Microsoft Slashes 9,000 Jobs in Major Restructuring, Hits Gaming Division Hard

A Bold Reset as Microsoft Doubles Down on AI, Abandons Game Development Ambitions

Microsoft has initiated another sweeping round of layoffs, cutting approximately 9,000 jobs—about 4% of its global workforce—as part of a broader realignment toward artificial intelligence and organizational efficiency. The move underscores a major shift in the company’s long-term vision, with a particular blow to its once-ambitious gaming division. Several high-profile game projects were axed, and entire studios were shuttered. The cuts follow Microsoft’s \$69 billion acquisition of Activision Blizzard and represent the company’s second major layoff this year.

The restructuring hits across geographies and seniority levels, with Microsoft citing the need to eliminate middle management layers and reallocate resources to strategic priorities like AI. Among the hardest hit was Xbox’s gaming portfolio, where studios including ZeniMax, Raven Software, Turn 10, King, and even premium AAA developer The Initiative were affected. Notably, the highly anticipated reboots of Perfect Dark and Everwild have been canceled after years of development.

King’s Stockholm office, responsible for Candy Crush, is cutting 200 employees—around 10% of its workforce. The Initiative, built specifically for high-profile exclusives, will be closed entirely. Rare’s Everwild, a game shrouded in mystery but hyped as a visual masterpiece, was also killed off, along with ZeniMax’s secret online project.

According to Xbox CEO Phil Spencer, the decision was made to better position the gaming business for “enduring success” by focusing on fewer, more strategically aligned projects. This marks the fourth major wave of layoffs in Microsoft’s gaming division in just 18 months, a pattern suggesting internal friction over the company’s gaming strategy post-Activision merger.

The layoffs also reflect a corporate trend at Microsoft: streamlining operations by removing management layers to boost execution speed. Microsoft spent nearly \$80 billion on AI initiatives in the last fiscal year—clear evidence of where the company is placing its bets for the future. Affected employees will receive severance pay, health coverage, and support services, and will be considered for other roles within Microsoft.

What Undercode Say:

Microsoft’s layoff of 9,000 workers, especially in its gaming division, is not just about reducing costs—it’s a reflection of a seismic shift in strategy. While it’s easy to interpret this as just another tech layoff story, the nuances reveal deeper transformations occurring inside Microsoft.

The gaming industry, once a pillar of

It’s also no coincidence that this wave of layoffs comes just months after Microsoft acquired Activision Blizzard. That deal gave the company access to massive gaming IPs like Call of Duty, Diablo, and World of Warcraft, reducing the urgency to build from scratch. The closure of several internal studios could be Microsoft’s way of trimming redundancy while banking on Activision’s proven content pipeline.

Another key theme is internal restructuring. Microsoft wants to be faster, leaner, and more AI-centric. Middle managers are being cut not just for cost, but to reduce bureaucratic drag. This echoes similar moves by other Big Tech firms that are retooling for the generative AI boom. Microsoft’s \$80 billion AI expenditure shows it’s all-in—reallocating engineering talent from gaming and hardware toward Azure, Copilot, and LLM infrastructure.

There’s also reputational risk. The gaming community isn’t reacting well to the cancellation of beloved projects, and morale inside Xbox is likely shaken. However, from a Wall Street lens, Microsoft is being surgical—cutting where ROI is low and doubling down where future margins lie.

This is Microsoft’s second-largest layoff in its history, after the 2014 Nokia restructuring. But unlike that failed bet on mobile, this pivot is more calculated. The company isn’t retreating—it’s reloading, aiming squarely at AI dominance.

In the short term, expect some backlash from Xbox loyalists and potential shakeups in Game Pass offerings. In the long term, this leaner Microsoft could be better equipped to compete with AI-forward rivals like Google, Meta, and Amazon.

🔍 Fact Checker Results:

✅ Microsoft laid off 9,000 employees on Wednesday, its second large cut this year.
✅ Xbox division faced the most severe impact, including studio closures and project cancellations.
✅ The layoffs are part of a broader shift toward AI investment and internal efficiency.

📊 Prediction:

Microsoft’s next big reveal will likely center around AI-integrated services rather than new gaming titles. Expect announcements about enhanced AI features across Microsoft 365, Azure, and Copilot rather than console exclusives. The Xbox brand will pivot toward being a cloud-first platform supported by recurring revenue from subscriptions, not blockbuster single-player games. Studio investments will focus on modular, service-based games or existing IPs from Activision rather than fresh experimental concepts.