Microsoft says AI Isn't behind its 4,800 layoffs as Xbox undergoes major restructuring

Microsoft's recent announcement that it is laying off 4,800 employees, or about 2.1% of its global workforce, as part of a broader restructuring has reignited concerns that AI is replacing human workers. However, Amy Coleman, Microsoft's Executive Vice President and Chief People Officer, stressed that artificial intelligence is not the reason behind the latest layoffs.

The job cuts also come after years of heavy investment in Xbox, including Microsoft's acquisition of Activision Blizzard. Despite spending billions to strengthen its gaming business, Microsoft has struggled to narrow the gap with Sony's PlayStation and Nintendo. At the same time, the company has been shifting its gaming strategy by making more of its titles available across multiple platforms instead of relying primarily on console exclusives.

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Clarifying that the latest round of layoffs is not about replacing employees with AI, Coleman said:

"I also want to be direct that the roles eliminated today are not being replaced by AI. At the same time, what is true is that AI is changing how work gets done. Some of the tasks we do every day can now be automated, and that means we all need to keep learning, keep building new skills, and keep adapting as the work evolves. Our customers are navigating this same shift, and they're counting on us to help them through it. We can't do that well unless we're doing it ourselves. This comes down to two commitments: making the decisions needed to drive differentiated customer value, and supporting the people affected by them."

Why Microsoft is cutting 4,800 jobs

Coleman explained that the layoffs are part of a broader effort to realign Microsoft's workforce, investments, and resources with its long-term business priorities. she added that,

"Decisions like these are never easy, and we are always looking for ways to reduce the need for job eliminations."

The executive acknowledged the difficulty of the layoffs, saying the company has been exploring ways to minimize workforce reductions wherever possible.

"Whenever possible, our priority is to place people into new roles aligned to the company's highest priorities and greatest areas of opportunity."

Microsoft said it has been trying to retain employees by moving them into roles that better align with its long-term business priorities.

"Over the past year, we have redeployed more than 4,000 employees into new roles, including another 500 this month."

The company highlighted its internal redeployment efforts, noting that thousands of employees have been reassigned instead of laid off.

"We will also transition four of our gaming studios to operate under new management, with the goal of preserving both their intellectual property and ongoing projects."

As part of the restructuring, Microsoft said four gaming studios will continue operating under new management to help preserve their intellectual property and ongoing development work.

"More than 30% of eligible employees chose to participate in our recent voluntary retirement program, and we will continue exploring similar approaches in the future."

The company added that voluntary retirement programs have also helped reshape its workforce and could remain part of its strategy going forward.

Changing future priorities

Coleman added that the latest restructuring is largely focused on Microsoft's Commercial and Xbox businesses as the company aligns its investments with future priorities. She said Microsoft is making the difficult changes needed to build differentiated products and better serve customers.

The executive explained that the latest round of job cuts is primarily affecting Microsoft's Commercial and Xbox divisions. In the Commercial business, the changes build on the company's recently announced Frontier Company strategy by reorganizing teams and embedding more engineering experts alongside customers to accelerate technology deployments. Meanwhile, the Xbox division is being restructured to position the business for long-term success.

She added that engineering teams across Microsoft will also realign their structures and priorities to better meet customer needs and drive future innovation.

Alternatives to job eliminations

Coleman said Microsoft is continuing to look for alternatives to layoffs wherever possible. She added that the company will keep investing in AI training and upskilling programs to help employees adapt to changing job requirements.

For employees affected by the layoffs, Microsoft will provide financial support, career transition assistance, and other resources to help them move on to their next opportunities.