Microsoft eliminated 4,800 jobs Monday and stripped its Xbox division of roughly a fifth of its staff, saying it would spin four game studios out of the company in what unit chief Asha Sharma called "the most significant restructure in Xbox history."

The cuts equal 2.1 percent of Microsoft's workforce and follow last year's round of 9,000 layoffs, deepening a two-year contraction at one of the world's most valuable companies as Chief Executive Satya Nadella retools around artificial intelligence and tries to satisfy investors who have driven Microsoft shares down 19 percent this year, the worst performance among the country's megacap technology stocks.

Inside Xbox

Xbox will lose 3,200 jobs, half on Monday and half by the end of fiscal 2027, Sharma wrote in an email to employees. "I recognize that a year-long restructuring creates additional challenges," she wrote. "Unfortunately, it is not possible to make all the necessary changes in a single day." Sharma promised staff the division would "return to growth in 2027."

Four studios acquired during Microsoft's game-building spree will leave the company. Compulsion Games and Double Fine Productions, both purchased in the 2010s, will return to independent management and keep their intellectual property, Sharma said. Ninja Theory and Undead Labs, which joined Microsoft in 2018, "have entered terms to join new ownership." France-based Arkane Studios, which arrived through the $8.1 billion ZeniMax Media acquisition in 2021, is in consultation with its works council over "strategic options."

Mojang, the Minecraft developer, and King, the Candy Crush maker Microsoft absorbed in its Activision Blizzard deal, will now report directly to Sharma. "These changes are about a bigger future for Xbox, not a smaller one," she wrote in a note posted on X. "History is full of companies that mistake longevity for inevitability. We will not be one of them."

The AI overhang

Amy Coleman, Microsoft's chief people officer and a 27-year veteran, framed the company-wide cuts as a response to a "fast-changing industry." She said the eliminated roles would not be replaced by AI but acknowledged that "what is true is that AI is changing how work gets done." In April Microsoft launched its first voluntary retirement program for U.S. employees at the senior-director level and below; Coleman wrote that more than one-third of those eligible accepted.

Microsoft shares slipped 1 percent Monday even as the Nasdaq Composite rose 1 percent. Wall Street's discount reflects concern that generative-AI models will chew into enterprise-software demand faster than Redmond can capture new revenue from its own AI products, and that Nadella has yet to articulate a coherent model-and-agent strategy.

History repeats

The gaming industry has been shedding jobs for two years. In 2024, Xbox culled more than 2,000 staff and shuttered four studios acquired before the Call of Duty maker Activision Blizzard was folded into the company. DA Davidson analyst Gil Luria told CNBC that Microsoft's console business remains a strategic misfit: "This is not a business Microsoft needs to be in, or should be in. It is very possible that they will spin it off at some point."

Neither Nadella nor the executives running Microsoft Gaming above Sharma addressed Monday's cuts publicly by the close of trading, and no union or laid-off worker surfaced in the day's reporting, leaving Sharma's and Coleman's staff memos as the only company voices. Tech analyst Paolo Pescatore told the BBC the shakeup was incomplete: "The challenge is not just cutting costs; it is defining what Xbox stands for in a world where games are moving across console, PC, cloud and subscription platforms."

The remaining 1,600 Xbox jobs are set to be eliminated over the next 12 months, giving Microsoft until Sharma's promised 2027 rebound to demonstrate what the shrunken division will actually do.