Tech giant Microsoft has confirmed that it is eliminating around 4,800 roles, which is about 2.1% of its global workforce. The job cuts land the hardest on its Xbox gaming and commercial sales teams, the company told staff on Monday.

The layoffs were confirmed in an internal memo from Amy Coleman, Microsoft’s chief people officer. About 1,600 of Monday’s cuts fall on Xbox, according to Xbox CEO Asha Sharma. Microsoft plans to continue with its cuts, aiming to remove almost 20% of Xbox jobs by the close of its financial year in July 2027, a reduction Sharma put at about 3,200 people across the entire division.

Coleman explained that these cuts had nothing to do with AI, saying “I also want to be direct that the roles eliminated today are not being replaced by AI,” while adding that “AI is changing how work gets done.”

The move matters to Microsoft’s more than 220,000 employees, and to a games industry seeing one of its biggest owners retreat from studios it spent years investing in.

Microsoft paying for AI interests

Microsoft is investing heavily on AI data centers, while its investors grow increasingly nervous. Microsoft stock fell 19% in June, its worst month since the internet era, on worries that AI could render the traditional software business that made the company obsolete.

Reducing employee headcount looks to be how Microsoft and other tech giants are looking to pay for the AI buildout without dropping margins. Meta also cut about 8,000 jobs in May, which is about 10% of its staff, with Amazon, Google, Coinbase, and Block all shedding workers in recent months.

Microsoft typically prunes staff around the July 1 start of its fiscal year. A year ago it cut 6,000 roles in May and another 9,000, almost 4% of the workforce, in July, according to Business Insider.

Coleman, however, also explained that the company redeployed more than 4,000 workers into new roles over the past year, including 500 in the past month. It also ran a voluntary retirement program open to US employees whose age and years of service added up to 70 or more, a program taken up by more than 30% of eligible staff, which helped to reduce the extent of this year’s layoffs.

Xbox pulls back from gaming studios

Microsoft is spinning off four studios to run independently in its gaming cuts. The Double Fine will return to founder Tim Schafer, Compulsion Games goes back to Guillaume Provost, while Ninja Theory (maker of Hellblade) and Undead Labs (maker of State of Decay) are being sold, according to The Verge.

The company is weighing the sale or closure of a fifth studio, France’s Arkane, where the delayed and over-budget game Blade is now under review by the studio’s works council. Xbox CEO Sharma told staff that none of Microsoft’s publicly announced first-party games are being cancelled in the cuts, which touch Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios.

Sharma was honest about the reasons for these, stating in a memo that “Our business today is not healthy.” She also added that Xbox ran at margins three to ten times below comparable platforms and publishing rivals, and that “in a typical year, we lost 64 cents for every dollar we invested.” The retreat from these studios brings an end to much of the smaller-studio buying spree led by former Xbox chief Phil Spencer, with Microsoft now pointing its money at bigger franchises instead of focusing on indie titles.

It is possible that more job cuts are on the way, with Coleman telling staff that “other parts of our business will need to make similar changes,” so Monday’s 4,800 is unlikely to be the final tally for Microsoft’s fiscal year 2027.

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