Xbox has announced plans to reduce its workforce by 3,200 employees, representing around 20 per cent of its total staff, over the coming year as part of a broader restructuring programme linked to Microsoft’s increased investment in artificial intelligence.
According to an email shared with employees by Asha Sharma, the company will begin the process immediately, with 1,600 employees leaving on Monday, while the remaining job reductions will take place during FY27. The company also plans to divest four gaming studios and is preparing to separate from another.
Business reset planned amid financial challenges
In her message to employees, Sharma said the company’s current financial position required significant changes, stating that Xbox’s business was operating at substantially lower margins than comparable platform and publishing companies.
She said the layoffs were not a reflection of employees’ commitment or abilities but were part of a wider effort to strengthen the company’s long-term business.
The workforce reduction comes as Microsoft continues implementing AI-focused cost-cutting measures across its operations. Overall, the technology company is reportedly cutting 4,800 jobs, with Xbox accounting for the largest share.
Sharma also described the gaming sector as experiencing one of its most challenging hardware periods and said the company needed to “reset Xbox” to improve its future performance.
Company to streamline operations and reduce management layers
As part of the restructuring strategy, Xbox plans to simplify its organisational structure, revise its content portfolio and improve platform operations.
According to Sharma, the company currently loses 64 cents for every dollar invested annually, making operational efficiency a key priority.
She said Xbox would increasingly support independent game creators by offering open development tools and broader audience access.
The restructuring will also see Mojang and King report directly to Sharma. She said both studios have evolved into major gaming platforms with large monthly active player bases and will play a central role in Xbox’s future strategy.
To improve decision-making, the company plans to significantly reduce its management hierarchy. Sharma said some departments currently have as many as 14 management layers, which slow down operations. Xbox aims to reduce this to no more than five layers, and in some cases, only three.
The company will also reduce vendor spending by 50 per cent as part of its cost-saving measures.
Helen Chiang promoted to Chief Operating Officer
Alongside the restructuring announcement, Sharma confirmed the promotion of Helen Chiang to the newly created position of Chief Operating Officer.
Chiang will oversee profit and loss responsibilities across Xbox’s content, hardware, platform and services divisions while reporting directly to Sharma.
According to Sharma, the new operating structure is intended to improve investment decisions, strengthen accountability and better integrate the company’s various business units.
Despite the ongoing restructuring and job cuts, Sharma said Xbox remains committed to long-term growth and plans to continue investing heavily in the business, while placing greater emphasis on disciplined spending and strategic priorities.