Microsoft has announced it has cut 4,800 jobs – roughly 2.1% of its workforce – with Xbox to bear a large number of its latest layoffs.

Amy Coleman, executive vice president at Microsoft, told employees in a memo that the tech giant needed to focus on areas that can deliver for customers amid a “fast-changing industry”.

The sweeping layoffs will see more than 1,600 roles immediately axed at Xbox.

Asha Sharma, who recently took over as Xbox’s chief executive, said in a note to staff it was “beginning the most significant restructure in Xbox history”.

Another 1,600 jobs will be lost in the coming year, Sharma said in the note, shared on X.

Four Xbox game development studios – Compulsion Games, Double Fine Productions, Ninja Theory and Undead Lab – would also be spun off as part of the changes, she added.

“These changes are about a bigger future for Xbox, not a smaller one,” Sharma said.

“History is full of companies that mistake longevity for inevitability. We will not be one of them.”

Coleman meanwhile pointed to a changing customer needs in announcing Microsoft’s company-wide cuts.

“Companies don’t get to choose whether their industry changes; they only get to choose whether they change with it,” she said.

She noted that while the company would not replace the lost roles with AI, “what is true is that AI is changing how work gets done”.

Industry challenges

The announcement comes at an already difficult time in the gaming industry, with many studios still reeling from brutal layoffs in recent years.

In 2024, Xbox culled more than 2,000 staff and shuttered four studios bought prior to its bumper acquisition of Call of Duty maker Activision-Blizzard.

Little more than a year later, Microsoft said it would lay off as many as 9,000 workers after setting out plans to double down on its multi-billion-dollar AI spending.

The spiralling costs of hardware have also prompted firms including Microsoft to hike the price of years-old consoles and similar consumer gadgets – with many blaming AI data centres for pushing up demand too quickly for supply to catch up.

Sharma said on Monday that while she knew the cuts were “painful”, there was a “reset” needed across Xbox’s entire content portfolio, platform and operations.

Tech analyst Paolo Pescatore told the BBC the changes indeed marked a “major reset” for the company, which has further trials ahead.

“The challenge is not just cutting costs; it is defining what Xbox stands for in a world where games are moving across console, PC, cloud and subscription platforms,” he said.

Offloading gaming studios

As part of Xbox’s sweeping changes, Minecraft developer Mojang and Candy Crush developer King will now report directly to Sharma.

Piers Harding-Rolls of Ampere Analysis said this restructuring “underlines Xbox’s vision for its studios and content, which will be more heavily focused on the biggest IP and audiences”.

He said the company had previously bought a plethora of studios to boost offerings on its subscription service Game Pass.

“But the company has now decided that some of these teams and the games they are building would be better suited to sit outside the Xbox organisation,” he said – adding that its decision not close them was “positive news during a difficult time”.

Double Fine and Compulsion will both return to independent management.

Double Fine, acquired by Microsoft in 2019, wrote on X that it was “thankful to everyone at Xbox for seven great years together”.

The Psychonauts developer added it was grateful to have been able to reach an outcome “which preserves our history and culture, and returns ownership of our games to us”

Both itself and Compulsion, which developed action-adventure title South of Midnight, will depart with their intellectual property (IP).

“Our immediate priority is to support our team throughout this transition period,” Compulsion said on X – adding it was confident in its future. (BBC)