Microsoft Wants You to Know Xbox Layoffs are Not Due to AI

Microsoft is eliminating around 4,800 jobs, or about 2.1% of its global workforce, as it restructures parts of its gaming business. 

The layoffs primarily affect Xbox and commercial sales verticals, according to an internal memo sent to employees by Amy Coleman, Executive Vice President and Chief People Officer.

In the memo, Coleman said the decision was driven by changes in customer needs, business models, and the way technology is being built and deployed, rather than by AI replacing employees.

“I also want to be direct that the roles eliminated today are not being replaced by AI,” Coleman wrote. “At the same time, what is true is that AI is changing how work gets done. 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.”

Coleman said Microsoft had tried to reduce the need for layoffs by moving employees into other roles. Over the past year, the company redeployed more than 4,000 employees internally, including another 500 this month. She also said more than 30% of eligible employees opted into the company's recent voluntary retirement programme.

“We will also transition four of our gaming studios to operate under new management, with the goal of preserving both their intellectual property and ongoing projects,” Coleman wrote.

Explaining the restructuring, Coleman said Microsoft’s business had to change as the technology industry evolves.

“The way technology is built, deployed, and used is transforming faster than at any point in my time here,” she said. “Our customers’ needs are shifting, the business models that serve them are shifting, and that means the work itself—what we do, where we focus, and how we’re organised—has to transform too.”

She added that the latest changes in Microsoft's commercial business build on the company’s recently announced Frontier Company strategy, which involves embedding engineering teams more closely with customers to help accelerate technology deployments. 

The Xbox division is also being restructured to align with the company’s long-term business priorities, while engineering teams across Microsoft will adjust their structure and focus.

Microsoft’s Xbox division will eliminate around 3,200 roles during FY27, Xbox CEO Asha Sharma shared in a post on X.

Xbox’s restructuring includes about 1,600 job cuts effective immediately, while four game studios will move out of Xbox under new ownership or management. 

Sharma said Xbox’s business “today is not healthy,” adding that the company operates “at margins that are 3–10x lower than comparable platform and publishing businesses.”

Compulsion Games and Double Fine Productions will become independent studios with their intellectual property and game catalogues. Ninja Theory and Undead Labs will move to new ownership with funding to continue development of the Senua and State of Decay franchises.

Sharma added that the company is also reducing roles across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios, while shifting investments toward higher-priority projects. 

The platform business will also change. Sharma said some parts of Xbox currently have as many as 14 layers of management, while platform teams have grown 40% since the beginning of the current console generation despite declines in player base and playtime.

“We will reduce management layers to no more than 5, and where possible, 3,” Sharma wrote on X. “We will deliver success through a flatter organisation that is built around makers, player-coaches, and directly responsible individuals.”

Meanwhile, Coleman said Microsoft would continue investing in employee training, including AI skills, while providing financial support and career resources to affected employees.