Microsoft announced 3,200 Xbox job cuts in July. Now, it may cut hundreds more this week

Microsoft is reportedly preparing to cut hundreds of jobs from its Xbox gaming division this week as the company continues a major restructuring of its gaming business.

According to a report by The Information, cited by The Verge, Microsoft could eliminate hundreds of Xbox jobs while also consolidating several of its game studios. If it happens, this would be the second major round of job cuts at Microsoft's Xbox division in 2026.

Microsoft has not publicly confirmed the latest reported layoffs, and the exact number of positions affected remains unclear. The studios that could be consolidated have also not been identified.

Why is Microsoft cutting Xbox jobs?

The layoffs are part of a broader effort by Xbox CEO Asha Sharma to restructure Microsoft's gaming business and improve its profitability. Sharma has been seeking to reduce fragmentation across Xbox's studios and teams while placing greater emphasis on major gaming franchises, including The Elder Scrolls and Fallout. The strategy involves reducing the company's focus on some smaller studios acquired during Microsoft's rapid expansion in gaming.

In recent times, Microsoft has reduced management layers at Xbox, introduced shared services and moved towards a more unified operating model. It is also reportedly planning to reduce vendor spending by 50%. Recently Helen Chiang was promoted to chief operating officer, with responsibility spanning content, hardware, platform and services.

Reportedly, Microsoft CEO Satya Nadella and CFO Amy Hood had earlier considered restructuring Xbox or potentially separating parts of the gaming business from Microsoft. They are now backing Sharma's restructuring plans, according to reports.

Microsoft Xbox layoffs: What happened in July?

On July 6, 2026, Microsoft announced plans to reduce its gaming workforce by approximately 3,200 employees during fiscal year 2027. About 1,600 roles were eliminated immediately, while additional reductions were planned later. At the time, Sharma described the move as the “most significant restructure in Xbox history.”

Microsoft also announced changes involving several of its studios. Compulsion Games and Double Fine Productions were set to return to independent ownership, while Ninja Theory and Undead Labs entered arrangements to move under new ownership. Arkane's French operations also began consultations over potential strategic options.

The company said the July restructuring affected teams across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang and Xbox Game Studios.

Asha Sharma's four-point Xbox plan

In a July 30 memo to employees, Sharma outlined four priorities for Xbox's fiscal 2027 strategy. The priorities were built around four Cs: Strengthen the platform, led by consoles; Grow games into global franchises; Turn Minecraft into a creator platform; and extend the worlds that fans already love.

Sharma said Xbox aimed to return to player and revenue growth by the end of fiscal year 2027, while also bringing profits back in line with industry averages. She later explained the restructuring in an interview with Fortune, saying: “We spread ourselves too thin.”

Why is Microsoft restructuring Xbox?

Microsoft's gaming business expanded significantly through major acquisitions, including its $7.5 billion purchase of ZeniMax Media and its approximately $69 billion acquisition of Activision Blizzard. That expansion gave Microsoft one of the industry's largest collections of gaming studios and franchises. However, it also created a large and complex organisation with overlapping teams and management structures.

Xbox has increasingly shifted away from relying solely on console hardware and traditional console exclusives. Microsoft seems to be now attempting to operate its expanded gaming portfolio with a smaller and more consolidated organisation.

Are Xbox layoffs linked to AI?

In recent times, usage of AI has jumped significantly by major gaming studios. For instance, Computer Entertainment Supplier's Association has reported that 85.8% of Japanese game developers use generative AI tools in some part of their workflow. Unity has also introduced plugins integrating AI-assisted development tools, including Claude Code and Codex, into game-development workflows.

However, as of now, there are no reports linking AI with the layoffs at Microsoft. The tech giant has so far highlighted organisational complexity and overexpansion as reasons for the restructuring.