July 6, 19:29

Microsoft cuts 4,800 jobs in Xbox division as part of business restructuring

Microsoft announced on Monday plans to cut 4,800 employees, which accounts for about 2.1% of the company's total global workforce. These measures are part of a large-scale reorganization of the Xbox gaming business, which includes selling up to five studios, as the company seeks to increase profits after many years of significant investment in this area.

Details of the Gaming Division Restructuring

The restructuring of the gaming division plans to lay off 3,200 people, with 1,600 employees laid off on Monday. Despite spending tens of billions of dollars to expand Xbox, including the major acquisition of Activision Blizzard, Microsoft has failed to significantly close the gap with PlayStation from Sony and Nintendo, prompting the company to undertake a broader review of its gaming strategy.

The company is increasingly shifting its focus towards distributing its games across various platforms instead of relying solely on console exclusives to drive Xbox hardware sales. Asha Sharma, head of the new Xbox division, informed employees that the restructuring would involve divesting four studios.

Changes in Development Studios

Compulsion Games, the creator of South of Midnight, and Double Fine Productions, developer of Psychonauts, will become independent studios. Additionally, Ninja Theory and Undead Labs will be spun off to develop the Senua and State of Decay 3 projects, Sharma specified. The management of Arkane Studios, which developed Dishonored and is currently working on a game based on Marvel Comics character Blade, has begun consultations with its French union to consider possible options.

The massive spending by tech giants on artificial intelligence (AI), which is expected to exceed $700 billion this year, is putting pressure on companies to demonstrate returns from these technologies and offset rising costs associated with their implementation into business processes. Amazon and Meta Platforms also cut thousands of employees this year.

However, HR Director Amy Coleman told employees in a memo that 'the roles being eliminated today are not being replaced by AI.' She added that while AI is changing how work is done, the targeted cuts resemble portfolio reallocation and operational discipline more than a new stock incentive. Partner Tal Saniya, CEO of Equisights Research, noted that the market in the near term will value Microsoft's headcount reduction less and evidence of accelerated AI monetization versus AI-related expenses more.

Financial Position and Market Trends

The company's stock fell by 1.4% on Monday, following a nearly 23% drop in the first six months of 2026, marking the worst performance for the first half since 2022. Earlier this year, the software giant offered voluntary buyback programs for about 7% of its staff in the US, or around 9,000 employees. Microsoft often conducts layoffs closer to the end of the fiscal year in June when it plans next year's spending.

Gil Luria, Managing Director at DA Davidson, stated that Microsoft manages its workforce to fund its AI investments. By reducing staff, the company has been able to accelerate revenue growth while maintaining previous margins. Increased demand for AI has stimulated the development of Microsoft's Azure cloud business, which was an exclusive seller of OpenAI models until April, but rising costs for building data centers to support these services are squeezing the company's cash flow.

The company is expected to release results at the end of this month. In April, it forecasted higher-than-Wall Street expectations for quarterly Azure sales but also presented a 2026 expense forecast of $190 billion, significantly exceeding expectations. Furthermore, AI tools capable of automating routine business tasks pose a threat to profitable software, and the sharp rise in memory chip prices, driven by data center demand, has forced Microsoft to raise prices on Xbox consoles during a period of weak demand for them.

tecnoblog.netJuly 6, 19:07

Microsoft lays off 1,600 employees and realigns Xbox division structure, divesting four studios

Microsoft has implemented significant changes within its Xbox division, resulting in the layoff of approximately 1,600 employees. Alongside this cut, four game development studios have ceased to be under the company's control; two have returned to their original founders, and the other two will be put up for sale.

Fate of the Game Studios

Among the studios that will return to founder control are Double Fine and Compulsion Games. Double Fine, known for games like Kiln and Keeper, will once again be managed by co-founder Tim Schafer. Compulsion Games, responsible for titles such as South of Midnight and We Happy Few, will resume operating as an independent studio.

As for Ninja Theory, creator of Hellblade, and Undead Labs, developer of State of Decay, both will be sold, provided there is a guarantee for the release of the games Senua and State of Decay 3, thereby avoiding cancellation due to the transaction.

Status of Arkane Studios

Arkane Studios, responsible for titles such as Redfall and Deathloop, may also change hands. Microsoft is currently conducting a mandatory consultation with a labor authority in France to determine the best path forward for this French-originated studio. There are external concerns that the fate of Arkane could lead to the cancellation of Marvel's Blade, which is already facing budgetary issues.

Motivation for Strategic Changes

The main reason for Microsoft divesting studios is the attempt to reduce costs within the Xbox division. These efforts include reversing acquisitions or partnerships established during Phil Spencer's previous administration, whose goal was to strengthen the competitiveness of Xbox Game Pass. The current strategy prioritizes major game franchises, relegating independent studios to a secondary plan.

Additionally, Microsoft announced that there will be further layoffs beyond the 1,600 announced, forecasting the elimination of another 3,200 positions related to Xbox throughout the 2027 fiscal year.

Statement from New Leadership

In an open letter, Xbox division leader Asha Sharma acknowledged the difficulty of the changes, stating that they will impact people who contributed their creativity to the building of Xbox. She clarified that the decisions made do not reflect the talent or dedication of these professionals. According to her, these changes aim for a broader future for the Xbox division, projecting that the next decade of gaming will be more global, creative, and vast than anything seen before. Sharma guaranteed that investment in Xbox will be maintained, but with greater focus, discipline, and clarity, aiming to make Xbox the place where the world plays and creates.