Microsoft confirms biggest Xbox restructuring in history: 3,200 jobs cut, studios to be sold

Sharma wrote that the business is "not healthy today," with profit margins below those of comparable platform and publisher companies. The gaming division's profit margin has shrunk to 3 percent. It is "the most significant restructuring in Xbox history," the executive stated. According to the company, Sharma is the new head of the division.

4,800 jobs affected company-wide

The decisions are "painful" and reflect "not the talent or the dedication" of the affected employees, Sharma wrote. "As part of the Xbox reset, we will simplify things." At the same time, she stressed that none of the already announced "first-party games" would be canceled; spending would be redirected in favor of "higher-priority" titles where necessary.

Microsoft's chief people officer Amy Coleman put the company-wide job cuts in a memo at a total of 4,800 positions. Subtracting the 1,600 Xbox posts cut immediately, that leaves 3,200 eliminated jobs for the rest of Microsoft. According to the company, these affect the "Commercial Business" division for enterprise sales.

Background: Austerity drive for AI investments

The measures are part of a broad austerity drive: Microsoft plans to invest around $190 billion in AI infrastructure in the current year. Cloud providers in particular, such as Microsoft, Google, or Amazon Web Services, are under pressure to cut costs due to rising expenses for building new data centers. The construction boom in data centers is also driving up the prices of computer chips and dampening the group's video games business.

2026 is already the third year in a row in which Microsoft has been cutting jobs at the end of its fiscal year in summer to free up funds for investments in artificial intelligence. According to the portal Layoffs.fyi, US tech companies have cut around 120,000 jobs in recent months. Microsoft had previously offered severance packages to 9,000 employees.

Studios to be sold, not closed

In parallel with the layoffs, several development studios are to be sold. Compulsion Games, the studio behind "South of Midnight," and Double Fine ("Psychonauts") are to be bought back by their respective founders. A buyer is still being sought for Ninja Theory, the studio behind "Hellblade." According to Sharma, the studio has agreed to be carved out of Microsoft. Undead Labs ("State of Decay") is also to be sold in the same manner; Microsoft will continue to fund the third installment of the zombie-survival series for the time being.

Microsoft wants to transfer all intellectual property to the sold studios, including the rights to already released games. Seed funding of an undisclosed amount is also planned for current developments. For Ninja Theory, Sharma expressly confirmed funding for ongoing projects such as the third installment of the Hellblade series, "Senua." That title is scheduled for 2027.

The situation is more complicated for the French part of the Arkane studio, which is currently working on "Marvel's Blade." Management is still in the "required consultation with the works council." For Arkane, "strategic options" are being examined. According to Sharma's email, no studio closures are planned; rather, some of the companies are to be sold.

Leaner hierarchy with three to five levels

As part of the restructuring, the studios Mojang and King will in future report directly to Asha Sharma. This is part of a significant streamlining of the hierarchy: some decisions previously went through as many as 14 management levels; in future, there should be no more than five, ideally just three. After the "reset," there should be only three to five management layers.

Microsoft only acquired the video game group Activision Blizzard at the end of 2023 for around $69 billion to strengthen the Xbox business. The division is still struggling with problems, however. Game Pass, the multiplatform strategy, and the expansion of the games portfolio had indeed "created significant added value," but had "not grown at the pace we had expected," Sharma explained.

Activision Blizzard deal and hardware crisis

At the same time, the industry faces "the worst hardware crisis in its history." The group recently had to raise prices for the Xbox console, even though its sales were already weak. Sharma does not mention the next Microsoft console, previously known as "Project Helix," in her current memo.

For the year 2027, Sharma expressly forecast a return to growth. The company wants to invest as much as before this year, but in future "with greater discipline and greater clarity." "That is why Xbox has to be realigned," she wrote to employees.

Outlook: Return to growth by 2027

The latest analyst assessments of Microsoft remain predominantly positive in the meantime: RBC Capital Markets, Barclays, Jefferies, UBS, and DZ BANK rate the stock as "Outperform," "Overweight," "Buy," or "Kaufen." The thinning-out of positions is part of a broader redistribution of funds within the group, away from gaming and toward AI.

Three weeks ago, The Verge had reported that Ninja Theory could face closure. With Monday's confirmation and the search for a buyer, Microsoft is taking a different path. The acquisition of Activision/Blizzard and the associated structures had significantly expanded the Xbox division since the end of 2023; at the same time, thousands of jobs had already been cut there.

Microsoft's job cuts are part of a trend that has gripped the entire US technology industry. The job losses documented on Layoffs.fyi alone in recent months add up to around 120,000 positions. At Microsoft, the cuts in the gaming area now add to the restructurings already planned within the group.

Sharma's email to staff was sent on Monday and immediately published by several US media outlets. Microsoft confirmed on the same day the plans for job cuts and studio sales that had already become known in advance. With the restructuring, Xbox is to be put back on a growth path by 2027, in the words of its chief.