Microsoft Layoffs 2026: 4,800 Jobs Cut, Xbox Hit Hardest

 

The Microsoft campus in Mountain View, California, on January 26, 2026. 

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Microsoft Layoffs: 4,800 Jobs Cut as Xbox Division Takes Heaviest Hit

Microsoft slashes 2.1% of global workforce amid AI-driven restructuring, with Xbox absorbing 3,200 job cuts through fiscal 2027

Microsoft is cutting approximately 4,800 jobs — about 2.1% of its global workforce — in a fresh round of layoffs that hits the company's Xbox gaming division especially hard.

Why Microsoft Is Cutting Jobs

"Our business is changing because the world around it is changing," said Amy Coleman, Microsoft's executive vice president and chief people officer, in a message to employees Monday. She noted that while jobs aren't being directly replaced by artificial intelligence, AI is fundamentally reshaping how work gets done across the company.

The cuts arrive as Microsoft faces mounting pressure to solidify its position in the AI race, competing against rivals like Anthropic and OpenAI, which have increasingly tailored their tools for enterprise productivity. Microsoft has poured billions into AI infrastructure and plans to spend $190 billion on infrastructure and data centers in 2026 alone — a figure that has intensified scrutiny over whether those investments will pay off.

Monday's layoffs follow a pattern: Microsoft offered voluntary retirement to 7% of its US staff in April, with more than 30% of eligible employees opting in. That came roughly a year after the company cut 9,000 jobs in mid-2025, and 3% of its workforce in May 2025. Microsoft says it's exploring similar voluntary-exit programs going forward to avoid layoffs where possible.

Xbox Division Faces "Most Severe Hardware Crisis in History"

Xbox CEO Asha Sharma confirmed roughly 3,200 job cuts across the Xbox division through fiscal year 2027, with 1,600 roles eliminated immediately. In a post on X, Sharma said Microsoft's studio-acquisition strategy, which began in 2018, hasn't delivered the expected returns.

"We now find ourselves competing not only with the largest publishers, but also with smaller independent studios," Sharma wrote. "It is neither possible nor desirable to own every great independent studio."

The gaming industry has also been squeezed by an ongoing memory shortage, pushing console makers to raise prices. Xbox hardware prices will jump $100 to $150 depending on the model starting August 1. Sharma described it as "the most severe hardware crisis in history" for the industry.

Four Xbox-owned studios are affected by the restructuring: Compulsion Games and Double Fine Productions will become independent, while Ninja Theory and Undead Labs will move under new management. Xbox revenue fell 5% in the quarter ending in March.

Sharma also noted that Xbox's teams have grown 40% larger than they were when the company's current console generation launched in 2020 — despite a shrinking player base. Game Pass and studio acquisitions, long positioned as Xbox's growth engines, "did not grow at the pace we expected," she said.

"We must reset Xbox," Sharma wrote. "This year, we'll invest as much in Xbox as we ever have, but we'll invest with greater focus, greater discipline, and greater clarity."