Microsoft lays off nearly 5,000 employees across Xbox, commercial sales

Microsoft cut around 4,800 roles, or 2.1% of its global workforce, on Monday — the latest in a series of layoffs that’s stoking fears that AI will replace people at companies. 

The layoffs will hit Xbox and commercial sales the hardest, according to a memo shared with Microsoft’s staff. 

Here’s a snippet from the memo, attributed to Amy Coleman, EVP and chief people officer: 

“Our business is changing because the world around it is changing. The way technology is built, deployed, and used is transforming faster than at any point in my time here. Our customers’ needs are shifting, the business models that serve them are shifting, and that means the work itself – what we do, where we focus, and how we’re organized – has to transform too.

Companies don’t get to choose whether their industry changes; they only get to choose whether they change with it. That means we will need to adjust resources and roles and shift how we operate so we can have the greatest impact for our customers.”

Coleman stressed that the roles being eliminated today “are not being replaced by AI,” but noted, “what is true is that AI is changing how work gets done.”

“Some of the tasks we do every day can now be automated, and that means we all need to keep learning, keep building new skills, and keep adapting as the work evolves,” Coleman wrote.

To many feeling the sting of unemployment, that’s a distinction without a difference.

The layoffs build on Microsoft’s recent launch of its Frontier Company business unit, which is focused on delivering enterprise AI deployments with the firm’s existing AI tools and an army of forward deployed engineers. That move is backed by a $2.5 billion investment, mirroring a common theme we’re seeing among layoffs this year — job cuts are correlating with increased AI spending. 

Speaking about the Xbox layoffs, Coleman said little: “We are restructuring to position the business for long-term success. Engineering teams across the company will also evolve their structure and priorities to meet customer needs and innovate for the future.”

As part of the shift, Microsoft will transition four of its gaming studios to operate under new management, ensuring preservation of intellectual property and ongoing projects, Coleman wrote.

The Xbox layoffs come as the gaming industry shrinks amid new generative AI opportunities. Companies building world models — like Google DeepMind, World Labs, General Intuition, Luma AI, and Runway — have received millions in funding over the past year and garnered plenty of hype for their playable world model demos. All of those companies see gaming as a near-term opportunity for commercialization. 

In April, Microsoft offered buyouts structured as voluntary separations to an undisclosed number of employees — some estimates put the number at around 5,500 — with the goal of building high-performing teams. Last year, Microsoft laid off about 15,000 employees across two rounds.

The eliminations are part of a series of layoffs in the tech industry that’s seen close to 154,000 people lose their jobs just in the first half of 2026, with Big Tech firms like Meta, Oracle, Amazon, and Cognizant cutting thousands of workers.

Microsoft said that along with Monday’s cuts, it’s working on ways to keep staff on by re-skilling workers or placing people in new roles.

“Over the past year, we have redeployed more than 4,000 employees into new roles, including another 500 this month,” Coleman said. 

Microsoft did not immediately return a request for comment and more information.

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