Microsoft’s July 2025 Layoffs

Microsoft-layoffs

Microsoft layoffs: Tech giant cuts nearly 9,000 employees in second mass layoff

Microsoft-layoffs

On July 2, 2025, Microsoft announced a sweeping round of layoffs, cutting 9,000 jobs (roughly 4% of its global workforce) as part of a broader cost-cutting strategy amid heavy investments in AI and cloud infrastructure. While the reductions span multiple divisions, the gaming sector—particularly Xbox—has been hit hard, with studio closures, canceled games, and significant talent losses reshaping the company’s gaming future.

Studio Closures and Canceled Projects

  • The Initiative, the studio behind the Perfect Dark reboot, was shut down, and the game—fully revealed in June 2024—was cancele.
  • Rare’s Everwild, a long-in-development fantasy title, was axed after years of troubled production.
  • ZeniMax Online Studios scrapped an unannounced MMORPG (codenamed Blackbird), and Turn 10 Studios (Forza Motorsport) lost nearly 50% of its staff.
  • King (maker of Candy Crush) cut 10% of its workforce (~200 jobs) in Barcelona.

Broader Layoffs Across Xbox Teams

  • Layoffs affected Raven Software (Call of Duty), Sledgehammer Games, and High Moon Studios, alongside cuts to Xbox’s user research and child safety teams.
  • Phil Spencer, CEO of Microsoft Gaming, framed the cuts as a shift toward “strategic growth areas,” emphasizing “removing layers of management” for agility.

Why This Matters

  • Fourth major round of Xbox layoffs in 18 months, following the $69 billion Activision Blizzard acquisition.
  • Lost potential: Everwild and Perfect Dark were highly anticipated, and their cancellations signal Microsoft’s prioritization of safer bets (e.g., Call of Duty, Game Pass staples).
  • Industry trend: Reflects wider tech sector austerity, with Meta, Google, and Amazon also trimming jobs amid AI-driven restructuring.

Matt Booty, head of Xbox Game Studios, acknowledged the “years of effort, imagination, and commitment” lost in these cut. Employees across studios took to social media to share layoff notices, with severance packages including healthcare and job placement support.

These layoffs underscore the volatile reality of gaming under corporate consolidation. While Microsoft’s gaming revenue grew 5% year-over-year, the cuts reveal a stark focus on profitability—even at the expense of creative risks. For players, the loss of Everwild and Perfect Dark may sting, but the broader question is whether Xbox’s “strongest opportunities” can sustain its identity beyond blockbuster franchises.

What Triggered Microsoft’s Latest Layoffs?

Microsoft’s July 2025 layoffs—cutting 9,000 jobs (4% of its workforce)—reflect a mix of economic pressures, strategic realignments, and the transformative impact of AI. Here’s a breakdown of the key drivers:

Flattening Management Layers

  • Microsoft has repeatedly cited the need to “reduce layers of management” to boost agility, mirroring similar moves by Amazon and other tech giants.
  • CFO Amy Hood emphasized creating “high-performing teams” by trimming managerial bloat, a trend since early 2024.

Reducing Costs Amid AI Infrastructure Spending

  • Microsoft pledged $80 billion in FY2025 for AI/data center expansion, straining margins despite record profits ($25.8B net income last quarter).
  • Analysts note the layoffs help offset soaring cloud/AI costs, with slower-growing divisions (e.g., gaming) bearing the brunt.

Post-Pandemic “Rightsizing” Across Tech

  • Part of a broader tech industry correction: 76,214 tech jobs cut in 2025 (up 27% YoY), per Challenger, Gray & Christmas.
  • Microsoft’s fourth major layoff in 18 months follows overhiring during pandemic-driven growth.

20–30% of Code Written by AI

  • CEO Satya Nadella revealed AI tools now generate 20–30% of Microsoft’s code, reducing reliance on human engineers for routine tasks.
  • May 2025 layoffs disproportionately hit software engineers, fueling concerns about AI-driven displacement.

AI as a Productivity Tool vs. Job Displacer

  • Microsoft frames AI as a “copilot” enhancing productivity, but analysts warn of structural workforce shifts.
  • Example: AI-powered tools automate coding, cloud management, and even HR functions, reducing headcount needs.

