Microsoft has announced a workforce reduction of 4,800 employees, representing 2.1% of its total staff, as the software giant implements a new round of cost-cutting measures in the era of artificial intelligence. The Xbox gaming division will see its staff reduced by one-fifth.
The company's Chief Human Resources Officer, Amy Coleman, who has been with Microsoft for 27 years, stated in a company-wide memo that the pace of technological development and application is unprecedented since she joined.
Xbox President Asha Sharma informed the division via email that a total of 3,200 positions will be eliminated from the Xbox unit by the end of the 2027 fiscal year. Of these, 1,600 roles were cut directly on Monday, with the remaining 1,600 accounted for within the broader company-wide reduction of 4,800 immediate layoffs.
Sharma acknowledged the additional disruption caused by a year-long restructuring process but noted that completing all necessary adjustments in a single day was not feasible.
An anonymous source familiar with the internal plans indicated that this round of layoffs will reduce the overall Xbox workforce by 20%. Sharma expressed confidence that the division will return to a growth trajectory by 2027.
Microsoft has been the worst performer among major U.S. technology stocks this year, with its shares closing down 19% year-to-date as of last Friday. Investor concerns center on the potential for generative AI to broadly erode enterprise software demand, coupled with the company's own AI models and services failing to become breakout commercial successes. Last year, Microsoft conducted several rounds of layoffs, including one that eliminated 9,000 positions.
While Microsoft's cloud business and LinkedIn have shown strong revenue growth in recent quarters, other segments have struggled. Revenue from Windows licensing, Surface hardware, and Xbox gaming has contracted.
Coleman revealed that Monday's organizational changes also include the spin-off of four game studios to operate independently, alongside a downsizing of customer-facing commercial sales teams.
Key Details on Studio Spinoffs
In her internal email, Sharma provided details on the studio transitions. Two studios acquired by Microsoft in the 2010s, Compulsion Games and Double Fine Productions, will regain their independent status. Studios that joined Microsoft in 2018, Ninja Theory and Undead Labs, have finalized plans to be transferred to new entities. Arkane Studios, which became part of Microsoft through the $81 billion acquisition of ZeniMax Media in 2021, is currently in discussions with employee representatives regarding its future strategic path.
Voluntary Departure Program
In April, Microsoft introduced a one-time voluntary departure program for employees at the senior director level and below in the United States. More than one-third of eligible employees opted to accept the offer. Coleman stated the company will "continue to explore similar optimization methods" in the future.
Coleman emphasized the difficulty of such decisions and assured employees that the company will keep seeking ways to minimize the scale of workforce reductions.
AI Strategy Concerns
Much of Wall Street's concern focuses on Microsoft's AI strategy, with the market perceiving that CEO Satya Nadella has not presented a coherent, unified strategy for large models, AI agents, and supporting services. However, Coleman stressed that the current layoffs are not a result of AI replacing human jobs.
She acknowledged that AI is undoubtedly reshaping work, automating many routine tasks, which necessitates continuous learning and skill adaptation for everyone. She noted that clients are undergoing the same transformation and expect Microsoft's support, stating that the company must proactively evolve to serve them effectively.
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