Microsoft is planning to cut under 2.5% of its workforce in its latest round of layoffs, which could be announced as early as next week, according to sources familiar with the matter. Reuters could not immediately verify the report, and Microsoft declined to comment. With the company's total workforce standing at approximately 220,000 employees, the cuts would affect fewer than 5,500 positions. Some of those impacted are expected to be offered alternative roles within the company.

The layoffs are expected to affect thousands of roles across multiple divisions, with sales and consulting teams among the primary targets, as well as staff at the Xbox gaming unit. The announcement, if confirmed, would mark the latest in a series of significant workforce reductions Microsoft has carried out over the past two years as it aggressively redirects investment toward artificial intelligence infrastructure and cloud services. In May 2025, Microsoft laid off approximately 6,000 employees, followed by another 9,000 in July of that year, making the current round comparatively smaller but nonetheless consequential.

The Xbox division stands at the center of this latest restructuring. The gaming unit is planning major job cuts under new Chief Executive Officer Asha Sharma, who is overhauling the division to stem declining revenue. Marketing and other operational budgets are also facing significant reductions. Microsoft is separately considering several options for the Xbox division, including a potential spinoff, a joint venture with outside partners, or restructuring it as a wholly owned subsidiary. Several Xbox studios, including Montreal-based Compulsion Games, San Francisco-based Double Fine, and Cambridge-based Ninja Theory, are in active negotiations with Xbox leadership and may be given the opportunity to spin off independently rather than face closure.

The broader workforce reduction reflects a structural transformation underway across the global technology sector. Companies are tightening costs while simultaneously investing heavily in artificial intelligence infrastructure. Microsoft has been at the forefront of this shift, channeling resources into cloud services and AI-driven products even as traditional business units face budget pressure. Across the technology sector, Meta has announced plans to cut 10% of its workforce, and Amazon has outlined plans to eliminate roughly 16,000 jobs globally. Microsoft's reductions, by comparison, are more modest in scale but carry symbolic weight given the company's longstanding reputation as one of the more stable employers in enterprise technology.

Financially, Microsoft remains in a strong position despite the workforce reductions. In its most recently reported fiscal year, Microsoft Cloud revenue reached $46.7 billion, up 27% year-over-year, while Intelligent Cloud revenue reached $29.9 billion, up 26%, driven largely by Azure growth of 39%. In the most recent quarter, Azure and other cloud services revenue increased 40% year-over-year. By contrast, the More Personal Computing segment, which includes Xbox, declined 1%, with Xbox content and services revenue falling 5%. This divergence between the company's booming cloud and AI businesses and its struggling gaming and consumer divisions helps explain the strategic rationale behind the current restructuring.

For employees, the timing adds to an already uncertain environment in the technology labor market. The reductions are expected to ripple across sales, consulting, and gaming, areas that have historically been central to Microsoft's growth strategy. The broader trend reflects a recalibration across major corporations, particularly in technology, media, and finance, as firms balance cost discipline with long-term bets on artificial intelligence and digital transformation. Microsoft has not confirmed the timeline or final scope of the announcement, and the exact number of affected employees may shift before any official communication is issued.

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