With shares down 20% this year, Microsoft joins peers like Meta and Oracle in using layoffs to offset rising costs of the AI race
Microsoft's Xbox business had been affected by rising memory costs.
Microsoft is downsizing its Xbox division as it kicks off a new fiscal year. The company just announced 3,200 layoffs and a restructuring of its gaming business.
Microsoft's $(MSFT)$ Xbox division - which encompasses gaming consoles, gaming titles such as "Call of Duty," and the Xbox Game Pass - has fallen victim to declining hardware sales. In the quarter that ended this past March, Xbox hardware revenue fell 33% from the prior year due to pressure on consoles.
Xbox CEO Asha Sharma, who assumed the role in February of this year, announced Monday that the team would be reduced by 3,200 throughout fiscal 2027, with 1,600 roles eliminated today.
"Our business today is not healthy. We are operating at margins that are 3-10x lower than comparable platform and publishing businesses," she wrote in an X post. Additionally, Microsoft is placing four of its gaming studios under new management.
Sharma also gave a nod to increasing hardware prices as a result of a memory-chip shortage caused by the artificial-intelligence boom, which has strained the overall gaming industry. Just last month, Microsoft increased the price of its Xbox consoles. "Unfortunately, console storage and memory prices have increased by more than 2.5x and we expect another doubling by the fall of 2027," the company shared in a June press release.
Moving forward, Xbox will be shifting its attention to "higher priority projects" across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios, Sharma said. Those core divisions house intellectual properties such as "Call of Duty," "Candy Crush" and "Minecraft."
Shares of Microsoft have plunged 20% this year. The stock has been hit hard by a continued selloff in the software sector as well as lackluster Copilot adoption.
"It's been a combination of all of those," Greg Halter, director of research at Carnegie Investment Counsel, told MarketWatch. "There are concerns about AI displacing some of their own business, and the capital spending is a big issue." Today's layoffs are one way that Microsoft can work toward protecting its margins, he added.
Microsoft and other Big Tech companies like Meta Platforms (META) and Oracle $(ORCL)$ have utilized layoffs recently as a way to reduce costs and compensate for growing artificial-intelligence investments. Microsoft plans to put $190 billion toward capital expenditures this year.
The latest layoffs come after Microsoft announced voluntary buyouts for some of its employees back in April.
-Christine Ji
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July 06, 2026 13:19 ET (17:19 GMT)
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