Microsoft cuts 4,800 jobs, as Xbox unit downsizes and plans to spin off four gaming studios

Published 6 July 2026 · tech

Microsoft has initiated what industry insiders are calling the largest single layoff cycle in gaming history, cutting 4,800 jobs, 2.1% of its workforce, on Monday

Microsoft has initiated what industry insiders are calling the largest single layoff cycle in gaming history, cutting 4,800 jobs, 2.1% of its workforce, on Monday, July 6, according to a CNBC report. Xbox division is reportedly losing about one-fifth of its staff amid Microsoft's latest push to cut costs in the artificial intelligence era. “The way technology is built, deployed, and used is transforming faster than at any point in my time here,” Amy Coleman, Microsoft’s chief people officer and a 27-year company veteran, wrote in a message to employees. Also Read | Salesforce lays off Mulesoft staff even as AI revenue crosses $1 bn Xbox to cut 3,200 jobs Xbox is cutting 3,200 people through fiscal year 2027, the division's CEO, Asha Sharma, said in an email, according to CNBC.

She noted that 1,600 roles would be axed on Monday. The other 1,600 exiting is in addition to the companywide total of 4,800 leaving immediately. “I recognise that a year-long restructuring creates additional challenges,” Sharma wrote. “Unfortunately, it is not possible to make all the necessary changes in a single day.” The cuts amount to 20% of Xbox employees leaving, according to a person familiar with the matter, who asked not to be named in order to discuss internal changes. “We will return to growth in 2027,” Sharma wrote. Studios impacted by the layoffs: Four gaming studios will be spun out of Microsoft, Coleman said.

The commercial business that focuses on selling to customers will also see reductions. According to a Tech Times report, the Microsoft has not confirmed those details. Ninja Theory: The Cambridge-based developer behind the Hellblade franchise was informed of its closure on June 15, shockingly just nine days after its team presented a new series entry at the Xbox Games Showcase. Compulsion Games & Double Fine Productions: Both the Peabody Award-winning Montreal studio (South of Midnight, We Happy Few) and Tim Schafer’s renowned San Francisco developer are currently in closure or buyout negotiations. Undead Labs: The studio behind the highly anticipated State of Decay 3, which employs roughly 110 people, is currently under corporate review.

Arkane Lyon: The acclaimed studio responsible for Dishonored and Deathloop is reportedly facing closure. Consequently, the highly anticipated superhero action game, Marvel's Blade—which had already slipped from a 2026 launch to late 2027—faces outright cancellation. Microsoft has yet to officially confirm the details regarding Arkane Lyon. “Decisions like these are never easy, and you have my commitment that we are constantly looking for ways to reduce the need for job eliminations,” Coleman wrote.