Microsoft Layoffs Xbox Ai

. The fresh round of layoffs is linked to a major overhaul of its Xbox gaming business, including the closure of up to five studios, as the company looks to improve returns after years of heavy investment in the division.

Reports suggest the Xbox restructuring will affect around 3,200 jobs, including about 1,600 employees who were laid off on Monday. Microsoft has invested tens of billions of dollars in expanding Xbox, including its acquisition of Activision Blizzard. However, it continues to fall behind Sony’s PlayStation and Nintendo, prompting the company to rethink its gaming strategy.

When it comes to capturing the market, the tech giant has increasingly focused on making its games available across multiple platforms instead of relying on console-exclusive titles to boost Xbox hardware sales. According to a note to employees from Xbox chief Asha Sharma, the restructuring will see Xbox divest four of its game studios.

Consequently, South of Midnight developer Compulsion Games and Psychonauts creator Double Fine Productions will become independent studios. Meanwhile, Ninja Theory and Undead Labs will be spun off to focus on expanding the Senua and State of Decay franchises, Sharma said. She added that Arkane Studios, known for Dishonored and currently developing a game based on Marvel’s Blade, has begun consultations with its workers’ union in France to explore future options.

The job cuts come as the company accelerates its spending on artificial intelligence (AI). Like other tech giants, Microsoft is investing heavily in AI infrastructure, and the industry’s total AI spending is reportedly expected to exceed $700 billion this year. Considering the massive investments, companies including Amazon and Meta have also cut thousands of jobs to balance rising AI costs.

Microsoft’s Chief People Officer Amy Coleman, in a memo to staff, said the layoffs were aimed at focusing Microsoft’s “people, investments, and energy on the priorities that will keep Microsoft positioned to deliver for customers in a fast-changing industry.”

The restructuring comes just days after Microsoft unveiled Microsoft Frontier Company, a new business unit backed by $2.5 billion that will help large enterprises deploy customised AI solutions, underscoring the company’s continued push to expand its AI business.

Though there are apprehensions that laid-off staff will be taken over by AI. Coleman dispelled such concerns by saying that the eliminated roles were not being replaced by AI. However, she acknowledged that AI is changing how work is done across the company. “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 wrote.

Coleman also warned employees that “there will be more changes ahead” as other parts of Microsoft’s business undergo similar restructuring.

According to analysts, the layoffs appear to be part of a broader effort to control costs and shift resources toward AI rather than a reaction to weak business performance. Investors are now more interested in whether Microsoft’s AI investments can generate enough revenue to justify their growing costs.

Earlier this year, Microsoft also offered voluntary buyouts to around 9,000 US employees. The company regularly adjusts its workforce at the end of its fiscal year as it plans future spending. Strong demand for AI has boosted Microsoft’s Azure cloud business, but building AI data centres has become increasingly expensive.

In April, Microsoft projected AI-related spending of about $190 billion in 2026. At the same time, AI tools are beginning to automate routine software tasks, while rising memory chip prices have increased Xbox costs, forcing the company to raise console prices.

In July so far, companies have laid off close to 6,000 employees worldwide. Experts suggest that the job cuts are an outcome of companies’ efforts to streamline their operations, integrate AI, and adapt to the evolving market conditions. Apart from the 4,800 staff from Microsoft, in the healthcare sector, US-based CorroHealth slashed about 800 jobs in Kochi.

Meanwhile TikTok laid off 300 employees in Dublin in its bid to reorganise parts of its business. On the other hand, Indonesian e-commerce platform Tokopedia, part of the retail sector, reportedly reduced 90 per cent of its workforce following restructuring after its acquisition, although the exact number of affected employees was not disclosed.