Microsoft Restructures Xbox, Cuts Jobs and Spins Off Studios
Microsoft is moving forward with another round of workforce reductions and organizational changes as it seeks to improve performance across its gaming business and operations.
According to CNBC, the company plans to eliminate 4,800 jobs, representing about 2.1% of its total workforce. The Xbox division is expected to be most affected, with staffing there projected to decline by roughly 20% through fiscal year 2027. The latest cuts follow a separate reduction of 9,000 positions last year.
The restructuring comes during a challenging period for Microsoft. Its shares are down 19% in 2026, as investors continue to evaluate the return on the company’s significant investments in artificial intelligence. At the same time, Xbox revenue has declined, and Microsoft’s gaming subscription service, which has been compared to Netflix, has underperformed expectations.
As part of the changes, four Xbox studios will move outside Microsoft’s ownership structure. Compulsion Games and Double Fine Productions are set to become standalone companies again. Ninja Theory and Undead Labs have entered into terms to join new ownership, according to the report. The changes suggest Microsoft is narrowing its gaming portfolio while seeking to reduce costs and increase operational efficiency.
The company is also expanding its use of AI to automate internal processes. Microsoft’s chief people officer said AI is not replacing laid-off employees, while acknowledging that some routine tasks can now be automated. The comments reflect the company’s effort to distinguish between workforce reductions and its broader technology strategy.
Xbox CEO Asha Sharma told employees in an email that the business is expected to “return to growth in 2027.” The statement indicates that Microsoft views the restructuring as part of a longer-term plan to stabilize Xbox and improve financial results. For employees, studios, and investors, the outcome will depend on whether these changes help the gaming division reverse declines.