Microsoft on Monday cut about 4,800 positions, or 2.1% of its global workforce, the latest in a series of layoffs that fuels fears that AI will replace people in companies.

The layoffs will hit Xbox and commercial sales the hardest, as Xbox loses 1,600 employees today, according to memos shared with Microsoft staff.

Here’s an excerpt from a memo from Amy Coleman, executive vice president and chief people officer:

Our business is changing because the world around it is changing. The way technology is built, deployed and used is transforming faster than at any time in my time here. The needs of our clients are changing, the business models that serve them are changing, and that means the work itself – what we do, where we focus, and how we are organized – also has to transform.

Companies cannot choose whether their industry changes; They can only choose whether to change with him. That means we will need to adjust resources and roles and change the way we operate in order to have the greatest impact for our customers.

Coleman emphasized that the roles being eliminated today “are not being replaced by AI,” but noted that “what is true is that AI is changing the way work is done.”

“Some of the tasks we do every day can now be automated, and that means we all have to keep learning, keep developing new skills, and keep adapting as work evolves,” Coleman wrote.

For many who feel the pain of unemployment, that is a distinction without a difference.

The layoffs build on Microsoft’s recent launch of its Frontier Company business unit, which focuses on delivering enterprise AI deployments with the company’s existing AI tools and an army of deployed engineers. That move is backed by a $2.5 billion investment, reflecting a common theme we’re seeing among layoffs this year: job cuts are correlated with increased spending on AI.

Speaking of the Xbox layoffs, Coleman said little: “We are restructuring to position the business for long-term success. Engineering teams across the company will also evolve their structure and priorities to meet customer needs and innovate for the future.”

Of the current 4,800 layoffs at Microsoft, 1,600 will affect Xbox, and about 3,200 total cuts are expected through fiscal 2027, according to Xbox CEO Asha Sharma. In an email he sent to employees on Monday, Sharma called this “the most significant restructuring in Xbox history.”

“Our business today is not healthy,” Sharma wrote. “We are operating at margins that are 3 to 10 times lower than comparable platforms and publishing companies.” He added that Xbox made bets like its monthly Game Pass subscription service, along with moves to grow its content portfolio and invest in cross-platform, among other attempts to breathe life into the business. None of those strategies grew at the expected pace, leading the core business to weaken even as Xbox added more teams and investments.

“And now the industry is facing the most serious hardware crisis in its history,” Sharma said. “We must reset Xbox.”

As part of the change, Microsoft will transition four of its game studios to operate under new management, ensuring the preservation of intellectual property and ongoing projects. Specifically, Compulsion Games and Double Fine Productions will return to independent studios, according to Sharma. Ninja Theory and Undead Labs will have new owners with funds to complete and grow some of their most popular games.

According to Sharma’s memo, Xbox is also flattening management, reducing the current 14 layers of management to no more than five, but ideally three. As part of this major organizational redesign, Xbox will name executive Helen Chiang as chief operating officer with end-to-end P&L authority across content, hardware, platform and services.

Xbox’s restructuring plan focuses on narrowing focus by abandoning sprawling creative bets that don’t produce platform-scale returns and instead focusing on core strategic pillars like Mojang and King, the studios behind Minecraft and Candy Crush.

The Xbox layoffs come as the gaming industry contracts amid new generative AI opportunities. Companies that build world models, such as Google DeepMind, World Labs, General Intuition, Luma AI, and Runway, have received millions in funding over the past year and generated a lot of buzz for their demos of playable world models. All of those companies see gaming as a short-term marketing opportunity.

In April, Microsoft offered acquisitions structured as voluntary separations to an undisclosed number of employees (some estimates put the number at around 5,500) with the goal of building high-performing teams. Last year, Microsoft laid off about 15,000 employees in two rounds.

The eliminations are part of a series of layoffs in the tech industry that has seen nearly 154,000 people lose their jobs in the first half of 2026 alone, and big tech companies such as Meta, Oracle, Amazon and Cognizant cut thousands of workers.

Microsoft said that along with Monday’s cuts, it is working on ways to maintain staff by retraining workers or placing people in new roles.

“Over the past year, we have redeployed more than 4,000 employees into new roles, including another 500 this month,” Coleman said.

Microsoft did not immediately respond to a request for comment and more information.

This article has been updated with more details about the Xbox layoffs. It was originally published on July 6, 2026 at 8:08 am PT.