SEATTLE – Microsoft has announced it will cut around 9,000 jobs, which is about 4% of its global workforce of 228,000 (based on June 2024 figures). This is the company’s biggest round of layoffs in more than two years and follows another 7,000 jobs lost in May.
The job cuts affect several parts of the business, but the Xbox gaming group has taken the biggest hit. Changes include studio closures, cancelled games and a wider push to focus on artificial intelligence, cloud computing and expanding data centre infrastructure. This move highlights Microsoft’s focus on faster-growing sectors, raising concerns about its gaming plans and the effect on those who work there.
Microsoft Restructuring Under Strong Profits
The layoffs are part of a plan to streamline operations and move resources to areas like AI and cloud services. As the world’s second most valuable company after Nvidia, Microsoft has watched its share price climb 150% in five years, thanks to Azure and major investments in AI.
CEO Satya Nadella has talked often about AI’s role, saying this year that one-fifth to nearly one-third of Microsoft’s code is now created by tools like Copilot. This shift has led to cutbacks in slower segments, with analysts such as Dan Ives from Wedbush Securities noting that areas like Xbox and older business units are being trimmed.
This round of layoffs follows Microsoft’s $69 billion buyout of Activision Blizzard in October 2023, which broadened its gaming portfolio but also put more pressure on Xbox to deliver better profits. Industry watchers say the gaming group has struggled to meet these goals, which led Microsoft to make tough decisions.
Ives said the company is “focusing more on AI, cloud, and next-generation Microsoft, and looking to cut costs in Xbox and legacy businesses.” He added that Nadella’s team wants to keep efficiency high as expected by investors.
Xbox Takes the Hardest Hit
The Xbox team, which employs about 20,000 people, saw less than half of the 9,000 layoffs come from its ranks. The cuts have led to several game cancellations and at least one studio closure, raising doubts about Microsoft’s plans for unique gaming content. Major projects affected include:
- The Perfect Dark reboot, a much-anticipated shooter by The Initiative, has been cancelled. The Initiative, a high-profile Xbox studio set up in 2018, is now closed despite heavy investment.
- Rare’s Everwild, a fantasy adventure revealed in 2019 and in development for nearly ten years, has also been cancelled. The project faced several restarts and leadership changes over the years.
- Blackbird, an unannounced online game from ZeniMax Online Studios, has been halted after seven years. It was planned as a follow-up to Elder Scrolls Online.
- Xbox Game Studios boss Matt Booty confirmed in an internal email that more secret projects were cancelled, though details were not shared.
Other studios have seen big layoffs:
- Turn 10 Studios, creators of Forza Motorsport, reportedly lost nearly half its staff, with over 70 jobs gone.
- Candy Crush developer King is cutting about 200 jobs, or 10% of its workforce.
- Raven Software and Sledgehammer Games (both work on Call of Duty) are affected, as is Undead Labs, which is developing State of Decay 3.
- Blizzard Entertainment had up to 100 staff impacted, with work on the mobile game Warcraft Rumble winding down.
- ZeniMax Online Studios, which makes Elder Scrolls Online, is dealing with the exit of its president, Matt Firor, after 18 years, though it’s unclear if this is directly tied to the cuts.
Xbox CEO Phil Spencer told staff in a memo that the cuts are about “making choices now for continued success in future years” and that the aim is to “position Gaming for enduring success” by reducing management layers and focusing on key growth areas. Still, his claim that Xbox’s “platform, hardware, and game roadmap have never looked stronger” has been met with doubt after so many cancellations and studio closures.
A Pattern of Reductions
This is Microsoft’s fourth major round of layoffs in gaming in 18 months. Previous cuts include 1,900 jobs in January 2024, four Bethesda studios closed in May 2024 (Arkane Austin, Tango Gameworks, Alpha Dog Games, and Roundhouse Games), and another 650 jobs lost in September 2024. The ongoing cuts have drawn criticism from developers and fans, with one developer describing Microsoft as “a giant black hole sucking everything in, and spitting out bones.”
Microsoft’s layoffs follow a wider trend in the tech industry. Other tech companies like Meta and Bumble have also reduced their workforces in 2025. Microsoft’s cuts stand out due to their size and the impact on well-known Xbox games. Since the Activision Blizzard takeover, analysts have said that Microsoft is now focusing on popular brands like Call of Duty and Game Pass over riskier, original projects.
Focus Moves to Data Centres and AI
While the Xbox unit faces cuts, Microsoft is investing more in data centres and AI. The Azure platform is a key source of growth, relying on a growing number of data centres to handle AI and cloud services. Billions are being spent to expand this infrastructure. Wedbush’s Ives said Microsoft is “realigning around AI innovation and cost efficiency,” with gaming and older products now less of a focus.
This shift has led to tension inside the company. Some staff and outside observers question if the focus on AI is hurting Microsoft’s gaming ambitions. The end of projects like Perfect Dark and Everwild, once seen as flagship Xbox titles, has raised concern about the division’s direction.
IBTimes UK noted that the sudden closures and cancellations bring up wider questions about Xbox’s commitment to unique content. Microsoft has said its next-generation hardware plans are still in progress, suggesting it remains committed to Xbox for now.
Industry and Community Response
The layoffs and cancelled projects have sparked frustration among developers and fans. Many affected staff have posted on social media that they are looking for new roles. On X, users have shared their disappointment over the scale of the cuts.
One user, @HazzadorGamin, listed the cancelled and affected studios and games. Another, @p9cker_girl, questioned Spencer’s positive memo, contrasting it with reports of the job losses.
Fans have also worried about the future of Xbox exclusives, especially after the loss of Everwild, which had attracted attention despite its long development. The closure of The Initiative, which never released a game, has been a shock. GamesRadar+ reported that Everwild was cancelled after 11 years of work, six years of marketing, and even a full reboot, just months after Spencer said it was making “progress”.
Looking Forward: Microsoft Bets on AI
Despite the upheaval, Microsoft says its gaming plans remain strong, with over 40 projects still in development, including Clockwork Revolution and State of Decay 3, which were shown at the Xbox Games Showcase in June 2024.
Still, the scale of the layoffs and cancellations has created doubt about Xbox’s future, with many watching to see if Microsoft can keep its edge in gaming while focusing more on AI and cloud.
For those who lost their jobs, the change is a tough blow, especially with the current job market. Phil Spencer has encouraged affected workers to look for other roles within gaming at Microsoft, promising to give them priority, but the sheer number of cuts and studio closures makes this difficult.
Microsoft now faces a key moment, trying to balance its history in tech with its push into AI. While the company’s stock remains strong, the loss of jobs and creative projects is clear. As the company moves forward, the tech industry and gaming community will keep a close eye on whether Microsoft can keep its promise of a stronger Xbox while shifting to new growth areas.
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