Microsoft Lays Off 4,800 Employees, Sells Four Xbox Studios in Massive Gaming Restructure
In one of the biggest tech layoff rounds of 2026, Microsoft has announced it is cutting approximately 4,800 jobs — about 2.1% of its global workforce — with the Xbox division bearing the brunt of the impact. The layoffs, confirmed on July 10, 2026, mark the second major round of cuts in as many years and signal a significant strategic pivot for the company’s gaming ambitions.
The Numbers Behind the Cuts
The layoffs impact roughly 1,600 Xbox employees today, with Microsoft planning to eliminate a total of around 20% of Xbox roles by the end of the financial year (July 2027). The remaining cuts target Microsoft’s commercial sales division.
In an internal memo, Amy Coleman, Microsoft’s Chief People Officer, stated: “The roles eliminated today are not being replaced by AI. At the same time, what is true is that AI is changing how work gets done.” The company previously cut 9,100 employees in July 2025.
Four Xbox Studios Being Sold Off
Perhaps the most dramatic development is Microsoft’s decision to sell four of its first-party game studios:
- Double Fine — returning to founder Tim Schafer (the studio behind Psychonauts 2 and Kiln)
- Compulsion Games — returning to founder Guillaume Provost (developers of South of Midnight)
- Ninja Theory — being sold with agreements to ensure Senua’s Saga continues
- Undead Labs — being sold with State of Decay 3 still planned to ship
Microsoft is also reviewing strategic options for Arkane Studios, with potential sale or closure under consideration. The studio’s Blade project has faced delays and budget overruns.
Why Is Microsoft Doing This?
Xbox CEO Asha Sharma framed this as a necessary “reset” for Xbox. In a memo to staff, Sharma revealed that Xbox has been losing 64 cents for every dollar invested. “It is neither possible nor desirable to own every great independent studio,” she wrote. “We have also learned that we are not the best home for every type of studio.”
Microsoft is pivoting away from its previous strategy of acquiring smaller studios — a strategy championed by former Xbox chief Phil Spencer to bolster Xbox Game Pass — and instead focusing on major franchises. Mojang (Minecraft) and King (Candy Crush) will now report directly to Sharma.
Voluntary Retirement Program
Microsoft had attempted to soften the blow with a voluntary retirement program targeting long-tenured US employees. Over 30% of eligible employees chose to participate. The company says it has redeployed more than 4,000 employees into new roles over the past year.
Industry Reaction
The layoffs come just days before Bethesda’s union (OneBGS) plans to hold a “Save Our Devs” rally on July 15 at ZeniMax offices across Rockville, Austin, Dallas, and Montreal to protest the cuts. Over 440 positions were slashed across Bethesda Game Studios, ZeniMax Online Studios, id Software, and ZeniMax corporate.
Frequently Asked Questions
Will existing Xbox games be cancelled?
Microsoft says no first-party publicly announced games or projects are being cancelled as part of these reductions.
What does this mean for Xbox Game Pass?
While Microsoft hasn’t directly addressed Game Pass changes, the studio sales and pivot toward larger franchises suggest the service may rely more on third-party and major franchise content going forward.
Are more layoffs expected?
Yes. Microsoft plans to eliminate approximately 3,200 Xbox roles throughout FY27 (ending July 2027), with 1,600 cuts happening immediately.
This is a developing story. PC Master Deals will continue to follow Microsoft’s restructuring and its impact on the gaming industry.