Microsoft lays off nearly 5,000 employees across Xbox, commercial sales

Microsoft cut around 4,800 roles, or 2.1% of its global workforce, on Monday — the latest in a series of layoffs that’s stoking fears that AI will replace people at companies.

The layoffs will hit Xbox and commercial sales the hardest, with Xbox losing 1,600 staffers today, according to memos shared with Microsoft’s staff.

Here’s a snippet from a memo from Amy Coleman, EVP and chief people officer:

“Our business is changing because the world around it is changing. The way technology is built, deployed, and used is transforming faster than at any point in my time here. 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 organized – has to transform too.

Companies don’t get to choose whether their industry changes; they only get to choose whether they change with it. That means we will need to adjust resources and roles and shift how we operate so we can have the greatest impact for our customers.”

Coleman stressed that the roles being eliminated today “are not being replaced by AI,” but noted, “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 wrote.

To many feeling the sting of unemployment, that’s a distinction without a difference.

The layoffs build on Microsoft’s recent launch of its Frontier Company business unit , which is focused on delivering enterprise AI deployments with the firm’s existing AI tools and an army of forward deployed engineers. That move is backed by a $2.5 billion investment, mirroring a common theme we’re seeing among layoffs this year — job cuts are correlating with increased AI spending.

Speaking about the Xbox layoffs, Coleman said little: “We are restructuring to position the business for long-term success. Engineering teams across the company will also evolve their structure and priorities to meet customer needs and innovate for the future.”

Of today’s 4,800 layoffs at Microsoft, 1,600 will hit Xbox, with about 3,200 cuts in total expected through fiscal year 2027, according to Asha Sharma , CEO of Xbox. In an email she sent to employees on Monday, Sharma called this “the most significant restructure in Xbox history.”

“Our business today is not healthy,” Sharma wrote. “We are operating at margins that are 3–10x lower than comparable platform and publishing businesses.” She added that Xbox made bets like its monthly subscription service Game Pass, alongside moves to grow its portfolio of content and invest in multi-platform, among other attempts to breathe life into the business. None of those strategies grew at the expected pace, leading to the core business weakening even as Xbox added more teams and investment.

“And now the industry is facing the most severe hardware crisis in its history,” Sharma said. “We must reset Xbox.”

As part of the shift, Microsoft will transition four of its gaming studios to operate under new management, ensuring preservation of intellectual property and ongoing projects. Specifically Compulsion Games and Double Fine Productions will return to independent studios, according to Sharma. Ninja Theory and Undead Labs are coming under new ownership with funding to complete and grow some of their more popular games.

According to Sharma’s memo, Xbox is also flattening management hard, cutting the current 14 management layers to no more than five, but ideally three. As part of this major organization redesign, Xbox is making longtime executive Helen Chiang chief operating officer with end-to-end profit and loss authority across content, hardware, platform, and services.

The TL;DR of Xbox’s restructuring plan is that the company is narrowing focus by dropping sprawling creative bets that don’t produce platform-scale returns, and instead homing in on core strategic pillars like Mojang and King, the businesses behind Minecraft and Candy Crush.

The Xbox layoffs come as the gaming industry shrinks amid new generative AI opportunities. Companies building world models — like Google DeepMind, World Labs, General Intuition, Luma AI, and Runway — have received millions in funding over the past year and garnered plenty of hype for their playable world model demos. All of those companies see gaming as a near-term opportunity for commercialization.

In April, Microsoft offered buyouts structured as voluntary separations to an undisclosed number of employees — some estimates put the number at around 5,500 — with the goal of building high-performing teams. Last year, Microsoft laid off about 15,000 employees across two rounds.

The eliminations are part of a series of layoffs in the tech industry that’s seen close to 154,000 people lose their jobs just in the first half of 2026, with Big Tech firms like Meta, Oracle, Amazon, and Cognizant cutting thousands of workers.

Microsoft said that along with Monday’s cuts, it’s working on ways to keep staff on by re-skilling workers or placing people in new roles.

“Over the past year, we have redeployed more than 4,000 employees into new roles, including another 500 this month,” Coleman said.

Microsoft did not immediately return a request for comment and more information.

This article has been updated with more details into the Xbox layoffs. It was originally published July 6, 2026 at 8:08 am PT.

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Rebecca Bellan is a senior reporter at TechCrunch where she covers the business, policy, and emerging trends shaping artificial intelligence. Her work has also appeared in Forbes, Bloomberg, The Atlantic, The Daily Beast, and other publications.

You can contact or verify outreach from Rebecca by emailing rebecca.bellan@techcrunch.com or via encrypted message at rebeccabellan.491 on Signal.

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