Microsoft's Xbox division is reportedly bracing for another wave of layoffs, impacting potentially thousands of employees, as part of a broader company-wide restructuring. This marks the fourth major workforce reduction within Xbox in the past 18 months, signaling increased pressure to streamline operations and improve profitability following Microsoft's $69 billion acquisition of Activision Blizzard in 2023.

Reports indicate that managers within the Xbox division have been informed to expect widespread redundancies, with some sources suggesting that the cuts could affect up to 2,000 jobs and potentially lead to the closure of entire studios. While the exact number of roles to be eliminated and the specific teams affected remain unclear, the news has created anxiety among employees, who are bracing themselves for the impact.

These impending layoffs follow a series of significant cuts within Microsoft's gaming business. In January 2024, the company laid off 1,900 staff, followed by additional cuts that led to the closure of Redfall developer Arkane Austin and Hi-Fi Rush developer Tango Gameworks. September 2024 saw a further reduction of 650 staff from the gaming division, and in May 2025, Microsoft cut approximately 6,000 employees, representing about 3% of its global workforce.

The Xbox division, responsible for developing gaming hardware and software, has reportedly been under increased scrutiny from Microsoft's leadership since the Activision Blizzard acquisition. The company is aiming for leaner operations, fatter margins, and a smoother financial performance as it approaches the end of its fiscal year on June 30. Analysts suggest that initiating major organizational changes before the fiscal close allows Microsoft to enter the new financial year with a revised strategic focus.

In addition to the layoffs, Microsoft is reportedly restructuring its central Europe Xbox distribution and ceasing operations in some regions. The company is also investing heavily in AI development and infrastructure, which may be contributing to the reallocation of resources and workforce adjustments.

These job cuts may not solely impact sales teams, and its schedule may change. Earlier this month, it was reported that the company was planning to cut thousands of jobs especially in sales. This is seen as a part of its latest move to cut down its workforce as it pumps billions of dollars into AI development and infrastructure such as data centres.

The repeated rounds of layoffs and internal re-alignments are expected to negatively impact morale within Xbox. Xbox chief Phil Spencer acknowledged the difficult decisions, stating that he has to "run a sustainable business inside the company and grow, and that means sometimes I have to make hard decisions that frankly are not decisions I love, but decisions that somebody needs to go make."