The layoffs underscore Microsoft’s pivot toward AI and cloud dominance, even as it grapples with the human and creative costs of “efficiency.” For employees, the cuts highlight the precarious balance between innovation and job security in the AI era.

Breakdown of the 2025 Layoffs by Numbers

Microsoft’s July 2025 layoffs mark the company’s fourth major workforce reduction this year, continuing a trend of aggressive cost-cutting amid soaring AI investments. Below is a detailed breakdown of the layoffs by scale and regional impact.

9,000 Employees Cut in July (~4% of Global Workforce)

  • Affected employees span all levels, teams, and geographies, with notable impacts in gaming (Xbox), sales, and engineering.
  • Follows 6,000 layoffs in May (3% of workforce) and smaller cuts in January/June, bringing 2025’s total layoffs to over 15,300 employees (~6.7% of workforce).

Context: A Recurring Trend

  • Microsoft’s largest layoffs since 2014 (18,000 jobs cut post-Nokia acquisition).
  • Part of a broader tech industry wave: 76,214 tech jobs cut in 2025 (up 27% YoY), per Challenger, Gray & Christmas.

3,100+ Employees Laid Off Since May

  • May 2025: 1,985 jobs cut in Redmond (mostly software engineers/product managers).
  • June 2025: Additional 300 layoffs.
  • July 2025: 830 more jobs eliminated (~9% of global July cuts).

Why Washington?

  • Home to Microsoft’s HQ (54,000 pre-layoff employees in Seattle area).
  • Engineering-heavy reductions align with AI-driven automation of coding roles.

These numbers reflect Microsoft’s dual focus—streamlining operations (especially in legacy divisions like gaming) while redirecting resources toward AI and cloud infrastructure. For employees, the cuts underscore the volatility of tech sector job security in the AI era.

Studios & Divisions Hit the Hardest

Microsoft’s July 2025 layoffs have devastated its gaming division, with major studios facing closures, project cancellations, and deep workforce cuts. Below is a breakdown of the hardest-hit teams and the human cost behind the restructuring.

Xbox Game Studios

  • The Initiative shut down: The Santa Monica-based studio, founded in 2018, was closed alongside the cancellation of its Perfect Dark reboot—a highly anticipated revival first revealed in 2020.
  • Perfect Dark reboot canceled: The game, co-developed with Crystal Dynamics, was showcased in 2024 as an “eco sci-fi” stealth-action title but never received a release date.

Rare

  • Everwild canceled: Rare’s mysterious fantasy project, in development for nearly a decade, was axed. The game had undergone multiple reboots and never solidified its core design.
  • Gregg Mayles departs after 35+ years: The veteran creative director, who led Everwild’s 2021 reboot, left Rare amid the layoffs.

ZeniMax & Bethesda

  • ZeniMax MMO “Blackbird” canceled: An unannounced original MMORPG, in development since 2018, was scrapped. The entire team (200+ employees) was laid off.
  • Matt Firor exits after 18 years: The Elder Scrolls Online director reportedly departed amid broader ZeniMax restructuring.

Blizzard Entertainment

  • Warcraft Rumble scaled down to live ops: The mobile game’s development team was reduced, shifting focus to maintenance.
  • Marketing and customer service teams affected: Layoffs hit non-development roles, though exact numbers are unconfirmed.

King (Candy Crush Studio)

200 employees laid off (~10%): Cuts targeted middle management and narrative teams, with 96 jobs lost in Stockholm and 30 in Barcelona.

Call of Duty Studios

Raven Software, Sledgehammer Games, High Moon Studios hit: Layoffs affected these support studios, though key Call of Duty projects continue

Turn 10 Studios

Lost up to 50% of its workforce: The Forza Motorsport developer faced severe cuts, per insider reports.

Other Affected Studios

  • Compulsion Games (We Happy Few)
  • Undead Labs (State of Decay)
  • 343 Industries (Halo): Additional layoffs after 2024’s restructuring

These cuts reflect Microsoft’s shift toward “strategic growth areas” (e.g., Call of Duty, Game Pass) at the expense of creative risks. The closures of The Initiative and cancellations like Everwild and Blackbird signal a troubling trend of consolidation over innovation.

Canceled Projects and Strategic Cuts

Microsoft’s July 2025 layoffs came with a brutal culling of in-development games, reflecting a strategic shift toward profitability over creative risks. Below, we break down the canceled projects and the reasoning behind Microsoft’s pivot to “what’s thriving.”

