Microsoft has announced a major restructuring effort, cutting 4,800 jobs from its workforce as part of a cost-saving initiative in response to the rapid transformation driven by artificial intelligence. The software giant cited the need for cost-cutting measures to adapt to the changing landscape, with Xbox, Microsoft's gaming division, particularly hard hit.
The layoffs represent 2.1% of Microsoft's global staff, with around one-fifth of its employees set to lose their jobs. Half of the 4,800 job losses will occur on Monday, while the remaining roles will be eliminated throughout fiscal year 2027. The cuts amount to a significant reduction in Xbox's workforce, with around 20% of employees set to leave.
As part of the restructuring, four gaming studios – Compulsion Games and Double Fine Productions, which Microsoft acquired in the 2010s, Ninja Theory and Undead Labs, which joined the company in 2018 – will be spun out as independent companies. This decision is seen by some analysts as a strategic move by Microsoft, with DA Davidson analyst Gil Luria noting that Xbox is not a business that Microsoft needs to be in.
The company's shares slipped 1% during Monday's trading session, while the Nasdaq Composite index advanced 1%. Microsoft has been struggling in recent months, with its stock falling 19% so far this year as investors worry about the impact of AI on enterprise software. The company has introduced a one-time voluntary retirement program for eligible US employees at the senior director position and below, with over a third of those eligible accepting the offer.
Microsoft's chief people officer, Amy Coleman, acknowledged that the layoffs are a difficult decision but stressed that they are necessary to adapt to the changing landscape. She noted that while AI is not directly replacing laid-off workers, it is transforming how work gets done and requires employees to constantly learn new skills. The company will also be reducing its commercial business that focuses on selling to customers.
The restructuring efforts come as Microsoft joins a growing list of tech companies cutting jobs in response to the AI-driven transformation of their industries. While much of Wall Street's concerns about Microsoft are tied to the company's position in AI and CEO Satya Nadella's failure to lay out a coherent strategy for its approach to developing models, agents and other services, Coleman emphasized that AI is changing how work gets done.
"Our customers are navigating this same shift, and they're counting on us to help them through it," she wrote. "We can't do that well unless we're doing it ourselves." The company will continue exploring similar approaches in the future, including its one-time voluntary retirement program.
The decision to spin off the gaming studios is seen as a strategic move by Microsoft, with some analysts suggesting that Xbox may eventually be spun off or sold. The company's cloud services and LinkedIn have seen accelerating growth in recent quarters, but it is lagging behind in other areas such as Windows operating system licenses and Surface devices.
With this latest round of layoffs, Microsoft is taking steps to adapt to the changing landscape driven by AI. While the decision is undoubtedly difficult for employees affected, the company's commitment to adapting to the evolving needs of its customers is clear.
