Microsoft cuts staff by 4,800 people: Xbox loses more than 3,200 employees in a massive restructuring

Microsoft Corporation has announced a global workforce reduction of 4,800 employees, representing approximately 2.1% of its worldwide staff. The brunt of the cuts fell on the gaming division — Xbox. On Monday, July 6, 1,600 specialists were laid off, with a second wave of similar scale planned before the end of the current fiscal year. Thus, the total number of eliminated positions in this sector will exceed 3,200.

Xbox's economic model has cracked

Asha Sharma, who took over the gaming division in February, replacing Phil Spencer, directly told the team that the sector's economic model is no longer working. "Today our business is unprofitable," she noted. According to her, Xbox's margin is 3–10 times lower than that of other platforms and companies in the gaming industry. The reason cited is the ongoing crisis with console components — their prices are rising, while competition with Sony PlayStation and Nintendo Switch is only intensifying.

Sony, for its part, has announced it will cease production of physical game discs in January 2028. The shift to digital formats reflects an overall industry trend that Xbox is also following.

Studios leaving Microsoft

As part of the restructuring, Microsoft is changing the status of four development studios. The teams at Compulsion Games and Double Fine Productions are being set adrift, becoming independent companies. Ninja Theory and Undead Labs will change owners.

These steps affect Activision Blizzard assets, which were purchased three years ago in a record-breaking $69 billion deal. It is evident that such a large-scale integration did not meet profitability expectations.

Background of the restructuring: falling stock prices and AI pressure

Chief People Officer Amy Coleman explained that rapid technological changes were a key factor in the decision. In April, Microsoft offered employees a share buyback program — more than a third of those eligible agreed. This trend is characteristic of the entire market: layoffs in the technology and financial sectors have continued monthly in 2026 as interest in artificial intelligence grows.

The crisis in the gaming segment coincided with a roughly 19% decline in Microsoft's stock price over the past six months. Investors are questioning whether significant investments in AI will pay off amid pressure on technology company stocks.

The Xbox restructuring will continue until the end of fiscal year 2027. It remains unclear how much further the division will shrink before changes under Sharma's leadership begin to yield results.

My analysis: Microsoft has found itself in the classic "giant's" trap — an attempt to buy market share for $69 billion did not solve Xbox's structural problems. Low margins and dependence on an outdated console business model require not just cuts, but a complete overhaul of strategy. The shift to digital and AI is not a panacea, but merely new challenges. Investors should closely watch whether Sharma can turn Xbox from a loss-making asset into a growth driver, or whether we will see further contraction of the segment.