Microsoft is cutting 4,800 jobs, including a large number of workers at its Xbox video game business. The cuts include 1,600 Xbox workers, with more to come this year in a broader reorganisation designed to “reset” Xbox as it faces heightened competition.
A memo from Xbox CEO Asha Sharma, who took over the gaming division earlier this year, said: “Our business today is not healthy. We are operating at margins that are 3-10x lower than comparable platform and publishing businesses.” Sharma said the industry, in which Xbox competes with Sony’s PlayStation and Nintendo‘s Switch, is facing a severe “hardware crisis” as costs soar for console components.
Beyond the job cuts, which represent about 2.1% of Microsoft‘s global workforce, Sharma said Xbox expects another 1,600 job cuts over the course of the tax year.
The company is also spinning off four video game development studios previously acquired by Microsoft.
Nearly three years ago, Microsoft closed a £51.5billion ($69bn) deal to acquire gaming giant Activision Blizzard, maker of Call of Duty and other blockbuster franchises.
The company said at the time it wanted to broaden its game development portfolio and offer a Netflix-like streaming subscription service.
But the strategy doesn’t appear to have been enough to get ahead of the competition.
Sharma said: “While those businesses have created meaningful value, they did not grow at the pace we expected.”
The Xbox cuts are in addition to broader Microsoft job cuts which the software giant’s Chief People Officer Amy Coleman tied to unspecified changes in customer needs.
She wrote in a blog post on Monday: “I also want to be direct that the roles eliminated today are not being replaced by AI.”
The cuts follow voluntary buyouts that Microsoft began offering to about 8,750 people in May.
More than 30% of eligible workers accepted those voluntary retirement offers, Coleman said on Monday.