Reported by NUPIAO
On July 6 local time, Microsoft confirmed a fresh round of layoffs, slashing 4,800 full-time positions in one go—about 2.1% of its global workforce of 228,000. Unfortunately, the Xbox gaming division took the hardest hit in this wave of cuts.
Asha Sharma, who recently stepped into the Xbox CEO role, told employees in a memo, “During my time here, the way technology is built, deployed, and used is changing faster than ever.”
Sharma explained that Xbox will shed a total of 3,200 jobs. Half of those are included in the 4,800 positions cut on Monday, while the remaining 1,600 will be phased out gradually through fiscal year 2027. Sources familiar with the matter say this round affects roughly 20% of Xbox’s staff.
As part of the overhaul, four Xbox-owned game studios—Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs—will be carved out and spun off.
For a bit of background, Compulsion Games was founded in Montreal, Canada, in 2009. It’s known for its quirky, bizarre visual style and darkly humorous, dystopian storytelling. You might remember their puzzle game Contrast or the survival adventure We Happy Few. Double Fine Productions, founded in 2000 by legendary game designer Tim Schafer, is famous for its wildly inventive platformers, puzzles, and adventure games. Both of these studios will now operate independently.
Double Fine, which was acquired by Microsoft back in 2019, posted on social media, “Thank you to everyone at Xbox for seven wonderful years.”
The other two, Ninja Theory and Undead Labs, were founded in 2000 and 2009 respectively. Ninja Theory is a deeply unique AAA studio that excels at action games and psychological thrillers, with standout titles like Hellblade: Senua’s Sacrifice and its sequel Senua’s Saga: Hellblade II. Undead Labs, started in Seattle by former Blizzard core member Jeff Strain, has always focused on one thing: creating the most authentic zombie apocalypse survival sim experience. Both studios joined Microsoft in 2018 and have now signed deals to move under new ownership.
Reflecting on the year-long restructuring, Sharma acknowledged it adds extra challenges, but “unfortunately, it’s impossible to make all the necessary changes in a single day.”
She also pointed out, “History is littered with companies that mistook longevity for inevitability, and we will never be one of them.” Sharma stressed that while she knows layoffs are “painful,” Xbox’s entire content portfolio, platform, and operations need a “reset.”
So far in 2026, Microsoft has been the worst-performing mega-cap tech stock, with its shares down 19% as of last Friday’s close. Investors are mainly worried about two things: the nearly $190 billion annual capital expenditure funneled into Azure cloud and generative AI models, which isn’t delivering quick returns; and the Xbox gaming business consistently dragging down the company’s overall margins. Between massive acquisitions and hardware losses, Xbox keeps siphoning AI R&D funds, and the double cost pressure is squeezing profitability.
I dug into Microsoft’s financial reports from the past three fiscal years. In fiscal 2023, the gaming segment brought in $16.28 billion in revenue, but Xbox hardware revenue slid 13% year-over-year, and console shipments missed expectations. In fiscal 2024, after completing the eye-popping $81 billion Activision Blizzard acquisition, gaming revenue jumped to $18.128 billion, but the heavy amortization and integration costs ate up the new income, and operating profit actually fell. For fiscal 2025, gaming revenue hit $23.45 billion, up 9% year-over-year, yet all that growth came from cross-platform sales of Call of Duty and Minecraft. Xbox console hardware revenue dropped another 22%, marking three straight years of decline.
Meanwhile, Microsoft’s overall performance tells a different story. From fiscal 2023 to 2025, total revenue grew from $211.9 billion to $281.7 billion, net profit comfortably topped $100 billion, and cloud, Office, and AI tools kept growing at over 15% annually. Xbox remains the only major business line consistently dragging down profitability.
Compared to its rivals, Xbox doesn’t really shine. Sony’s Game & Network Services segment reported revenue of 4.26 trillion yen (about $26.3 billion) in fiscal 2025, up roughly 6% year-over-year, while operating profit rose 12% to 463.3 billion yen, and cumulative PS5 shipments passed 93.7 million units.
Sharma was blunt about Xbox’s profit margins lagging far behind its peers, and she flagged that the console industry is facing a serious “hardware crisis” because component costs are skyrocketing.
In fact, Microsoft has been quietly trimming headcount for a while now. Last May, it cut 6,000 employees across global sales, hardware, and gaming studios. In July of the same year, it slashed another 9,000 positions, about 4% of the workforce at that time. Combine that with early-2026 performance-based cuts and a voluntary buyout program in April, and before this latest announcement, Microsoft had already optimized over 15,000 roles in twelve months.
In the global tech AI arms race, Microsoft has to concentrate cash and talent to fend off Google and Amazon in the cloud battle. Right before the layoff news broke, Microsoft quietly formed a new entity called Microsoft Frontier Company. This unit will leverage Microsoft’s existing AI tools to help enterprise clients roll out effective AI deployments. The company is pumping $2.5 billion into the project and staffing it with 6,000 industry experts and engineers. Meanwhile, Amazon previously announced plans to invest $1 billion in a new AI division focused on the same kind of customer support.
By the market close on July 6, Microsoft shares settled at $386.74, down 0.96%, giving the company a market cap of $2.87 trillion, which is a bit lower than five days prior.
