Microsoft will eliminate approximately 3,200 positions from its Xbox gaming division through layoffs and studio divestitures. The company plans to cut 1,600 employees immediately and 1,250 more throughout the current fiscal year. Four game development studios will be sold or spun off, with strategic options pursued for a fifth, affecting roughly 350 additional workers.

Xbox Chief Executive Asha Sharma acknowledged the business challenges in a staff memo, stating "Our business today is not healthy" and "We must reset XBOX." The cuts represent about 20% of the division's total workforce, signaling deep restructuring efforts.

The subscription service model that Microsoft modeled after Netflix has fallen significantly short of targets, compounding revenue pressures. Gaming industry layoffs have persisted for two years following aggressive pandemic-era expansion that reversed as normalcy returned.

These reductions reflect Microsoft's attempt to stabilize a business segment that has become a drag on overall corporate performance. The company faces intensifying competition in cloud gaming and console markets while managing costs amid slowing consumer spending on entertainment.