Microsoft cuts 4,800 jobs, spins off four Xbox studios

Microsoft announces 4,800 job cuts across the company

Microsoft said on Monday, July 6, 2026, that it is immediately eliminating 4,800 positions, or 2.1% of its global workforce, in the company’s latest cost-cutting action tied to the rapid rollout of artificial intelligence across the technology sector. The layoffs were confirmed in internal memos first reported by CNBC and TechCrunch, and tracked in subsequent reporting by The Wall Street Journal.

The reductions span multiple parts of the company, but the Xbox video game division and the commercial sales organisation that sells Microsoft software to corporate customers are bearing the brunt of the cuts. Amy Coleman, Microsoft’s chief people officer and a 27-year company veteran, wrote in her memo that the company is reshaping itself for a technology cycle she described as the fastest she has witnessed in her time at Microsoft. “Companies don’t get to choose whether their industry changes; they only get to choose whether they change with it,” Coleman told staff, according to TechCrunch’s reading of the memo.

Xbox loses 3,200 staff in its “most significant restructure” ever

The Xbox division will be cut by 3,200 jobs in total, according to an email Xbox chief executive Asha Sharma sent to division employees. Half of those 3,200 roles, or 1,600 positions, are part of Monday’s 4,800-job cull. The remaining 1,600 Xbox employees will exit throughout Microsoft’s fiscal year 2027, a process Sharma acknowledged will create “additional challenges” because the restructuring is being stretched over many months rather than completed in a single day.

Sharma called the action “the most significant restructure in Xbox history” and disclosed that Xbox is currently “operating at margins that are 3–10x lower than comparable platform and publishing businesses,” according to TechCrunch. The Wall Street Journal noted that the video game unit’s revenue has fallen and that its Netflix-like subscription service, Game Pass, has performed well below expectations.

Sharma laid out a number of bets Xbox made that did not pay off, including expansion of Game Pass, growth of its portfolio of owned content, and a push into multi-platform publishing. None of those strategies grew at the pace Microsoft anticipated, she wrote, and the result is that the core business has weakened even as Xbox added more teams and more investment. “And now the industry is facing the most severe hardware crisis in its history,” Sharma added. “We must reset Xbox.”

Four gaming studios to leave Microsoft

As part of the overhaul, four Microsoft-owned game studios will be placed under new ownership. According to Sharma’s memo, Compulsion Games and Double Fine Productions — both acquired by Microsoft in the 2010s — will return to independent operation. Ninja Theory and Undead Labs, which Microsoft acquired in 2018, “have entered terms to join new ownership,” with funding tied to completing and growing some of their more popular games.

Double Fine, the studio behind titles such as Psychonauts, confirmed the move in a post on X: “We’re thankful to everyone at Xbox for seven great years together, and for working with us to reach an outcome which preserves our history and culture, and returns ownership of our games to us.” France-based Arkane Studios, which Microsoft acquired through the $8.1 billion ZeniMax Media deal in 2021, is in talks with its works council over strategic options, Sharma wrote. TechCrunch reported that the transitions are intended to ensure preservation of intellectual property and ongoing projects.

Xbox is also flattening management to cut costs. Sharma told staff the division will move from its current 14 management layers to no more than five and ideally three. As part of that redesign, longtime Microsoft and Xbox executive Helen Chiang will become chief operating officer with end-to-end profit-and-loss authority spanning content, hardware, platform, and services.

Where Microsoft is cutting, and where it is spending

Coleman’s memo pointed to the company’s commercial sales organisation as another area losing headcount, though she gave no specific figure for that group. CNBC reported that the commercial side will also see reductions, and that engineering teams across the company will reorganise around new priorities.

The job cuts land alongside a heavy push into AI infrastructure. TechCrunch reported that the layoffs build on Microsoft’s recently launched Frontier Company business unit, which focuses on delivering enterprise AI deployments using Microsoft’s existing AI tools and a large bench of forward-deployed engineers, backed by a $2.5 billion investment. The reporting notes a pattern across the industry in 2026 in which job cuts have been paired with expanded AI spending.

Microsoft’s stock has suffered through this transition. CNBC noted that Microsoft has been the worst performer among megacap technology stocks so far in 2026, down 19% as of Friday’s close on fears that generative AI models could displace large parts of enterprise software, while Microsoft’s own AI models and services have so far failed to become breakout hits. Microsoft shares slipped about 1% on Monday even as the technology-heavy Nasdaq Composite index rose roughly 1% on the day.

AI framing, and how analysts are reading the move

Coleman addressed the AI angle directly in her memo. “At the same time, what is true is that AI is changing how work gets done,” she wrote, according to CNBC. “Some of the tasks we do every day can now be automated, and that means we all need to keep learning, keep building new skills, and keep adapting as the work evolves.” She emphasised that the roles being eliminated on Monday are not being replaced by AI. TechCrunch noted that for workers facing unemployment, “that’s a distinction without a difference.”

Independent analysts have gone further. DA Davidson analyst Gil Luria, speaking to CNBC, said the Xbox business “is not a business Microsoft needs to be in, or should be in,” and suggested Microsoft could spin off the unit outright. Luria added, “It is very possible that they will spin it off at some point.”

Key background: a year of layoffs, a shift in strategy

The Monday cuts are the latest in a multi-year retrenchment. CNBC reported that Microsoft conducted several rounds of job cuts in 2025, including one that eliminated 9,000 positions. TechCrunch placed last year’s overall layoff tally at about 15,000 employees across two rounds. In April 2026, Microsoft introduced its first-ever one-time voluntary retirement programme, targeted at U.S. employees at the senior director level and below; more than one-third of eligible employees accepted, Coleman said, and Microsoft will “continue exploring similar approaches.”

The restructuring also coincides with a wider pullback across the tech industry. TechCrunch reported that close to 154,000 people in the technology sector have lost their jobs in the first half of 2026, with other large companies including Meta also announcing cuts. Microsoft itself is still growing in some pockets: Coleman pointed to accelerating cloud services and LinkedIn, while Microsoft’s Windows licensing, Surface devices, and Xbox gaming revenue have all been shrinking.

What to watch next

Several concrete decisions will follow Monday’s announcement. Microsoft said the remaining Xbox headcount reductions will be carried out through the end of fiscal year 2027, meaning further layoff waves inside the gaming division are explicitly planned. The completion of ownership transfers at Compulsion, Double Fine, Ninja Theory, and Undead Labs will test whether Microsoft can extract value from studios it spent billions to acquire. Arkane Studios’ works council talks in France will determine whether it joins the spin-off cohort or stays inside Microsoft. Investors will watch for any disclosure on whether the company considers a full Xbox spin-off, the scenario floated by Luria. Investors will also parse Coleman’s line about “continuing to explore similar approaches” to voluntary buyouts, which signals more attrition programmes could be on the way before the next annual layoff cycle.