Microsoft announced a 2.1 percent reduction to its teams on Monday, mentioning that AI as an emerging technology is changing how work gets done. As part of these layoffs, 4,800 Microsoft staffers have been terminated from the $2.87 trillion market cap. The employees were informed about the development through an internal memo by Amy Coleman, the Chief People Officer, Reuters reported.
The Windows-maker is reportedly giving its Xbox businesses a hard reset, looking to free up funds as AI expenditures and investments skyrocket across the sectors.
“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,” Coleman said in her statement.
Big blow to Xbox
Asha Sharma, the head of Xbox, published her mail to her team on X. She said, throughout FY27, a total of 3,200 team members will be let go. As part of Monday’s layoff round, 1,600 roles are being elimated as the first phase of team reductions.
“Our business today is not healthy. We are operating at margins that are 3–10x lower than comparable platform and publishing businesses,” Sharma claimed in her statement, explaining the layoffs.
Xbox has been Microsoft’s gaming unit since 2001, when the software giant officially forayed into the video game console market with the launch of the original Xbox.
Most recently, the Xbox lineup was refreshed in 2024 with three variants — The Xbox Series X 1TB All-Digital, The Xbox Series X 2TB Special Edition, and The Xbox Series S 1TB. These were priced within the range of $449.99 and $349.99.
Earlier in June, Microsoft raised its Xbox prices by upto $150 owing to soaring chip costs. The boom in AI has sparked a global rush to build new AI data centers, pushing the cost of memory and storage chips to soar high. Since these are the exact same components used inside video game systems, Microsoft had to escalate its Xbox prices also — leading to a drop in sales amid already soft demand.
“Our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset Xbox,” Sharma added.
In the near future, Microsoft could restructure Xbox into a wholly owned subsiday, media reports had claimed last month.
As per Sharma, Xbox revenue has declined by around half a billion dollars in the last five years, despite the platform having invested over $20 billion in content and hardware subsidies.
Moving forward, financial goals are going to be more streamlined by unit under which Xbox will be shifting its focus to “higher priority projects” and more-efficient teams layout and management. Helen Chiang has been named as Xbox’s first Chief Operating Officer to oversee its content and hardware roadmaps.
“In some parts of the company, work passes through as many as 14 layers of management. Our platform teams are 40% larger than they were at the start of this generation. That complexity has slowed decisions, blurred accountability, and made it harder to deliver for players,” she noted.
The Xbox unit is striving to cut short the management layers to a maximum of five.
Microsoft’s AI frenzy
Earlier this year, Microsoft had laid off around seven percent of its U.S. workforce, letting go of 9,000 employees. Freeing-up funds to pay for its AI investments has been among top reasons for these aggressive restructuring decisions.
The hightened costs of building data centers to cater to the growing AI demands, especially at its Azure cloud-computing business, is presurring the software giant to rethink about present operational habits.
This year, Microsoft expects to invest as much as $190 billion in total capital expenditure — most of which will likely be poured into its AI compute abilities.
This would mark a 61 percent surge on the company’s AI expenditure compared to last year as Microsoft starts to pace up its speed in the race to dominate AI.
In comparison, Google’s AI spending could hit $185 billion with majority being used for creating the infrastructure to support AI agents, CEO Sundar Pichai had said in April.
