Microsoft cuts jobs in major Xbox restructuring

Microsoft is cutting thousands of jobs and reshaping its Xbox business in what its gaming chief called “the most significant restructure in Xbox history,” as the company confronts weaker margins, slower-than-expected growth in gaming services and rising hardware costs.

The company announced 4,800 job cuts across Microsoft, roughly 2.1% of its workforce, the BBC reported. Xbox will absorb a large share of the reductions, with more than 1,600 roles being eliminated immediately and another 1,600 Xbox jobs to be cut over the coming year. CBS News reported that Microsoft said it will cut 3,200 jobs from its Xbox video game business.

Amy Coleman, Microsoft’s executive vice president, told employees in a memo that the company needed to focus on areas that can deliver for customers in a “fast-changing industry.”

“Companies don’t get to choose whether their industry changes; they only get to choose whether they change with it,” Coleman said. She also said the company would not replace the eliminated roles with artificial intelligence, while adding that “what is true is that AI is changing how work gets done.”

Asha Sharma, who recently took over as Xbox chief executive, told staff the division needed a reset. “Our business today is not healthy,” Sharma said in a memo released by Microsoft. “We are operating at margins that are 3-10x lower than comparable platform and publishing businesses.”

Sharma said Microsoft’s investments in Game Pass, its gaming subscription service, and multi-platform services had grown more slowly than expected. “As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome,” Sharma said. “And now the industry is facing the most severe hardware crisis in its history. We must reset Xbox.”

As part of the restructuring, four Xbox game development studios — Compulsion Games, Double Fine Productions, Ninja Theory and Undead Lab — will be spun off, according to the BBC. Sharma also said Minecraft developer Mojang and Candy Crush developer King will now report directly to the Xbox chief executive.

“These changes are about a bigger future for Xbox, not a smaller one,” Sharma said. “History is full of companies that mistake longevity for inevitability. We will not be one of them.”

The cuts come after a difficult stretch for the gaming industry. The BBC reported that many studios are still recovering from layoffs in recent years. In 2024, Xbox cut more than 2,000 staff and closed four studios that had been acquired before Microsoft’s purchase of Call of Duty maker Activision-Blizzard. A little more than a year later, Microsoft said it would lay off as many as 9,000 workers after outlining plans to increase its multibillion-dollar spending on AI, the BBC reported.

Hardware costs have also weighed on the business. Microsoft announced in June that it would raise prices for Xbox consoles starting Aug. 1, citing higher costs for storage and memory components in electronic devices. The price of consoles with 512 gigabytes of storage will rise by $100 to nearly $500, while models with 1 terabyte of storage will increase by $150.

The BBC reported that rising hardware costs have prompted Microsoft and other companies to increase prices on older consoles and similar consumer devices, with many blaming AI data centers for driving demand faster than supply can catch up.