Microsoft Lays Off 4,800 Employees Amid AI Shift

Microsoft announced on Monday it is laying off 4,800 employees, representing 2.1% of its global workforce, as part of a significant cost-cutting restructuring. This move includes substantial reductions within its Xbox division, with Xbox CEO Asha Sharma stating that Microsoft is "resetting Xbox" and will cut 3,200 employees, or 20% of that division, by fiscal year 2027. These cuts will involve spinning off four gaming studios: Compulsion Games and Double Fine Productions will become independent, while Ninja Theory and Undead Labs will be spun off. The company plans to eliminate 1,600 roles immediately and an additional 1,600 over the next year, signaling a strategic pivot towards artificial intelligence (AI) and away from its underperforming gaming sector.

Sharma indicated that the Xbox business is "not healthy," operating at margins significantly lower than comparable platform and publishing businesses. She attributed the challenges to a weakening core business, increased investment without desired outcomes, and the industry facing a severe hardware crisis. This announcement follows closely on the heels of Microsoft's decision to increase Xbox console prices by $100 for the 512 GB model and $150 for the 1 TB model, just ten days prior. Previously, in the last year, Microsoft had already raised all Xbox prices by $20 to $70. The company also recently increased prices for its Surface laptops, citing AI-driven memory and storage shortages as the reason for consumer price hikes, a strategy similar to recent moves by Apple.

This latest round of layoffs marks another significant workforce reduction for Microsoft, following the elimination of 9,000 jobs approximately one year ago. The company's stock (MSFT) saw a decrease of over 1% in midday trading on Monday, adding to a nearly 19% decline by the close of trading on Friday. The strategic shift towards AI and the associated cost-cutting measures underscore a broader industry trend of reallocating resources to capitalize on emerging technologies while addressing profitability concerns in established sectors.