Microsoft revealed plans to cut about 4,800 jobs worldwide, roughly 2.1% of its total workforce, as part of a broad restructuring effort announced July 6, 2026 [1, 2, 3, 4]. The cuts will predominantly affect its Xbox division, which will lose around 3,200 employees — about 20% of its staff. Half of those layoffs, 1,600 jobs, took effect immediately on the announcement date, with the remainder phased through the 2027 fiscal year ending June 30, 2027 [5, 6, 7, 8, 3, 9, 4, 10].
Xbox CEO Asha Sharma called the changes "the most significant in Xbox history," noting the need to "reset Xbox" due to poor business health and margins declining to approximately 3%. She acknowledged the difficulty of a drawn-out restructuring, saying, "I recognize that a year-long restructuring creates additional challenges" [1, 5, 6, 8, 10]. Sharma added, "Decisions like these are never easy, and these changes will directly affect people who have poured their creativity into building Xbox" [9].
Microsoft is divesting four Xbox game studios. Compulsion Games and Double Fine Productions will return to independent status, with Double Fine expressing gratitude for seven years under Xbox ownership. Ninja Theory and Undead Labs will be sold to new owners but will continue to receive funding for ongoing projects. Arkane Studios is undergoing consultations on strategic options, leaving its future uncertain [2, 5, 6, 7, 11, 3, 9, 4, 10]. Compulsion Games said it will retain rights to titles including Contrast and We Happy Few [11].
The company also confirmed layoffs impact other gaming units such as Bethesda, Activision Blizzard, ZeniMax, Mojang, and Blizzard, as well as commercial sales businesses [5, 6, 3, 9, 4]. The workforce cuts represent less than 3% of Microsoft's approximately 228,000 total employees, with some offset by ongoing hires [8, 10].
Financial pressures partly stem from Microsoft's heavy investments in artificial intelligence, with forecasted 2026 spending of $190 billion in AI and infrastructure. The Xbox division’s profitability has suffered, with margins at about 3%, amid a smaller installed base and rising hardware costs. New strategies emphasizing Game Pass, multi-platform games, and expanded content have underperformed expectations [1, 2, 5, 6, 8, 10]. Microsoft's stock has fallen 19-23% in the first half of 2026, marking its worst half-year performance since 2022 [1, 2, 3].
On August 1, 2026, Xbox raised hardware prices sharply: the Xbox Series S increased from $299 to $499, and the Xbox Series X from $499 to $799, reflecting supply costs and market conditions [6].
In April 2026, Microsoft ran a voluntary retirement program, primarily affecting U.S. employees, with over 30% participation among eligible staff [1, 4].
Following these changes, Microsoft plans to continue restructuring the Xbox division through fiscal 2027 while maintaining commitments to ongoing projects and evaluating the future of Arkane Studios [5, 6, 7, 3, 9, 10].