Perfect Dark Reboot (The Initiative)

  • The Santa Monica-based studio was shut down, and its long-awaited Perfect Dark reboot—a sci-fi spy thriller co-developed with Crystal Dynamics—was canceled after years of troubled development.
  • Reports from May 2024 suggested the game was in “rough shape”, struggling with leadership turnover and unclear direction

Everwild (Rare)

  • Rare’s fantasy adventure game, first announced in 2019, was scrapped after multiple reboots. Sources say the studio never solidified core gameplay mechanics, despite years of work.
  • The cancellation coincided with the departure of Gregg Mayles, Rare’s veteran creative director.

ZeniMax’s Unannounced MMO (“Blackbird”)

  • A new MMORPG from Elder Scrolls Online’s ZeniMax Online Studios, codenamed Blackbird, was canceled after seven years in development.
  • Longtime ZeniMax executive Matt Firor also exited amid the restructuring.

Warcraft Rumble (Blizzard) – Shifted to Live Ops

  • The mobile strategy game will no longer receive major updates, moving to a maintenance-only model similar to Heroes of the Storm.
  • Some Blizzard employees were reassigned, while others were laid off.

Microsoft’s New Strategy (Per Phil Spencer)

  • In a memo to staff, Spencer framed the cuts as necessary to “focus on strategic growth areas” and “prioritize the strongest opportunities”.
  • The goal: “Protect what is thriving and concentrate effort on areas with the greatest potential”—likely referring to Call of Duty, Game Pass, and cloud gaming.

Refocusing on High-ROI Growth Areas

  • Microsoft is doubling down on proven franchises (e.g., Call of Duty, Forza, Elder Scrolls Online) while scaling back riskier, unproven projects.
  • The cuts align with Microsoft’s broader corporate strategy: reducing management layers and diverting resources to AI/cloud initiatives.

These cancellations reveal a hard-nosed corporate calculus—sacrificing creative ambition for financial predictability. While Spencer insists Xbox’s future is strong, the loss of Everwild and Perfect Dark leaves fans questioning whether Microsoft’s gaming division can balance blockbusters with innovation.

What This Means for Microsoft’s Gaming Future

Microsoft’s July 2025 layoffs—cutting 9,000 jobs and canceling high-profile games—signal a pivotal shift in the company’s gaming strategy. While Xbox remains committed to next-gen hardware and blockbuster franchises, the cuts raise critical questions about innovation, studio stability, and long-term trust. Here’s what the restructuring reveals about Microsoft’s gaming future.

Gamescom Presence & Hardware Commitments

  • Despite layoffs, Microsoft has confirmed attendance at Gamescom 2025, where it’s expected to showcase upcoming titles like Call of Duty: Black Ops 7 and Fable.
  • Phil Spencer’s internal memo emphasized Xbox’s “platform, hardware, and game roadmap have never looked stronger”, with AMD partnerships hinting at next-gen Xbox devices for “the living room and in your hands” (potentially a handheld).

Focus on “Generations to Come”

  • Spencer’s messaging stresses backward compatibility and a multi-device ecosystem (console, PC, cloud), aiming to reassure fans that Xbox isn’t abandoning hardware.
  • However, the closure of The Initiative and cancellations like Everwild suggest fewer experimental projects in favor of safer bets (Call of Duty, Game Pass staples).

Revenue Growth vs. Creative Loss

  • Microsoft’s gaming revenue grew 5% YoY in Q3 2025, driven by Game Pass and Call of Duty—but at the cost of canceled exclusives (Perfect Dark, Everwild) and studio closuresAnalysts note the layoffs reflect a “high-ROI” focus, with cuts targeting “legacy” divisions (e.g., single-player narrative games) to fund AI/cloud infrastructure

Staff Morale & Industry Trust

  • Fourth major Xbox layoff in 18 months has devastated morale, with employees at Turn 10 (50% cuts) and ZeniMax publicly sharing layoff notices.
  • The cancellation of unannounced projects (e.g., ZeniMax’s Blackbird MMO) risks eroding developer trust, especially after Microsoft’s $69B Activision acquisition promised growth.

