Microsoft Xbox Cuts 3,200 Jobs in Biggest Restructuring in Its History
Microsoft announced on July 7, 2026, that its Xbox division will cut approximately 3,200 jobs and divest four game studios. New Xbox CEO Asha Sharma cited bloated management, weak Game Pass growth, and margins far below comparable businesses.
Microsoft's Xbox division is cutting 3,200 jobs and divesting four game studios in what the company calls the most significant restructuring in its history.
New Xbox CEO Asha Sharma announced the changes on July 7, 2026. About 1,600 positions were eliminated immediately, with the rest to follow by the end of fiscal 2027.
Four studios are being divested: Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs. Arkane Studios is exploring strategic options, which could mean a sale or closure.
Sharma cited three main problems driving the cuts. Management layers had grown to as many as 14 levels in some parts of the organization. Game Pass subscriber growth had slowed well below targets. And profit margins were running three to ten times lower than comparable businesses in the industry.
No publicly announced first-party games have been canceled. The company says it will focus resources on flagship franchises including Call of Duty and Halo.
The restructuring reflects a broader shift at Microsoft, which has poured tens of billions of dollars into AI infrastructure over the past two years. The company is under pressure to show that its gaming division can generate returns that justify its scale.
Microsoft acquired Activision Blizzard in 2023 for $69 billion, one of the largest deals in gaming history. The integration has been slower and more expensive than executives projected.
Industry analysts say the Xbox cuts signal that even large gaming divisions are not immune to the capital reallocation happening across Big Tech as AI spending crowds out other investments.
For the studios being divested, the path forward is uncertain. Double Fine, founded by Tim Schafer, was acquired by Microsoft in 2019. Ninja Theory, known for Hellblade, joined the same year. Both had been considered crown jewels of the Xbox Game Studios portfolio.
Microsoft said it will work with affected employees on severance and job placement support.
