannot continue" on its current trajectory. As Quartz reported last month, a memo from Sharma and Xbox content chief Matt Booty outlined more than $20 billion invested in content, platform, and hardware subsidies over five years while annual revenue shrank by close to half a billion dollars. Storage costs have more than doubled since Sharma joined in February, the memo said.
Microsoft stock has fallen roughly 19% so far in 2026, its worst performance among megacap technology companies.