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Microsoft cuts 9,000 employees as Xbox division faces major restructuring

Microsoft announces substantial workforce reduction affecting less than 4% of global staff.

Luis Rijo

• 6 min read
Empty Microsoft boardroom with Xbox console symbolizing 9,000 employee layoffs in gaming division
Empty Microsoft boardroom with Xbox console symbolizing 9,000 employee layoffs in gaming division

Microsoft confirmed Wednesday that it will eliminate approximately 9,000 positions, representing less than 4% of its global workforce, according to CNBC reporting. The announcement came on July 2, 2025, marking another significant workforce reduction following similar cuts throughout the year.

The technology giant disclosed the layoffs affect multiple teams, geographies, and experience levels, with Microsoft Gaming bearing the heaviest impact. According to The Seattle Times, the cuts affect as many as 9,100 employees across various divisions, though exact numbers remain unconfirmed by the company.

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Summary

Who: Microsoft Corporation implemented workforce reductions affecting approximately 9,000 employees, with Microsoft Gaming division and CEO Phil Spencer leading communications about gaming-specific impacts.

What: Microsoft eliminated less than 4% of its global workforce across multiple teams, geographies, and experience levels, while cancelling Perfect Dark and Everwild games and closing The Initiative studio.

When: The layoffs were announced on July 2, 2025, at the beginning of Microsoft's new fiscal year, following previous workforce reductions in May and June 2025.

Where: The cuts affected Microsoft's global operations, with particular impact on gaming divisions including Xbox, King (Candy Crush), ZeniMax Studios, and Turn 10 (Forza Motorsport).

Why: Microsoft cited strategic repositioning to "focus on strategic growth areas" and remove management layers for increased agility, despite record gaming engagement and strong financial performance with $26 billion quarterly net income.

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Phil Spencer, CEO of Microsoft Gaming, addressed employees directly in an internal memo obtained by The Verge. "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," Spencer stated in the communication.

The gaming division faces substantial restructuring beyond personnel reductions. According to The Verge, Microsoft has cancelled its Perfect Dark and Everwild game titles while shuttering The Initiative studio. The company's Forza Motorsport developer, Turn 10, eliminated more than 70 positions as part of the broader organizational changes.

Bloomberg reported that King, the mobile gaming division behind Candy Crush and now owned by Microsoft, reduced its workforce by approximately 10%, affecting roughly 200 employees. ZeniMax Studios confirmed additional job cuts across multiple units within the gaming ecosystem.

This latest workforce reduction follows a pattern of continuous downsizing throughout 2025. Microsoft previously eliminated more than 6,000 positions in May and an additional 305 jobs in early June. The company's recent employment actions contrast sharply with its strong financial performance.

According to CNBC, Microsoft reported nearly $26 billion in net income on $70 billion in revenue for the March quarter. These figures exceeded Wall Street expectations and positioned Microsoft among the most profitable companies in the S&P 500 index. Executives projected approximately 14% year-over-year revenue growth for the June quarter, driven by Azure cloud services and corporate productivity software subscriptions.

The workforce adjustments occur despite Microsoft's gaming division experiencing record engagement metrics. Spencer acknowledged this apparent contradiction in his employee communication, noting that the company maintains "more players, games, and gaming hours than ever before." He emphasized that current success stems from "tough decisions we've made previously," while arguing that "we must make choices now for continued success in future years."

Microsoft stock reached a record high of $497.45 per share on June 26, 2025, reflecting investor confidence in the company's strategic direction. The stock closed down 0.2% on Wednesday following the layoff announcement, while the broader S&P 500 gained 0.5%.

The company's approach mirrors broader technology industry trends toward workforce optimization. According to ADP data released Wednesday, the private sector lost 33,000 jobs in June, contrary to economist predictions of 100,000 job additions. Autodesk, Chegg, and CrowdStrike represent other software providers implementing similar workforce reductions during 2025.

Microsoft's organizational restructuring aligns with executive statements about reducing management layers across the company. "We continue to implement organizational changes necessary to best position the company and teams for success in a dynamic marketplace," a Microsoft spokesperson confirmed to CNBC via email.

The announcement comes weeks after Google implemented a buyout program designed to reduce its workforce through voluntary departures. These parallel actions across major technology companies suggest coordinated efforts to optimize operational efficiency amid changing market conditions.

Employee support programs include severance benefits aligned with local regulations, healthcare coverage continuation, and job placement assistance. According to Spencer's memo, affected employees receive priority consideration for open positions across Microsoft Gaming and the broader Microsoft organization.

