Microsoft’s gaming division confirmed a major restructuring on Monday, July 6, announcing that it will lay off approximately 3,200 employees and divest from four of its internal studios. The move is part of a broader corporate reduction that includes about 4,800 layoffs across Microsoft company-wide.
Xbox boss Asha Sharma announced the cuts in an email to staff, explicitly linking the decision to the current state of the market. "The industry is facing the most severe hardware crisis in its history," Sharma wrote, noting that the business is "not healthy" and currently operating with margins three to ten times lower than those of comparable publishers.
Studio Spin-offs and Sales
The restructuring involves a significant shift in the company's portfolio. Compulsion Games and Double Fine Productions are being spun off to become independent studios once again, with both retaining ownership of their own intellectual property.
Meanwhile, Ninja Theory and Undead Labs are being sold to new owners. According to the announcement, these sales include provisions for funding to ensure the completion of upcoming projects, specifically Senua and State of Decay 3. These four studio transactions alone account for the movement of over 300 jobs out of the Microsoft gaming division.
The status of Arkane Lyon remains unclear. The studio is currently entering a legally mandated works council consultation process in France, a standard procedure that can take several months before a final decision on the office's future is reached.
Leadership Changes and Corporate Strategy
Alongside the workforce reduction, Microsoft announced a shift in its Gaming Hardware and management structure. Helen Chiang, the former head of Mojang, has been promoted to the newly created role of chief operating officer. She steps into the position following the retirement of long-time COO Dave McCarthy.
While recent reports have linked the wider Microsoft layoffs to shifts in the tech industry, chief people officer Amy Coleman stated that these specific roles are not being replaced by AI. However, she acknowledged that AI continues to change the nature of the work being performed across the company.
These changes follow a period of financial warnings from Xbox leadership regarding a "hardware component crisis" that has limited console production. Despite the cuts, the company signaled a focus on its remaining internal projects, having recently reaffirmed its commitment to exclusives like Gears of War and Clockwork Revolution during the Summer Game Fest showcase.
The 3,200 layoffs are expected to be completed by the end of Microsoft's fiscal year in July 2027, with half of those roles already eliminated as of July 6.