Microsoft to cut 4,800 jobs globally as Xbox bears brunt of major restructuring

Microsoft has announced a fresh round of layoffs that will affect around 4,800 employees worldwide, or nearly 2% of its global workforce, as part of a broader restructuring effort. The company’s gaming division, particularly its Xbox business, is expected to face the biggest impact.

The layoffs will be implemented over the course of the coming fiscal year.

Xbox restructuring at the centre

The overhaul is largely focused on Microsoft’s Xbox gaming operations and has been described by the company as the most significant reorganisation in the division’s history.

Earlier this year, Microsoft offered voluntary separation packages to nearly 9,000 employees in the US, roughly 7% of its American workforce. The company routinely reviews staffing levels at the end of its fiscal year in June as it sets spending priorities for the year ahead.

AI investments driving cost pressures

While surging demand for artificial intelligence has fuelled strong growth in Microsoft’s Azure cloud business, the enormous capital required to build AI-focused data centres has put pressure on cash flows. Azure served as the exclusive cloud provider for OpenAI’s models until April.

Microsoft, which is due to report quarterly earnings later this month, has forecast Azure revenue above Wall Street expectations. At the same time, it announced a $190 billion capital expenditure plan for 2026, well above analysts’ estimates, underscoring its aggressive AI expansion strategy.

The company is also navigating changes in its software business as AI-powered tools automate routine workplace tasks. In gaming, rising memory chip prices—driven by demand from AI data centres—have increased Xbox production costs. Microsoft has responded by raising Xbox console prices despite soft consumer demand.

Xbox chief says ‘reset’ is unavoidable

Last month, Xbox gaming division chief Asha Sharma said the business needed a “reset” after its profit margin dropped to just 3%, making restructuring unavoidable and creating room for potential mergers and acquisitions.

“Excluding Activision Blizzard King, over the past five years, we have spent over $20 billion on ongoing investments in our content, platform and hardware subsidy, but our annual revenue has declined nearly half a billion during that time,” Sharma wrote in a memo to employees published on Microsoft’s website. “Going forward, this cannot continue.”