Washington, 10 July

Microsoft is cutting 4,800 jobs, about 2.1 per cent of its global workforce, with a large share of the cuts hitting its Xbox gaming business as the division undergoes what its chief executive called a "reset."

The layoffs, announced on Monday, include 1,600 Xbox employees, with more expected later this year as part of a broader reorganisation. "Our business today is not healthy," Xbox CEO Asha Sharma wrote in a memo to staff. "We are operating at margins that are 3-10x lower than comparable platform and publishing businesses."

Sharma, who took charge of the gaming division earlier this year, said Xbox was also grappling with a severe "hardware crisis" as the cost of console components continues to rise, intensifying competition with Sony's PlayStation and Nintendo's Switch.

Beyond Monday's cuts, Sharma said Xbox expects around 1,600 more job losses over the course of the fiscal year that began last week. The company is also spinning off four video game development studios that it had previously acquired.

Nearly three years ago, Microsoft closed a $69 billion deal to acquire Activision Blizzard, the maker of "Call of Duty" and other major franchises. At the time, the company said the acquisition would broaden its game development portfolio and support a Netflix-style subscription service. That strategy, however, does not appear to have kept pace with the competition.

"While those businesses have created meaningful value, they did not grow at the pace we expected," Sharma said.

The Xbox cuts are part of wider layoffs across Microsoft, which the company's chief people officer, Amy Coleman, linked to unspecified shifts in customer needs. "I also want to be direct that the roles eliminated today are not being replaced by AI," Coleman wrote in a company blog post.

The job cuts follow voluntary buyouts Microsoft had offered to about 8,750 employees in May, of whom more than 30 per cent accepted the retirement offers, Coleman said.