Microsoft made a big announcement on Monday. The company cut 4,800 jobs. That’s 2.1% of its total workforce. The move aims to cut costs in the AI era.
The Xbox division took the biggest hit. About one-fifth of its staff is being let go. On Monday, 1,600 jobs were cut. More cuts will follow in the coming months.
Microsoft’s chief people officer, Amy Coleman, sent a message to employees. She said technology is changing faster than ever before. Xbox CEO Asha Sharma also emailed her team.
She revealed that Xbox will lose 3,200 jobs in total. Half of those were cut on Monday. The remaining 1,600 employees will leave during fiscal year 2027.
Sharma admitted that a long restructuring process creates extra challenges. She said it’s not possible to make all changes in a single day. A source said the cuts equal 20% of Xbox’s total staff. Sharma assured employees that the division will return to growth in 2027.
Microsoft has been the worst-performing megacap tech stock in 2026. Its shares had fallen 19% by Friday’s close. Investors worry that generative AI could replace enterprise software. At the same time, Microsoft’s own AI products haven’t become major hits yet. The company also went through layoffs last year, cutting 9,000 jobs. On Monday, Microsoft’s stock dropped 1%. Meanwhile, the tech-heavy Nasdaq Composite rose 1%.
Microsoft has seen strong growth in cloud services and LinkedIn recently. But it’s falling behind in other areas. Windows licenses, Surface devices, and gaming are all struggling. Revenue in these segments keeps shrinking.
As part of the changes, four gaming studios will be spun off. Microsoft’s commercial sales business will also see cuts. Compulsion Games and Double Fine Productions, acquired in the 2010s, will become independent again. Ninja Theory and Undead Labs, which joined Microsoft in 2018, are moving to new ownership. Double Fine called it a positive end to seven years with Xbox, in a post on X.
France-based Arkane Studios joined Microsoft through the $8.1 billion ZeniMax Media deal in 2021. It’s now discussing strategic options with its works council. Analyst Gil Luria from DA Davidson told CNBC that gaming no longer fits Microsoft’s core business. He believes the company may eventually spin off Xbox entirely.
In April, Microsoft launched its first-ever voluntary retirement program. It targeted U.S. employees at senior director level and below. More than a third of eligible staff accepted the offer. Coleman said the company will keep exploring similar options in the future. She acknowledged that such decisions are never easy. Microsoft, she said, always looks for ways to avoid layoffs.
Much of Wall Street’s concern centers on Microsoft’s AI strategy. CEO Satya Nadella hasn’t laid out a clear plan for models and AI agents. Still, Coleman clarified that AI isn’t replacing the laid-off workers. She said AI is changing how work gets done. Many daily tasks can now be automated.
That means employees must keep learning new skills. Adapting to change has become essential. Customers are going through the same shift. They expect Microsoft to guide them through it. Coleman said that’s only possible if Microsoft adapts too.
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