Microsoft said Monday it was eliminating about 4,800 jobs — roughly 2 per cent of its global workforce — in a cost-cutting move that will deliver a sweeping restructuring of its struggling Xbox gaming division.

The cuts include the deepest overhaul in Xbox’s history, with approximately 3,200 gaming jobs to be shed over the coming fiscal year, four game studios being spun off or sold, and a fifth entering a review process that could lead to closure, the company said.

The announcement is the latest in a string of mass layoffs by the technology giant as it spends massive amounts of money to stay in the artificial intelligence race, with companies investing tens of billions of dollars in AI-ready data centres and computing power.

“Our business is changing because the world around it is changing,” Amy Coleman, Microsoft’s executive vice president, wrote in a memo to all employees. “Companies don’t get to choose whether their industry changes; they only get to choose whether they change with it.”

Coleman said the layoffs fell mostly within Microsoft’s commercial business and Xbox. She said the eliminated roles were “not being replaced by AI,” but acknowledged that automation is reshaping how work is done across the company.

On the commercial side, she said the cuts would build on Microsoft’s $2.5 billion push, announced last week, to embed 6,000 engineers inside enterprise clients to accelerate AI adoption by often reluctant customers.

At Xbox, CEO Asha Sharma told employees in a separate memo that 1,600 positions were being cut immediately, with the rest to follow through fiscal year 2027.

Xbox has been through successive rounds of cuts since Microsoft’s $68.7bn acquisition of Activision Blizzard closed in 2024 after a long review process by regulators over competition concerns.

Sharma described Xbox’s business as “not healthy”, with profit margins “3-10 times lower” than rivals. She succeeded longtime Xbox chief Phil Spencer, who retired in February, and has pledged to return the division to growth by 2027.

“History is full of companies that mistake longevity for inevitability,” she wrote. “We will not be one of them.”

Four studios will leave Xbox as part of the restructuring.

Compulsion Games and Double Fine Productions will become independent, retaining their intellectual property and game catalogues.

Ninja Theory and Undead Labs have entered into terms to join new owners with funding to continue their current projects.

In France, Arkane’s management is beginning a required consultation with its Works Council to review what Sharma called “potential strategic options” — a process that could result in further closures or a sale.