Microsoft announces 4,800 layoffs: XBOX begins the largest restructuring in its history
Microsoft has announced a new workforce reduction that will affect approximately 4,800 employees, representing 2.1% of its global workforce. This decision is part of a broader business transformation plan aimed at concentrating investments, resources, and expertise on activities deemed strategic in a technology sector that, according to the company, is changing more rapidly than ever before.
The communication, signed by Chief People Officer Amy Coleman, emphasizes how the company has attempted to limit layoffs by relocating over 4,000 employees into new positions during the past year, including another 500 in the current month. Microsoft also highlights that over 30% of eligible employees have participated in the recent voluntary retirement program and that alternative solutions will continue to be evaluated to further reduce the impact of the restructuring.
A key point in the message concerns the role of artificial intelligence. Microsoft specifies that the eliminated positions will not be replaced by AI systems, while acknowledging that artificial intelligence is profoundly changing the way work is done. The automation of certain tasks requires, according to the company, continuous skill upgrades for employees and a different organization of resources.
The XBOX division faces the largest restructuring in its history
The most significant part of the plan concerns XBOX. In an internal communication, the division head, Asha Sharma, describes the restructuring as "the most important restructuring in XBOX's history." The plan includes approximately 3,200 job reductions over the fiscal year 2027, with 1,600 immediate layoffs, as well as the transfer of four studios under new management. The declared goal is to reposition the division for sustainable growth after years characterized by lower margins compared to major competitors.
According to Microsoft, the XBOX business currently has margins that are three to ten times lower than other platforms and publishers in the sector. The company attributes this situation to a smaller install base at the beginning of the current console generation, high operating costs, and growth in Game Pass and the cross-platform strategy deemed below expectations. Adding to this is what is described as "the most severe hardware crisis in the history of the video game industry."
Involved studios and new strategy
The restructuring also changes the composition of Xbox Game Studios. Compulsion Games and Double Fine Productions will return to independence, retaining their intellectual properties and existing catalog. Ninja Theory and Undead Labs will instead pass under new ownership, with funding aimed at completing the Senua and State of Decay 3 projects, respectively. For Arkane in France, the consultation process required by local regulations has been initiated to evaluate possible strategic alternatives.
Simultaneously, Microsoft confirms that the cuts will also affect Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and other XBOX Game Studios teams, specifying, however, that none of the already announced first-party games will be canceled as a result of the reorganization. Mojang and King will report directly to the division leadership, reflecting the growing strategic weight of the two groups due to their respective platforms and the high number of monthly active users.
Streamlined organization and fewer hierarchical levels
One of the main interventions concerns the internal structure of XBOX. Microsoft aims to drastically reduce organizational complexity by eliminating several managerial levels. In some areas of the division, the decision-making process currently goes through up to 14 hierarchical levels. The new model aims to limit them to a maximum of five, and where possible to three, favoring a flatter organization composed of developers, technical leads directly involved in projects, and figures with well-defined decision-making responsibilities.
The company also plans to streamline development tools, share internal services, create a more uniform code base, and reduce spending on external suppliers by 50%. At the same time, a new Chief Operating Officer role is introduced with cross-economic responsibilities over content, hardware, platform, and services. The role will be held by Helen Chiang, previously in charge of Mojang and involved in the development of Xbox Live.
Microsoft concludes by reiterating that the measures taken do not represent a scaling down of the platform's ambitions but rather an attempt to build a more efficient and sustainable organization. The company states its intent to continue investing in XBOX at the highest levels ever achieved, but with greater discipline in project selection and resource allocation, with the declared aim of returning to growth by 2027.