Microsoft Trims 4,800, Xbox Sheds 3,200 — Gaming Margins Can't Outrun the Console Cycle 🕹️

Microsoft is cutting 4,800 jobs, roughly 2.1% of its global workforce, with its Xbox gaming division absorbing about 3,200 of those roles, the company said. The company laid off 1,600 Xbox workers on Monday, July 6, and expects another 1,600 cuts later this fiscal year, bringing Xbox's total reduction to approximately 3,200 positions.

Xbox CEO Asha Sharma, who took over the gaming unit in February after Phil Spencer's retirement, told staff the division's economics no longer hold up. "Our business today is not healthy," Sharma said, noting that Xbox's margins run three to ten times lower than comparable platform and publishing businesses. She attributed the pressure to a worsening hardware crisis, with console component costs climbing as competition with Sony's PlayStation and Nintendo's Switch intensifies. Sony also plans to end physical disc production in January 2028, reflecting the industry's broader pivot toward digital distribution that Xbox appears to be following.

Microsoft is also spinning off four studios it previously acquired, unwinding part of the Activision Blizzard portfolio built through its $69 billion deal three years ago. Compulsion Games and Double Fine Productions will go independent, while Ninja Theory and Undead Labs will move to new owners. Chief People Officer Amy Coleman said fast-changing technology drove the decision, noting Microsoft offered buyouts in April and more than a third of eligible employees accepted them.

The cuts come as tech and finance jobs have fallen at a steady monthly pace in 2026 as companies lean further into AI. Microsoft shares have slid roughly 19% over the past six months as investors weigh whether heavy AI spending is paying off amid broader pressure on tech stocks. Xbox's restructuring runs through fiscal 2027, leaving open how much further the division will shrink before Sharma's reset takes hold.