The AI Paradox

  • Microsoft’s push for AI-driven efficiency (20–30% of code now AI-generated) may further reduce headcount needs, particularly in engineering.
  • While Spencer frames AI as a “copilot”, the layoffs fuel concerns that automation could displace creative roles long-term.

Microsoft’s gaming future hinges on a precarious equilibrium—profiting from Call of Duty and Game Pass while maintaining enough creative diversity to avoid becoming “just another publisher.” The layoffs suggest short-term fiscal discipline, but the loss of studios like The Initiative and projects like Everwild could stifle Xbox’s identity as a home for bold, exclusive experiences.

Industry-Wide Context: Layoffs Beyond Microsoft

Microsoft’s July 2025 job cuts are part of a broader wave of tech sector layoffs, driven by economic pressures, AI-driven restructuring, and post-pandemic corrections. Below, we examine how these trends extend beyond Xbox and Microsoft—impacting gaming, social media, e-commerce, and enterprise software.

Meta, Amazon, Salesforce, and Bumble Layoffs

  • Meta: Cut 12,000 jobs in 2024 (15% of workforce) to prioritize AI and metaverse infrastructure.
  • Amazon: Eliminated 27,000 corporate roles in 2024–2025, citing overhiring during pandemic growth.
  • Salesforce: Slashed 10% of staff (8,000 jobs) in early 2025 to boost profitability amid slowing cloud growth.
  • Bumble: Downsized 30% of workforce in 2025, attributing cuts to AI-powered matchmaking tools reducing human moderation needs.

AI and Automation Reshaping Hiring

  • Job displacement fears: Microsoft CEO Satya Nadella noted 20–30% of company code is now AI-generated, reducing demand for engineers.
  • Efficiency focus: Companies like Google and Adobe have cited AI tools (e.g., Gemini, Firefly) as justification for trimming creative and technical roles.
  • Wall Street pressure: Investors reward cost-cutting tied to AI adoption, with Wedbush calling Microsoft’s layoffs a “necessary pivot to AI and cloud efficiency”.

Gaming Industry Parallels

  • Unity: Cut 25% of staff (1,800 jobs) in 2024 after adopting AI for asset generation.
  • Electronic Arts: Eliminated 6% of workforce (800 jobs) in 2025, citing “portfolio rationalization” and AI-driven development tools.
  • Embracer Group: After a $2B deal collapsed, the conglomerate shuttered studios (Volition, Campfire Cabal) and cut 1,400 jobs.

The tech sector’s layoffs reflect a dual mandate—streamlining operations while investing heavily in AI. For gaming, this risks prioritizing scalable live-service models (e.g., Call of Duty, Fortnite) over single-player narratives and experimental projects.

Employee Reactions and Severance Support

Microsoft’s July 2025 layoffs—impacting 9,000 employees, including significant cuts to Xbox and gaming divisions—have sparked internal backlash and scrutiny over leadership messaging and support for affected staff. Below, we break down employee reactions, corporate communications, and the severance programs offered.

Phil Spencer’s Memo: Mixed Reception

Xbox CEO Phil Spencer’s internal email acknowledged layoffs were necessary to “focus on strategic growth areas” and “remove management layers”, but framed the cuts amid Xbox’s “stronger than ever” position—a contrast that angered employees and players alike

“Our platform, hardware, and game roadmap have never looked stronger. The success we’re seeing is based on tough decisions we’ve made previously.”

Critics called the tone “tone-deaf”, particularly as Spencer emphasized Xbox’s health while announcing job losses

Employees reported lack of transparency about specific team impacts, with Spencer deferring details to “team leaders in the coming days”

Social media posts from laid-off staff revealed frustration over sudden notifications and perceived disconnect between leadership rhetoric and on-the-ground realities

While Microsoft provided baseline severance, the emotional and professional toll of layoffs—exacerbated by perceived corporate doublespeak—has eroded morale. For an industry already grappling with AI-driven job displacement and consolidation, these cuts underscore a crisis of trust between leadership and talent.

In Crux

Microsoft’s July 2025 layoffs—cutting 9,000 jobs (4% of its workforce)—mark a pivotal moment for the company’s gaming division and the broader tech industry.

Microsoft’s cuts reflect a tech-wide pivot to AI efficiency, but gaming’s soul lies in creative risk-taking. The coming months will reveal whether Xbox can balance profitability with innovation—or if it becomes another casualty of corporate consolidation.