Microsoft has announced plans to cut 4,800 jobs, representing about 2.1 per cent of its global workforce, as the technology giant restructures its operations to align with its artificial intelligence strategy and reduce costs.
The layoffs will significantly affect the company’s Xbox gaming division, where about 3,200 employees—roughly one-fifth of the workforce—will be impacted. Of those, 1,600 positions will be eliminated immediately, while the remaining employees are expected to exit during Microsoft’s 2027 fiscal year.
The latest workforce reduction comes amid mounting investor scrutiny of Microsoft’s AI strategy despite the company’s continued strength in cloud computing. Its shares have declined by about 19 per cent so far in 2026, making it one of the weakest-performing mega-cap technology stocks this year, as investors weigh the commercial impact of generative AI on traditional software businesses.
In a message to employees, Microsoft’s Chief People Officer, Amy Coleman, said the company was adapting to rapid technological changes reshaping the industry.
“The way technology is built, deployed, and used is transforming faster than at any point in my time here,” Coleman wrote.
The announcement follows several rounds of layoffs over the past year, including a previous reduction of 9,000 jobs.
Xbox Chief Executive Asha Sharma told employees that the gaming division would undergo a year-long restructuring that would reduce its workforce by approximately 20 per cent.
“I recognize that a year-long restructuring creates additional challenges,” Sharma said. “Unfortunately, it is not possible to make all the necessary changes in a single day.”
She expressed confidence that the gaming business would return to growth after the restructuring is completed.
As part of the reorganisation, Microsoft plans to spin off four gaming studios while reducing staff across its commercial sales operations.
Sharma disclosed that Compulsion Games and Double Fine Productions, both acquired by Microsoft in the 2010s, will once again become independent companies.
She also revealed that Ninja Theory and Undead Labs, which joined Microsoft in 2018, are set to move under new ownership.
Reacting to the development, Double Fine thanked Microsoft in a statement posted on X, expressing appreciation for seven years of partnership and welcoming the return of ownership of its games.
Sharma further disclosed that France-based Arkane Studios, acquired through Microsoft’s $8.1 billion purchase of ZeniMax Media in 2021, is consulting its works council on strategic options for its future.
The restructuring has renewed speculation about Microsoft’s long-term commitment to its gaming business.
Technology analyst Gil Luria suggested the company could eventually separate Xbox from its broader operations.
“This is not a business Microsoft needs to be in, or should be in,” Luria said during an interview with CNBC, adding that a future spin-off remained a possibility.
Coleman, however, dismissed suggestions that artificial intelligence is directly replacing employees, while acknowledging that AI is fundamentally changing the nature of work.
She noted that many routine tasks can now be automated, requiring employees to continually develop new skills and adapt to evolving workplace demands.
Earlier this year, Microsoft also introduced its first voluntary retirement programme for eligible U.S.-based employees at senior director level and below. According to Coleman, more than one-third of eligible staff accepted the offer.
Despite continued growth in Microsoft’s cloud computing and LinkedIn businesses, the company has faced challenges in other segments, including Windows licensing, Surface devices and Xbox, where revenues have continued to decline.
Microsoft shares fell about one per cent during Monday’s trading session, even as the technology-heavy Nasdaq Composite index posted gains.
