Microsoft has begun another major round of layoffs, with its Xbox division expected to lose 3,200 jobs during the company’s current financial year as part of a broader restructuring effort. The cuts follow months of speculation surrounding Xbox’s future and coincide with leadership changes, studio reorganizations, and Microsoft’s continued focus on streamlining operations.
According to reports from Polygon, Xbox CEO Asha Sharma informed employees that the business requires significant changes, stating, “Our business today is not healthy.”
The announcement comes as Microsoft reduces its overall workforce by approximately 4,800 employees, with many of the affected roles coming from Xbox and the company’s commercial sales organization.
Xbox studios undergo major restructuring
The restructuring extends beyond workforce reductions. Microsoft confirmed that several Xbox Game Studios developers will see significant organizational changes rather than outright closures.
Compulsion Games, the studio behind South of Midnight, and Double Fine Productions, known for Psychonauts 2, will transition into independent studios while retaining ownership of their intellectual property, existing game catalogs, and funding for their next projects.
Meanwhile, Ninja Theory and Undead Labs are expected to continue development on Senua’s Saga: Hellblade 2 and State of Decay 3, respectively, under new ownership backed by external funding. Microsoft has not yet disclosed who the new owners will be.
The future of Arkane Lyon, currently developing Marvel’s Blade, remains uncertain. The studio has entered consultations with its Works Council to explore potential strategic options, though no final decision has been announced.
Broader Microsoft layoffs tied to long-term strategy
Microsoft’s company-wide layoffs affect roughly 2.1% of its global workforce, with around 1,600 Xbox employees impacted immediately, according to The Verge.
In an internal memo, Microsoft’s Chief People Officer Amy Coleman attributed the reductions to changes across the technology industry and evolving business priorities.
“I also want to be direct that the roles eliminated today are not being replaced by AI. At the same time, what is true is that AI is changing how work gets done.”
Coleman also noted that Microsoft has attempted to minimize layoffs by redeploying employees into new positions and expanding its voluntary retirement program before implementing workforce reductions.
Xbox says game lineup remains unchanged
Despite the restructuring, Xbox leadership has stated that no previously announced first-party games have been canceled.
However, the layoffs arrive during a challenging period for the gaming business. Recent Xbox hardware price increases, changes to Game Pass, and internal discussions surrounding the company’s “Xbox Reset” strategy have already drawn significant attention from players and industry observers.
While Microsoft says the restructuring is intended to strengthen the business for the future, the latest layoffs mark one of the largest organizational changes in Xbox’s history and signal another major shift in the company’s gaming strategy.
