Xbox restructuring: Microsoft announces massive job cuts
Microsoft announced a profound restructuring of its Xbox gaming division, which will result in the elimination of 3,200 jobs across the company, as announced on Tuesday, July 7, 2026. Of this total, around 1,600 console employees have already been notified of the layoff. The cuts represent a significant portion of the workforce, with a plan to eliminate up to 6,400 positions, or approximately 3% of the technology giant’s global headcount.
These layoffs are part of an ambitious effort to revitalize Microsoft’s gaming sector, which has faced challenges. The company also intends to sell four game development studios and is evaluating the possibility of getting rid of a fifth, indicating a robust strategic change in the management of its portfolio.
On the same topic: Microsoft announces cuts of 3,200 positions at Xbox in major restructuring of the games division
Challenges accumulated in the game division
Asha Sharma, CEO of Xbox since February, emphasized the need for a complete overhaul for the company. In a recent memo, she highlighted that the gaming division’s annual revenue has seen a drop of half a billion dollars in the last five years, even with investments totaling 20 billion dollars. Furthermore, Microsoft spent 69 billion dollars on the acquisition of Activision Blizzard, publisher of “Call of Duty”, in 2023, a move that did not prevent the reduction in revenue.
Historically, Xbox has struggled in the “console wars”, losing ground to competitors like Sony and Nintendo, whose PlayStation 5 and Switch 2, respectively, largely dominate the market. This fierce competition has been a constant factor in the division’s performance.
The growing impact of artificial intelligence on the sector
Simultaneously, the rise of artificial intelligence (AI) has raised the level of complexity in the industry. The high demand for AI-specific chips has generated a crisis in the gaming sector, which depends on cutting-edge technology to run its latest titles. In response, console manufacturers have raised their prices: Sony’s PlayStation 5 has increased by between $100 and $150, while Nintendo’s Switch 2 will be increased by $50 in the fall. Xbox expects its memory and storage costs to be five times higher in 2027 compared to the previous year.
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More on this story: Xbox undergoes major restructuring: Microsoft lays off and studios like Double Fine seek independence
AI is also transforming game creation. Last year, the Indie Game Awards’ Game of the Year award was stripped from “Clair Obscur” due to its use of generative AI. Although Microsoft’s human resources director claims that jobs are not being directly replaced by AI, he points out that “AI is changing the way work is done.” Microsoft has already allocated 190 billion dollars to investments in artificial intelligence.
Changing focus and redefining priorities
Xbox had already adjusted its priorities, moving away from physical consoles to focus on the game subscription service, Game Pass. However, the platform reached less than half of the subscriber target set for this year. Under former CEO Phil Spencer, the strategy included hiring smaller studios to develop games for Game Pass, aiming to compete with independent titles known for low costs and potentially high returns.
CEO Asha Sharma now argues that it is unfeasible to simultaneously compete with independent studios and large game publishers. Therefore, Xbox will direct its efforts towards large publishers, consolidating its structure. In this new arrangement, renowned companies such as Mojang and King, responsible for “Minecraft” and “Candy Crush”, will report directly to it, signaling more centralized and strategic control.
