Microsoft resets Xbox with 3,200 job cuts, studio divestments as gaming business undergoes overhaul

Microsoft is set to eliminate about 3,200 jobs across its Xbox division over the next year and divest four game development studios as part of a sweeping overhaul aimed at improving the gaming business's financial performance, according to a Bloomberg report.The restructuring, which represents roughly one-fifth of Xbox's workforce, marks the biggest strategic move under Xbox Chief Executive Asha Sharma, who took charge earlier this year. The report said the company is seeking to simplify its operations, redirect resources toward larger game franchises and improve profitability after years of heavy investment that have yet to deliver the expected returns.According to the report, around 1,600 employees will leave immediately, with the remaining reductions taking place over the next 12 months. The Xbox cuts come alongside another 3,200 layoffs across Microsoft's broader operations, primarily in sales, bringing the company's total announced workforce reduction to about 6,400 employees.Also read: Weeks after Meta’s 8,000 job cuts, Mark Zuckerberg says AI could create more jobs if used to empower peopleThe gaming business has struggled despite Microsoft's $69 billion acquisition of Activision Blizzard in 2023. Xbox has faced slowing hardware sales, uneven game releases and stagnant growth in its Game Pass subscription service, prompting the company to rethink its long-term strategy.As part of the overhaul, Xbox will sell game studios Ninja Theory and Undead Labs to undisclosed buyers, while allowing Double Fine and Compulsion Games to become independent again under their original founders. The studios are expected to retain ownership of their intellectual property, with transition funding provided during the separation process, Bloomberg reported.The company is also exploring strategic options for Arkane Studios in France, although any potential transaction is expected to take longer because of local labour regulations.The studios affected were all acquired during former Xbox chief Phil Spencer's acquisition-led expansion, which included major purchases such as Activision Blizzard and ZeniMax. While those acquisitions broadened Microsoft's gaming portfolio, the expected acceleration in subscriber growth and financial performance did not fully materialise, as per reports. The changes reflect Microsoft's broader effort to balance heavy spending on artificial intelligence infrastructure with tighter cost controls across other parts of the business. Despite the restructuring, Bloomberg reported that Microsoft does not plan to cancel any previously announced Xbox game projects and intends to continue investing heavily in the gaming business while narrowing its focus to projects with stronger commercial potential.Read: Microsoft layoffs: Employee says expected layoff feels like relief after months of uncertainty