Microsoft laid off about 4,800 people, or 2.1% of its global workforce, on Monday. This is the latest in a series of layoffs that have raised concerns that AI will replace companies’ workforces.
The layoffs will hit Xbox and commercial sales the most, with Xbox set to lose 1,600 employees today, according to a memo shared with Microsoft employees.
Below is an excerpt from a memo from Amy Coleman, EVP and Chief Human Resources Officer.
“Our business is changing because the world is changing. The way technology is built, deployed and used is changing faster than at any point I’ve been here. Customer needs are changing, and the business models that serve them are changing. That means work itself – what we do, where we focus and how we organize – must change.
Companies cannot choose whether their industry changes or not. They can only choose whether to change with it or not. This means we must align our resources and roles and transform the way we operate to have the greatest impact for our customers.”
Coleman emphasized that the roles that are disappearing today “are not being replaced by AI,” but pointed out that “the fact is that AI is changing the way work is done.”
“Some of the tasks we perform every day can now be automated, which means we all need to keep learning, keep building new skills, and keep adapting as our jobs evolve,” Coleman wrote.
For many people who feel the pain of unemployment, it is a difference that makes no difference.
The layoffs follow Microsoft’s recent launch of its Frontier Company division, which focuses on delivering enterprise AI deployments by leveraging the company’s existing AI tools and army of forward-deployed engineers. The move is backed by a $2.5 billion investment, which reflects a common theme seen in layoffs this year. In other words, job cuts are correlated with increased AI spending.
Commenting on the Xbox layoffs, Coleman said, “We are restructuring 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 Microsoft’s 4,800 layoffs today, 1,600 will be at Xbox, with a total of 3,200 expected to be laid off by fiscal 2027, according to Xbox CEO Asha Sharma. In an email to employees on Monday, Sharma called this “the most significant restructuring in Xbox history.”
“Our business is not healthy today,” Sharma wrote. “We operate at margins that are three to 10 times lower than similar platform and publishing companies.” She added that Xbox has made investments such as Game Pass, a monthly subscription service, and has attempted to revitalize its business by increasing its content portfolio and investing in multi-platform. Neither of these strategies grew at the expected rate, and even as Xbox added more teams and investments, its core business weakened.
“And now the industry is facing the most severe hardware crisis in its history,” Sharma said. “You need to reset your Xbox.”
As part of the change, Microsoft will transition its four game studios to operate under new management to preserve their intellectual property and ongoing projects. According to Sharma, Compulsion Games and Double Fine Productions, among others, will return as independent studios. Ninja Theory and Undead Labs are under new ownership with funding to complete and grow some of their more popular games.
According to Sharma’s memo, Xbox has been drastically simplifying management, reducing the current 14 layers of management to five or fewer, and ideally three. As part of this major organizational redesign, Xbox has named Helen Chiang, a longtime executive with end-to-end P&L authority across content, hardware, platforms and services, as Chief Operating Officer.
At its core, Xbox’s restructuring plan is that the company is narrowing its focus by ditching creative bets that don’t generate platform-scale returns and instead focusing on core strategic pillars like Minecraft and Candy Crush.
Xbox’s layoffs come as the gaming industry shrinks due to new generative AI opportunities. Companies building world models, such as Google DeepMind, World Labs, General Intuition, Luma AI, and Runway, have received millions of dollars in funding over the past year and have garnered a lot of attention for their playable world model demos. These companies all see games as a short-term commercial opportunity.
Last April, Microsoft offered a voluntary redundancy structure to an undisclosed number of employees (some estimates put it at around 5,500) with the goal of building high-performing teams. 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 that have seen nearly 154,000 people lose their jobs in the first half of 2026 alone, with tech giants such as Meta, Oracle, Amazon and Cognizant laying off thousands of employees.
Microsoft said Monday that in addition to reducing its workforce, it is exploring ways to retain employees by reskilling them or placing them in new roles.
“Over the past year, we have redeployed more than 4,000 employees into new roles, including an additional 500 this month,” Coleman said.
Microsoft did not immediately respond to requests for comment and additional information.
This article has been updated with more details about the Xbox layoffs. Originally published on July 6, 2026 at 8:08am PST.
We may receive a small commission if you purchase something through links included in this article. This does not affect our editorial independence.
