Microsoft‘s latest job cuts will hit its gaming business the hardest. The company plans to lay off nearly 4,800 employees, or 2.1 percent of its global workforce, as it scales down different teams. The move, however, is likely to hit Xbox division the hardest, with reports suggesting that more than 30% of those cuts are expected to impact the division.
As part of the “Xbox reset,” Microsoft wants to reshape several gaming studios as part of its its long-term strategy, which includes scaling down its ownership over so many game developers.
Xbox faces the biggest impact
The latest round of layoffs is expected to impact around 3,200 employees in Microsoft’s Xbox division. According to an internal memo from Xbox CEO Asha Sharma, the company also plans to reduce the Xbox workforce by another 20% before the end of the 2027 financial year.
Sharma admitted that the restructuring would take time and that employees would continue to face uncertainty over the coming months. “I recognize that a year-long restructuring creates additional challenges. Unfortunately, it is not possible to make all the necessary changes in a single day, and I wanted to be direct about the scale,” Sharma wrote in an internal memo
She also acknowledged the emotional toll the decision would have on employees whose work helped build the Xbox brand. “I know this is painful. These changes will directly affect people who have poured their creativity into building Xbox. Many joined us through acquisitions, while others were recruited here, or sought us out because they loved this industry and loved Xbox. Today’s decisions do not reflect their talent or dedication.”
Four studios set for major changes
The restructuring will also change the future of four Xbox game studios. “Compulsion Games and Double Fine Productions will return to management and transition to independent studios with their IP, catalog, and runway for their next games. Ninja Theory and Undead Labs have entered terms to join new ownership with funding to complete and grow Senua and State of Decay 3. In France, Arkane’s management is beginning required consultation with its Works Council to review potential strategic options,” Sharma said.
Based on the plans outlined by the company, Compulsion Games and Double Fine Productions will leave Microsoft and operate as independent studios while keeping their intellectual property, game catalogues and funding for future projects.
Ninja Theory and Undead Labs will move to new owners, who are expected to continue funding the development of Senua and State of Decay 3. Meanwhile, Arkane’s French studio has started the legally required consultation process with its Works Council as Microsoft considers different strategic options, including a possible sale or restructuring.
Microsoft changes its gaming strategy
Sharma said the gaming industry has become much more competitive, with Microsoft now competing not only against large publishers but also against smaller independent studios that are producing successful games.
She said Microsoft no longer believes it needs to own every promising game developer. According to Sharma, several studio acquisitions did not deliver the financial returns the company had expected.
On average, she said, Microsoft lost 64 cents for every dollar it invested in these studios.
As part of the Xbox reset, the company now plans to focus more on supporting independent developers through open development tools and wider access to players, instead of continuing to expand by acquiring more studios.