---
title: "Microsoft cuts 4,800 jobs and spins off four studios in a deep Xbox overhaul"
description: "Microsoft has cut about 4,800 jobs across the company and moved to spin off four game studios, with its Xbox division absorbing the heaviest blow: roughly 3,200 positions, or a fifth of the gaming workforce. The new head of Microsoft Gaming told staff the business 'is not healthy.'"
category: "Business"
category_url: https://herald.la/category/business
author: "Elias Rosen"
published: 2026-07-15T02:00:00.000Z
updated: 2026-07-15T02:00:00.000Z
canonical: https://herald.la/article/microsoft-cuts-4-800-jobs-and-spins-off-four-studios-in-a-deep-xbox-overhaul
tags: ["microsoft", "xbox", "layoffs", "video games", "tech industry"]
---
# Microsoft cuts 4,800 jobs and spins off four studios in a deep Xbox overhaul

Microsoft has cut about 4,800 jobs across the company and moved to spin off four game studios, with its Xbox division absorbing the heaviest blow: roughly 3,200 positions, or a fifth of the gaming workforce. The new head of Microsoft Gaming told staff the business 'is not healthy.'

Microsoft's gaming ambitions, built up through years of studio buying and a $69 billion takeover of Activision Blizzard, are being sharply pared back. The company [announced on July 6 that it would cut about 4,800 jobs, roughly 2.1% of its workforce](https://www.cnbc.com/2026/07/06/microsoft-cuts-2point1percent-of-employees-as-xbox-unit-plans-to-spin-studios.html), and that its Xbox division would bear the brunt.

## The scale of the cuts

Xbox is [shedding about 3,200 roles, around 20% of the division, with 1,600 eliminated immediately and another 1,600 to follow through the current fiscal year](https://www.cnbc.com/2026/07/06/microsoft-cuts-2point1percent-of-employees-as-xbox-unit-plans-to-spin-studios.html). Alongside the layoffs, the company said it would [spin off four game studios to new owners](https://www.cnn.com/2026/07/06/tech/microsoft-layoffs-xbox), a notable reversal for a business that spent recent years absorbing studios rather than shedding them.

Asha Sharma, the new chief executive of Microsoft Gaming, laid out the move in a memo titled "Resetting Xbox." ["Our business today is not healthy,"](https://www.cnbc.com/2026/07/06/microsoft-cuts-2point1percent-of-employees-as-xbox-unit-plans-to-spin-studios.html) she wrote, pointing to weak profitability relative to comparable gaming businesses.

## Why now

Microsoft has framed the retrenchment as part of a broader reallocation toward artificial intelligence and its cloud business, where it is spending enormous sums on data centers. Company leaders have said the cuts are about focusing resources on priorities rather than replacing workers with AI outright, but the effect on the games unit is stark: after years of expansion, Xbox is being told to do more with far fewer people.

The layoffs are also the latest in a series. Microsoft [has trimmed its gaming ranks repeatedly since the Activision deal closed in 2024](https://techcrunch.com/2026/07/06/microsoft-lays-off-nearly-5000-employees-across-xbox-commercial-sales/), and the wider video-game industry has shed thousands of jobs over the past two years as budgets tightened and post-pandemic growth cooled.

## What it means

For players, the immediate consequences are uncertain: spinning off studios can free talented teams to work independently, but it can also throw projects and jobs into limbo. For workers, the "reset" lands as another blow in an industry that has felt like a rolling series of them. And for Microsoft, the move signals that even the deepest pockets in gaming are now prioritizing margins and AI over the empire-building that defined the Xbox strategy just a couple of years ago.

## Sources

- [Microsoft cuts 4,800 jobs as Xbox unit downsizes and plans to spin off four gaming studios](https://www.cnbc.com/2026/07/06/microsoft-cuts-2point1percent-of-employees-as-xbox-unit-plans-to-spin-studios.html)
- [Microsoft axes 4,800 jobs, including major cuts to Xbox](https://www.cnn.com/2026/07/06/tech/microsoft-layoffs-xbox)
- [Microsoft lays off nearly 5,000 employees across Xbox, commercial sales](https://techcrunch.com/2026/07/06/microsoft-lays-off-nearly-5000-employees-across-xbox-commercial-sales/)