Developer Says Microsoft Is “Trying Their Damndest” To Replace Jobs with AI

Microsoft has recently laid off at least five people from Halo Studios, according to a developer familiar with the situation. The studio still has between 200 and 300 employees. These layoffs are part of a bigger wave happening across Microsoft.

On Wednesday morning, Phil Spencer, the head of Microsoft Gaming, sent an email to everyone in the Xbox division. He mentioned that there would be some “organizational shifts” affecting the team soon. The Halo Studios employees who lost their jobs were invited to a meeting with company leaders. After a long two-hour call on Teams, they talked about severance packages and why these layoffs were happening. The reasons matched what Spencer wrote, the company wants to be more agile and efficient.

The developer told Engadget they were very upset about how the situation was handled. “I’m personally super pissed that Phil’s email to us bragged about how this was the most profitable year ever for Xbox in the same breath as pulling the lever” on the layoffs. They said it was hard to feel proud about that.

Halo Studios is working on several games, including the next big Halo installment. They also manage Halo: Infinite, but that game isn’t seeing much new content lately. The atmosphere at the studio is tense, especially since one of their projects has been having problems. The developer said, “I don’t think anybody is really happy about the quality of the product right now. There’s been a lot of tension and pep talks trying to rally folks to ship.” The studio plans to show off what they’ve been working on at the Halo World Championship in October.

In 2023, when the studio was still called 343 Industries, there was another big round of layoffs. Many campaign and story team members, including Halo veteran Joe Staten, were let go. This partly explains why Halo: Infinite hasn’t continued its story. Today, Halo Studios uses a mix of full-time staff and contractors, especially for roles like junior producers and quality assurance.

The same developer said that since 2023, the studio has shifted to working more with entire contracted studios rather than individual contractors in the U.S. and Europe. This change is meant to speed up game development, similar to how big shooters like Call of Duty and Battlefield are made. However, they also said Xbox feels “years behind the curve in game development,” which wastes a lot of time and effort.

Despite these challenges, many people leaving Halo Studios spoke kindly about their time there and the teams they worked with.

The July 2 layoffs are part of a global cut where Microsoft let go of 9,000 employees, including 830 in Washington state, where Halo Studios is based. The Xbox division has faced many firings, canceled games, and studio closures. Microsoft says Xbox didn’t take most of the layoffs, but since Xbox is a smaller part of the company, that might not show the full impact.

Other Xbox studios have also been hit hard. Rare’s Everwild and The Initiative’s Perfect Dark reboot were canceled, and The Initiative studio was shut down completely. Turn 10 Studios, known for Forza Motorsport, lost most of its staff. Studios like Rare, ZeniMax Online, King, Raven, Sledgehammer Games, and Halo Studios all faced cuts. ZeniMax’s president Matt Firor left after 18 years, and Rare’s veteran designer Gregg Mayles reportedly left after decades with the company. Even Blizzard is ending Warcraft Rumble.

Microsoft has been focusing more on AI, which has helped boost its stock price. At Meta’s Llamacon in April, Microsoft CEO Satya Nadella said around 30% of the company’s code is now written by AI. Activision also admitted to using AI in Black Ops 6. It’s unclear how much AI is behind these layoffs, but the use of tools like Copilot is “no longer optional” at Microsoft.

The developer told Engadget, “They’re trying their damndest to replace as many jobs as they can with AI agents.”

Throughout the day, Xbox employees shared their experiences about the layoffs on social media and in interviews. Microsoft had already cut 1,900 Xbox jobs in January 2024 and 650 more in September 2023. Last year, the company closed studios like Arkane Austin, Alpha Dog Games, and Tango Gameworks. Microsoft reported $25.8 billion in revenue for the first three months of 2025, with an 8% increase in revenue from Xbox content and services.

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