Microsoft will eliminate 4,800 positions across its workforce, a deep cut that lands hardest on its gaming division and signals a dramatic retreat from years of acquisition-fueled expansion. The layoffs arrive alongside news that Xbox will spin off four game development studios, including San Francisco’s Double Fine Productions.
Monday’s announcement represents what new Xbox chief Asha Sharma called “the most significant restructure” in the company’s history. Sharma, who took the helm in April, pointed to sluggish growth numbers and described conditions as “the most severe hardware crisis” in video game history, driven largely by the artificial intelligence boom reshaping the tech landscape.
Close to 1,600 Xbox employees received notices Monday. Another 1,600 cuts will follow in the next fiscal year, shrinking the division’s headcount by roughly 20% across two rounds. Overall, Microsoft’s global workforce will contract by more than 2%, with sales and consulting roles also affected.
For Xbox, the financial picture has darkened considerably. Gaming revenue dropped 7% in the first quarter compared to a year earlier. Console sales fared far worse, plummeting 33% over the same period. Sharma put the numbers bluntly: margins run 3 to 10 times lower than comparable platform and publishing businesses.
The restructuring unwinds several high-profile acquisitions. Double Fine, the studio behind cult favorites like “Psychonauts” and “Grim Fandango,” regains its independence after seven years under Microsoft. Founder Tim Schafer expressed gratitude for the partnership and emphasized that the outcome “preserves our history and culture, and returns ownership of our games to us.” Compulsion Games, Ninja Theory, and Undead Labs will also operate as independent entities once again.
Double Fine launched in 2000, took its name from the Golden Gate Bridge’s “double fine” zones, and later pioneered video game crowdfunding by raising more than $6 million on Kickstarter for “Broken Age” and “Psychonauts 2.” The studio also hosts San Francisco’s annual “Day of the Devs” showcase for independent developers.
The layoffs fit a broader pattern of contraction across the tech and gaming sectors. Epic Games and Ubisoft have both conducted mass layoffs, while Oracle, Meta, and Amazon have slashed thousands of roles. Microsoft itself cut roughly 9,000 jobs a year ago, even as the company plans to spend up to $190 billion this fiscal year on artificial intelligence infrastructure.
Sharma acknowledged that Microsoft’s acquisition strategy, including the $69 billion Activision Blizzard purchase in 2023 and the $8.1 billion ZeniMax Media deal in 2021, failed to deliver. She noted the company lost 64 cents for every dollar invested in a typical year.
The executive framed the moment as existential. Competing now against both publishing giants and nimble independent studios, she wrote that owning every great studio was “neither possible nor desirable.” She closed with a warning: “History is full of companies that mistake longevity for inevitability. We will not be one of them.”
