Cutting corners: The first wave of massive layoffs that Microsoft teased several weeks ago has arrived. Most of the losses will hit the Xbox division over the next year as the company consolidates its gaming strategy. Microsoft will spin off Compulsion Games, Double Fine, Ninja Theory, and Undead Labs, while Arkane enters labor negotiations. Bethesda, ZeniMax, id Software, Activision, Obsidian, and Microsoft's accessibility team will all see deep cuts.
In a public memo to Xbox employees, CEO Asha Sharma confirmed that Microsoft will eliminate approximately 3,200 positions across the gaming division between now and July 2027, with 1,600 layoffs taking effect immediately. Other outlets report an additional 1,600 redundancies across other Microsoft divisions, bringing the total to 4,800.
No studios have been fully closed so far, and Sharma stressed that no publicly announced games have been canceled. Compulsion Games (which recently shipped South of Midnight) and Double Fine (Psychonauts) will become independent, retaining their intellectual property and receiving "runway" funding for their next projects.
Meanwhile, Microsoft will sell Ninja Theory (Hellblade) and Undead Labs (State of Decay) to new owners with the resources to finish Senua and State of Decay 3, respectively.
Arkane Lyon, meanwhile, is entering negotiations with its work council over its future. Stringent French labor laws likely spared the Dishonored and Deathloop studio from Arkane Austin's fate. The studio's next title, Blade, based on the Marvel Comics character, is said to have slipped from a late-2026 to a late-2027 launch after running over budget. Studio founder Raphael Colantonio, who left Arkane in 2017 and later founded the indie studio WolfEye in 2019, jokingly asked Sharma how much it would cost to buy Arkane back.
Although ZeniMax and its other subsidiaries, including Bethesda (The Elder Scrolls) and id Software (Doom), will remain under Microsoft, they've suffered significant losses. Bloomberg's Jason Schreier reports the studios will narrow their focus to franchises such as Fallout, The Elder Scrolls, Doom, Quake, and Wolfenstein. The Elder Scrolls VI remains years away despite having been announced eight years ago.
Reports of further job losses are still filtering across social media. According to 3D Realms founder Scott Miller and former Bethesda Game Studios lead Jeff Gardiner, id Software lost around 95 employees, including most of its coders.
Microsoft layoffs since 2023
| Date (announcement) | Reported headcount cut | Main business areas hit |
|---|---|---|
| 18 Jan 2023 | 10,000 | Windows & devices, Xbox, HoloLens, recruiting & marketing |
| 25 Jan 2024 | 1,900 | Activision Blizzard, Xbox, ZeniMax after the ABK deal closed |
| 3-4 Jun 2024 | ≈1,000 (internal est.) | Azure for Operators, HoloLens/mixed-reality, other "moonshot" teams |
| 12 Sep 2024 | ≈650 | Xbox publishing & game-studio support teams |
| Jan-Feb 2025 | ≈2,000 | Company-wide "low-performer" cull (no severance in many cases) |
| 13 May 2025 | ≈6,000 (Microsoft says "< 3% of staff") | All geographies; focus on middle-management, LinkedIn |
| 2 Jun 2025 | 305 | Redmond, Washington HQ roles; additional WARN-notice layoffs following the May cuts |
| 2 Jul 2025 | ≈9,000 (Microsoft says "< 4% of staff") | Company-wide; Xbox, sales, management layers, and other divisions |
| 23 Apr 2026 (opens May) | Up to ≈8,750 offered voluntary exit | US employees at senior director level and below whose age plus tenure equals 70 or higher; certain sales staff excluded |
| Fiscal Year 2027 (beginning July 6, 2026) | ≈4,800 | Largest reset in Xbox history, five game studios divested |
If accurate, the redundancies could significantly affect Microsoft's internal game engine development. The studio behind Doom and Quake has produced some of the most influential graphics engines in video game history, and its recent technical work on Doom: The Dark Ages and Indiana Jones and the Great Circle is considered among the most ambitious on today's hardware.
Sources also told Gardiner that around 35 Bethesda employees were let go, and Obsidian Entertainment (The Outer Worlds 2, Avowed) lost an undetermined number of employees. The team behind The Elder Scrolls Online, meanwhile, took enough damage to push its roadmap significantly beyond the upcoming content season.
While Microsoft's Accessibility Team, widely praised for designing controllers for disabled gamers, saw layoffs, the company's hardware division appears unscathed. The next Xbox console, codenamed Helix and expected to launch in late 2027 or 2028, remains on schedule. Blizzard Entertainment hasn't seen any immediate redundancies, though the Diablo IV studio might lose staff in the coming months.
– Raphael Colantonio (@rafcolantonio) July 6, 2026
Mojang (Minecraft) and King (Candy Crush) will now come under direct oversight of the Xbox division. Former Mojang executive Helen Chiang has been promoted to a newly created chief operating officer position as Microsoft looks to reduce the number of management layers between studios.
Sharma explained that Xbox's prior strategy – bolstering the Game Pass subscription service with a wide variety of content and multiplatform releases – didn't reach Microsoft's growth targets. The company's margins are 3-to-10 times lower than those of similar businesses, and it lost 64 cents for every dollar it invested in most years. The CEO told Fortune that Xbox had stretched itself thin.
On top of this, memory shortages, partly driven by Microsoft's own AI investments, have multiplied the company's expenditures on RAM for its hardware. These conditions have pushed Apple, Sony, and other manufacturers to raise prices, with Microsoft set to add at least $100 to the price of Xbox Series consoles in August.
Amid post-pandemic market corrections, AI-related spending, and other factors, Microsoft has enacted multiple rounds of layoffs in each of the past several years. By July 2027, approximately 44,000 of the company's employees will have lost their jobs in four years.