Microsoft has announced it is cutting 4,800 jobs, roughly 2.1 per cent of its workforce, in an effort to maintain competitive in a “fast-changing industry”.

Executive vice president and chief people officer at the tech giant, Amy Coleman, shared a memo with staff Monday informing employees of the decision. In the memo, she said that the company’s priority is to place people into new roles “aligned to the company’s highest priorities and greatest areas of opportunity,” with 500 employees redeployed this month.

In addition, more than 30 per cent of those eligible chose to participate in the company’s recent voluntary retirement programme, she added.

AI is playing a part in these layoffs, as it is “changing how work gets done” across the industry, Coleman said, but she was explicit that the roles being cut will not be directly replaced by AI.

The majority of the layoffs are in Microsoft’s Commercial and Xbox organisations. The Commercial shakeup comes in the wake of the launch of Microsoft’s $2.5 billion Frontier Company, which is intended to help customers capitalise on the AI boom.

Coleman said that this new venture is reshaping how its Commercial division operates and embedding engineering experts alongside customers to help them accelerate their technology developments.

Xbox is undergoing a major restructuring. Asha Sharma, chief executive at Xbox, told staff Monday that the company will cut 3,200 jobs throughout the current fiscal year, with 1,600 of those made today. The company is also spinning out four of its game development studios.

The memo paints a stark picture of the gaming company. “Our business today is not healthy,” Sharma said, adding that it is operating at margins three to 10 times lower than comparable platforms and publishing businesses. She also acknowledged that major bets by the firm have not paid off, including its Game Pass subscription service, and referenced the ongoing hardware crisis driven by the AI boom.

Through the restructure Microsoft also aims to simplify its internal management hierarchy, which Sharma said has slowed decisions, blurred accountability, and led to some projects moving through as many as 14 layers before they are approved. This will be reduced to a maximum of five, with a target of three, she said.

Long-serving chief operating officer Dave McCarthy is retiring after 17 years with the company to be replaced by Helen Chiang, previously head of Xbox-owned game studio Mojang.

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