Microsoft is reportedly preparing for another significant round of layoffs, with sources indicating that the tech giant is targeting its Xbox division this time. If confirmed, this would mark the fourth major workforce reduction at the company in the past 18 months. The decision comes as part of a broader internal restructuring effort ahead of the company’s fiscal year-end on June 30, and is reflective of Microsoft’s evolving priorities amid rising investments in artificial intelligence (AI) and cloud infrastructure.

What’s Happening: Microsoft Eyes Xbox Division for Layoffs

According to a report by Bloomberg, the upcoming layoffs will primarily impact teams within Microsoft’s Xbox business. While the exact number of employees affected remains undisclosed, the scale is expected to be significant. The Xbox unit—which includes console hardware, in-house gaming studios, and services like Xbox Game Pass—has already experienced multiple staffing cuts over the past year.

Following the completion of its $69 billion acquisition of Activision Blizzard in 2023, Microsoft has been streamlining its gaming operations. This new wave of layoffs suggests further consolidation as the company evaluates the long-term viability and profitability of its gaming ventures.

Timing and Scope: Major Changes Before End of Fiscal Year

The layoffs are expected to be announced early next week, just ahead of Microsoft’s fiscal year ending June 30, 2025. This timing aligns with the company’s usual internal realignment practices, where major strategic and organizational shifts are made ahead of a new financial cycle.

This restructuring isn’t exclusive to Xbox. Reports indicate that Microsoft’s global sales operations and other corporate functions might also be affected, signaling a broader initiative aimed at trimming costs and improving operational efficiency across departments.

Background: Previous Layoffs and Cost-Cutting Moves

This would be Microsoft’s fourth significant layoff in 18 months. In May 2025, the company laid off approximately 6,000 employees, mainly from engineering and product divisions. Sales and marketing roles were largely spared during that wave—but are now rumored to be under review for this upcoming cut.

Microsoft has been under pressure to balance rising operational costs—particularly from its heavy investments in AI and cloud computing. The company is funnelling billions into expanding data center infrastructure and scaling services powered by its Azure cloud and OpenAI integrations.

To support these high-priority areas, the company has increasingly turned to outsourcing and automation. In April 2025, Microsoft began outsourcing software sales to third-party vendors for small and mid-sized business accounts, underscoring its intent to reduce internal headcount where feasible.

AI and Cloud Investments Drive Internal Restructuring

Microsoft’s aggressive pivot toward artificial intelligence and cloud technologies has redefined its business priorities. It has launched several new AI-focused services and partnerships, including with OpenAI, and continues to roll out new enterprise tools under the Azure ecosystem. These developments require substantial capital expenditure, pushing the company to optimize costs in other business units.

While gaming remains a strategic pillar for Microsoft, especially with Game Pass and the Activision portfolio, it appears the company is becoming more selective in its investments—favoring areas that offer higher returns and future scalability.

Employee Headcount and Potential Impact

As of June 2024, Microsoft employed approximately 228,000 people worldwide, with nearly 45,000 in sales and marketing roles. While there’s no official confirmation on the number of employees to be laid off, insiders suggest that it could be one of the largest internal reshuffles in recent history.

The Xbox division has already seen studio closures and internal reorganizations, and with this potential layoff, it may undergo further consolidation or integration with broader gaming and AI services within the company.

Company’s Official Stance

While Microsoft hasn’t officially commented on the specific layoffs, the company has previously stated that it “regularly evaluates its business priorities and workforce structure to align with long-term goals.” This includes a commitment to “increasing productivity, efficiency, and focusing on growth opportunities.”

Recent communications with shareholders and employees have also emphasized the company’s mission to maintain financial discipline while continuing to innovate in high-growth sectors.

Conclusion

If confirmed, Microsoft’s latest layoff will mark another chapter in the company’s strategic shift toward AI, cloud, and profitability. As the fiscal year closes, Microsoft appears to be making bold decisions to align its workforce with its future goals. While painful for those impacted, these changes suggest a tighter focus on innovation and long-term sustainability.

Further clarity is expected once Microsoft officially announces the changes next week.