Microsoft Lays Off 4,800 Staff in Massive Xbox Reset

On July 6, 2026, Microsoft announced a global workforce reduction of approximately 4,800 employees, representing 2.1% of its staff. The cuts primarily target commercial sales and the Xbox gaming division to offset a $190 billion capital expenditure plan for AI infrastructure. Chief People Officer Amy Coleman stated that while AI is transforming work, it is not directly replacing the eliminated roles.

Xbox CEO Asha Sharma termed the gaming division's restructuring a "hard reset," eliminating 3,200 roles—roughly 20% of the division's staff—through fiscal year 2027. Sharma cited an unhealthy business state, with profit margins significantly lower than competitors and a failure of Game Pass to meet growth targets. The strategy pivots away from avant-garde titles to focus on flagship franchises like Fallout, The Elder Scrolls, and Halo. As part of this shift, Double Fine Productions and Compulsion Games are returning to independence, while Ninja Theory and Undead Labs have moved to new ownership. Arkane Lyon remains under review for potential sale or closure due to French labor laws, and its project Marvel's Blade is reportedly canceled.

The restructuring has severely impacted several studios. ZeniMax Media laid off 158 employees in Texas, with id Software losing approximately 50% of its workforce. Obsidian Entertainment lost 25% of its staff, and ZeniMax Online Studios saw up to half of its active development team for The Elder Scrolls Online removed. To streamline the division, Sharma is reducing management layers from as many as 14 down to five and appointed Helen Chiang as the division's first Chief Operating Officer.