Microsoft has announced plans to eliminate about 4,800 jobs, representing roughly 2.1% of its global workforce. The Xbox gaming division will bear the largest share of the cuts, with approximately 3,200 positions expected to be eliminated during fiscal year 2027, including an initial reduction of 1,600 employees.

The company said the layoffs are not intended to replace workers with artificial intelligence but reflect broader organizational changes as AI transforms the way businesses operate. Microsoft has been investing aggressively in AI, cloud computing, and data center infrastructure while expanding its partnership with OpenAI. The company expects to spend about US$190 billion on AI-related infrastructure and data centers in 2026.

Xbox has faced additional challenges beyond the company's AI transition. Microsoft spent years acquiring game studios to strengthen its gaming ecosystem, but executives acknowledged that the strategy has not delivered the expected growth. The company now plans to streamline operations and refocus its gaming business while reducing the number of studios under its direct management.

The gaming industry is also dealing with rising hardware costs caused by a global memory shortage. Microsoft recently announced Xbox console price increases of between US$100 and US$150, depending on the model, beginning in August. Combined with slower growth in the gaming market after the pandemic, Xbox revenue fell 5% in the quarter ending in March, prompting the company to restructure in an effort to improve long-term competitiveness.