Microsoft cuts 4,800 jobs, citing AI shift in how work gets done

Microsoft is cutting more than 2% of its global workforce in a sweeping restructuring.

Amy Coleman, Microsoft's chief people officer, announced Monday that the company would lay off approximately 4,800 employees, or about 2.1% of its global headcount.

The cuts fall most heavily on the gaming division, particularly Xbox. Asha Sharma, the newly appointed head of Xbox, said in a separate notice that 3,200 of those affected work in gaming, and that 1,600 employees were notified of their termination that day.

Xbox also said it would spin off or sell four of its game studios. "Our business today is not healthy. We are operating at profit margins three to 10 times lower than comparable platforms and companies," Sharma said, explaining the rationale for the restructuring. She added that the company would create a new chief operating officer role to oversee content, hardware, platforms and services, and would streamline its reporting structure from as many as 14 layers down to three to five.

The overhaul comes after Microsoft poured tens of billions of dollars into expanding its gaming business — including its 2023 acquisition of Activision Blizzard — yet has struggled to close the gap with Sony's PlayStation and Nintendo.

Gil Luria, a director at investment bank D.A. Davidson, told Reuters that Microsoft had been reducing headcount to fund AI investment while sustaining profit growth by cutting staff even as sales accelerated. He characterized the latest layoffs as a move to cover AI investment costs.

Coleman, however, left the door open on AI's role in the cuts. "The roles that are going away on Tuesday are not being replaced by AI," she said, before adding: "But at the same time, it is clear that AI is changing the way work gets done."

Microsoft CEO Satya Nadella said last November that the company would actually increase its headcount even amid a wave of AI-driven layoffs across the industry.

Microsoft nonetheless carried out a large-scale voluntary retirement program in April, targeting veteran employees whose combined age and years of service exceeded 70, with thousands taking part.