Microsoft has entered its third significant round of job cuts in less than three months, announcing the layoff of approximately 9,000 employees, representing nearly 4% of its global workforce. The reductions are part of a broader, AI-driven corporate realignment that also significantly impacts its Xbox division, including the cancellation of the highly anticipated Perfect Dark reboot.
Largest Microsoft Layoffs Since 2023
According to internal and external reporting, these layoffs are being driven primarily by Microsoft’s strategic decision to streamline operations and enhance agility as the company pivots more deeply toward artificial intelligence and cloud computing. Microsoft has committed nearly $80 billion to data centers, specialized chip development, and AI infrastructure for 2025.
CFO Amy Hood has emphasized that the reductions are aimed at “building high-performing teams and reducing layers with fewer managers,” enabling faster decision-making and operational coherence.
Scope of Impact
Public records indicate that Microsoft’s Sales and Marketing divisions, which include approximately 45,000 employees, have been disproportionately affected by this round, following smaller cuts in May and June. Additionally, Xbox and associated studios have recorded substantial layoffs and project terminations.
Xbox Division: Perfect Dark and Other Game Studios Closures
Xbox leadership, led by Phil Spencer and Matt Booty, confirmed the following:
The Perfect Dark revival has been officially canceled, and its lead studio, The Initiative, will be shut down.
Other major projects, including Everwild, have been terminated.
Turn 10 Studio, known for Forza Motorsport, dismissed over 70 employees.
Developers from King (Candy Crush), ZeniMax, Blizzard, and Raven Software have also seen layoffs and reassignments.
Phil Spencer’s internal memo underscored the need to “prioritize the strongest opportunities” and maintain focus on core franchises, while acknowledging the contributions of affected employees.
In an internal message to staff, Phil Spencer addressed the layoffs and their rationale:
“Today we are sharing decisions that will impact colleagues across our organization. To position Gaming for enduring success and allow us to focus on strategic growth areas, we will end or decrease work in certain areas of the business and follow Microsoft’s lead in removing layers of management to increase agility and effectiveness. Out of respect for those impacted today, the specifics of today’s notifications and any organizational shifts will be shared by your team leaders in the coming days.
I recognize that these changes come at a time when we have more players, games, and gaming hours than ever before. Our platform, hardware, and game roadmap have never looked stronger. The success we’re seeing currently is based on tough decisions we’ve made previously. We must make choices now for continued success in future years and a key part of that strategy is the discipline to prioritize the strongest opportunities. We will protect what is thriving and concentrate effort on areas with the greatest potential, while delivering on the expectations the company has for our business. This focused approach means we can deliver exceptional games and experiences for players for generations to come.
Prioritizing our opportunities is essential, but that does not lessen the significance of this moment. Simply put, we would not be where we are today without the time, energy, and creativity of those whose roles are impacted. These decisions are not a reflection of the talent, creativity, and dedication of the people involved. Our momentum is not accidental—it is the result of years of dedicated effort from our teams.
HR is working directly with impacted employees to provide severance plan benefits (aligned with local laws), including pay, healthcare coverage, and job placement resources to support their transition. Employees whose roles were eliminated are encouraged to explore open positions across Microsoft Gaming, where their applications will be given priority review.
Thank you to everyone who has shaped our culture, our products, and our community. We will move forward with deep appreciation and respect for all who have contributed to this journey.”
Phil
Microsoft has confirmed that laid-off employees will receive severance benefits, along with continued healthcare coverage and access to career transition resources. Those interested in remaining with Game Studios will receive priority consideration for new openings.
Industry Trends Shifting
This restructuring mirrors a wider trend across the technology sector, as large firms harness AI-driven productivity to optimize headcount. Amazon, Meta, and Google have announced similar reductions, citing AI as a catalyst.
Analysts note that Microsoft’s focus on AI and cloud segmentation, alongside robust quarterly profits—$25.8 billion in Q3 2025—indicate that these layoffs are aligned with strategic reorientation, not fiscal distress.
Microsoft’s significant workforce reduction reflects its efforts to remain lean and innovative in a competitive AI landscape. While the gaming community reacts to the loss of Perfect Dark, espoused franchises like Call of Duty, Halo, and Forza remain central to Xbox’s long-term vision.
As the company transitions into its new fiscal year, these cuts aim to ensure that resources are reallocated to high-growth AI projects, propelling Microsoft into its next era of enterprise dominance and technological leadership.
