Microsoft starts new round of layoffs, targeting about 4,800 jobs as Xbox reorganizes

Microsoft has begun a new round of layoffs that will affect about 4,800 employees, according to multiple reports, as it reshapes Microsoft’s Xbox business. The cuts follow an internal process tied to a voluntary retirement program and include both immediate departures and additional reductions planned over the next year, reflecting a broader effort to lower costs amid intensifying competition in enterprise software and consumer gaming.

Within Xbox, leaders described the unit’s performance as unhealthy and said the division will cut approximately one-fifth of its workforce through fiscal year 2027. Reports say roughly 3,200 Xbox-related jobs would be eliminated through fiscal 2027, including 1,600 roles on Monday and another 1,600 exiting later, on top of the companywide figure of about 4,800 employees leaving immediately.

The restructuring also includes plans to separate Xbox studios from the core Microsoft structure. The reports describe a plan to spin off four gaming studios as part of a larger Xbox overhaul, though they do not provide details in the public summaries on governance, financial terms, or how the studios would be funded after separation.

Microsoft’s messaging to employees highlights that the company is responding to fast-changing technology and product adoption patterns. One report attributed the broader motivation to technology shifts and Microsoft’s ongoing push to restructure teams, while another emphasized that the changes will take time, making it difficult to complete all adjustments in a single day.

The layoffs come as Microsoft remains one of the largest employers in U.S. tech and as it faces investor and customer pressure to demonstrate efficiency, especially as artificial intelligence tools move from research to deployment. In gaming, the Xbox division has been under scrutiny for slower growth and margin pressure compared with other parts of Microsoft’s software portfolio.

More broadly, the Xbox redesign indicates a shift away from a traditional “studio inside the platform” model toward a structure that could allow studios to operate with more independence. A studio spin-off can also be used to concentrate capital and management attention on fewer internal priorities, while still supporting published content for consoles, PC and subscription services.

Still, several key details remain unclear from the available reporting. The number of studio teams involved is described, but the specific names of the four studios, the timing of the spin-off, and the expected impact on Xbox’s near-term content pipeline were not laid out in the summaries. It is also not fully specified how Microsoft will classify impacted roles across functions, or whether there will be additional cost initiatives beyond the workforce reductions already described.

For now, Microsoft is indicating that Xbox will not simply absorb layoffs, but restructure how it organizes creative development and reduces headcount. The next thing to watch is what Microsoft and Xbox disclose about the four studios, the expected timeline for separation, and whether the company provides further detail on how much of the Xbox cost base is expected to be reduced by fiscal year 2027.