The gaming industry continues experiencing significant employment volatility following previous Microsoft actions. The company eliminated 1,900 Activision Blizzard and Xbox employees in January 2024, closed several game studios in May, and reduced HoloLens and Azure cloud teams by 1,000 positions in June. Additional restructuring in September affected 650 more Xbox employees as part of ongoing integration following the Activision Blizzard acquisition.

Spencer's communication emphasized Microsoft's commitment to long-term gaming success despite near-term workforce adjustments. "This focused approach means we can deliver exceptional games and experiences for players for generations to come," he stated, while acknowledging the "significance of this moment" for affected employees.

The technology company's workforce reduction strategy reflects broader strategic repositioning across the industry. Microsoft's emphasis on artificial intelligence capabilities, cloud computing services, and productivity software contrasts with reduced investment in traditional gaming development areas.

Microsoft's employee communications stressed that personnel decisions do not reflect individual talent, creativity, or dedication. "These decisions are not a reflection of the talent, creativity, and dedication of the people involved," Spencer emphasized, crediting current momentum to "years of dedicated effort from our teams."

The gaming division's restructuring coincides with Microsoft's broader strategic focus on emerging technologies. Microsoft's advertising business recently crossed $20 billion in annual revenue as artificial intelligence integration drives growth across Bing search and Edge browser platforms.

Industry observers note the timing of workforce reductions relative to Microsoft's financial strength. The company's substantial profitability and revenue growth appear disconnected from employment decisions, suggesting strategic repositioning rather than financial necessity drives current actions.

The cuts represent Microsoft's largest workforce reduction since 2014, when the company eliminated 18,000 positions following the Nokia devices and services acquisition. That previous restructuring established precedent for significant organizational changes during major strategic transitions.

Microsoft's Gaming organization remains central to the company's consumer strategy despite current workforce adjustments. The division's platform strength, hardware portfolio, and game development capabilities support Spencer's assertion that the "roadmap has never looked stronger" from a technological perspective.

Employee reaction across Microsoft's social media presence reflected mixed sentiment regarding the announcement. The Microsoft Ads Buddy account confirmed that search and advertising teams remained unaffected by the current round of layoffs, responding to industry inquiries about specific divisional impacts.

The workforce reduction announcement coincides with Microsoft's new fiscal year beginning July 1, 2025. Company leadership traditionally implements organizational changes at fiscal year transitions, providing operational clarity for upcoming quarterly reporting periods.

Microsoft's strategic focus on artificial intelligence capabilities influences current workforce allocation decisions. The company's detailed research on AI-powered search transformation demonstrates performance improvements of 53% in purchase rates through conversational interfaces, supporting investment reallocation toward emerging technologies.

The gaming industry's employment landscape continues evolving as companies balance traditional development approaches with emerging technological capabilities. Microsoft's current adjustments reflect broader industry adaptation to changing consumer preferences, technological capabilities, and competitive dynamics across entertainment platforms.

Why this news matter

The Microsoft layoffs represent a significant development for marketing professionals, particularly those working within the search and digital advertising ecosystem. While the cuts primarily targeted the Xbox division, the broader implications affect the digital marketing landscape in several important ways.

Microsoft's workforce restructuring occurs as the company transforms its advertising platform through AI integration, with recent reports showing doubled click-through rates and 53% increased purchases through Copilot interactions. This strategic shift toward conversational search capabilities positions Microsoft as an increasingly important alternative to Google's advertising dominance.

The timing coincides with Microsoft's recent decision to sunset its Xandr DSP platform in favor of AI-driven advertising solutions, signaling a fundamental pivot away from traditional programmatic advertising toward automated, outcome-focused campaigns. Marketing professionals must adapt strategies to accommodate these platform changes while maintaining campaign effectiveness.

Microsoft's Performance Max implementation shows early promise with potential cost reductions and conversion improvements, offering marketers new automation capabilities that could complement existing Google campaigns. These developments provide additional diversification opportunities for marketing teams seeking alternatives to Google's ecosystem.

The workforce reduction also reflects broader technology industry trends toward operational efficiency and strategic focus. As programmatic advertising growth reaches 72% across the industry, companies prioritize automated solutions and AI-powered optimization over manual campaign management approaches.

For marketing professionals, Microsoft's continued investment in advertising technology despite workforce reductions suggests strong platform commitment and resource allocation toward areas most relevant to advertisers and agencies seeking diversified media strategies.

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