- Microsoft has laid off around 4,800 employees, mainly from commercial sales and the Xbox gaming division.
- Amy Coleman said the layoffs are part of a broader business transformation and not a result of AI replacing jobs.
- Xbox will undergo deeper restructuring, including additional workforce reductions and studio ownership changes.
- Microsoft says more organizational changes are expected as it aligns teams with future business priorities.
Microsoft has started its new fiscal year with another major workforce reduction, eliminating around 4,800 jobs across the company. The layoffs account for roughly 2.1 percent of its global workforce and mainly affect employees in the commercial sales organization and the Xbox gaming business.
The announcement comes at a familiar time for Microsoft. The company has often used the beginning of its fiscal year to reorganize teams and realign resources. While layoffs are never easy, the company says this latest move is aimed at positioning Microsoft for future growth rather than simply reducing costs.
Chief People Officer Amy Coleman informed employees about the decision through an internal memo, saying the company is redirecting its people, investments, and resources toward areas that will better serve customers in a rapidly changing technology landscape.
Coleman also made it clear that the eliminated positions are not being replaced by artificial intelligence. However, she acknowledged that AI continues to transform the way teams work across Microsoft and is influencing how the company is reshaping its operations.
Microsoft says restructuring is about long term priorities, not just cost cutting
The latest layoffs follow a similar pattern seen in previous years. Microsoft also reduced its workforce at the beginning of the last fiscal year, making thousands of job cuts as part of a broader restructuring effort.
This time, the company says the goal is to simplify operations, improve efficiency, and focus on businesses that will drive long term growth. According to Coleman, Microsoft wants to ensure that its workforce and investments are aligned with changing customer needs and an increasingly competitive technology market.
The decision also comes during a period of increased scrutiny over Microsoft’s significant investments in artificial intelligence. Investors have questioned whether the company’s aggressive AI spending will generate strong returns in the coming years, adding pressure on leadership to improve operational efficiency.
Earlier this year, Microsoft also introduced a voluntary retirement program for eligible US employees. The program was designed to reduce the need for broader layoffs, with around one third of eligible employees choosing to participate. That initiative helped limit the scale of this year’s workforce reduction compared to previous rounds.
Coleman also suggested that more organizational changes could follow. She told employees that Microsoft is still in the early stages of its transformation and that additional business units may undergo similar restructuring in the future.
Xbox division faces the biggest changes under new leadership
The Xbox gaming business has been hit particularly hard by the restructuring.
Nearly 1,600 of the announced layoffs come from Microsoft’s gaming division. In addition, Xbox leadership plans to reduce another 3,200 positions over the current fiscal year, bringing the total workforce reduction within the gaming business to around 20 percent.
Xbox CEO Asha Sharma described the changes as necessary to improve the long term health of the business. According to Sharma, the gaming division currently operates with significantly lower profit margins than other platform and publishing businesses, making structural changes unavoidable.
As part of the overhaul, Microsoft will transition four of its game development studios to new ownership. The studios include Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs. The company says the move is intended to preserve existing intellectual property while allowing the studios to continue developing their projects under independent management.
Meanwhile, Arkane’s French studio will begin the required consultation process with its employee representatives regarding its future.
Xbox leadership is also simplifying its management structure. The company plans to reduce management layers and has appointed Helen Chiang as Chief Operating Officer, giving her broader responsibility across content, hardware, platform, and services.
More changes expected as Microsoft continues reshaping its business
Microsoft’s latest workforce reduction reflects a broader effort to reshape the company around future priorities rather than maintaining existing structures.
Although the company has stressed that AI is not directly replacing the affected employees, there is little doubt that artificial intelligence is influencing how Microsoft thinks about productivity, investments, and organizational design. As AI becomes a larger part of the company’s strategy, teams are being reorganized to support new products, services, and customer expectations.
For employees, the announcement also signals that the restructuring process is far from complete. Coleman acknowledged that more changes are likely across different parts of Microsoft as the company continues adapting to evolving market conditions.
For investors, the restructuring demonstrates Microsoft’s willingness to make difficult decisions while balancing significant AI investments with operational discipline. Whether these changes translate into stronger business performance will become clearer over the coming quarters.
While the latest layoffs represent another challenging chapter for affected employees, Microsoft maintains that the changes are intended to strengthen the company’s ability to compete in an industry that continues to evolve at an unprecedented pace.
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