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

On Wednesday, Microsoft laid off at least five people from Halo Studios, according to a developer who knows what’s going on. The studio still has about 200 to 300 employees working there. The news comes as part of bigger layoffs happening across Microsoft.

That morning, Phil Spencer, the CEO of Microsoft Gaming, sent an email to everyone in the Xbox division. He talked about “organizational shifts” that would affect the team soon. The Halo Studios workers who were let go got invited to a meeting with the leaders.

After about two hours on a Teams call, they discussed severance packages and the reasons behind the layoffs. These reasons matched what Spencer said in his email, the company wants to be more agile and effective.

The developer told Engadget they were really upset about the timing. “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 didn’t know what to be proud of in that situation.

Halo Studios is busy working on several games, including the next big Halo title. They also take care of Halo: Infinite, but that game isn’t getting much new content lately. The mood at the studio is tense, especially because one project has been in trouble. 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 share what they’re working on during this year’s Halo World Championship in October.

Back in 2023, when the studio was still called 343 Industries, they had a big round of layoffs too. Many people from the campaign and story teams were let go, including Joe Staten, a well-known Halo veteran. That’s one reason why Halo: Infinite hasn’t continued its storyline. Today, Halo Studios mixes full-time employees with contractors, especially for junior producer and quality assurance jobs.

The same developer said that since 2023, the studio has been moving towards working with entire contracted studios instead of individual contractors in the U.S. and Europe. This helps speed up game development, and it’s how other big shooter games like Call of Duty and Battlefield are made. But they also said Xbox feels “years behind the curve in game development,” which wastes a lot of time and effort.

Despite all this, many people leaving Halo Studios have said good things about their time there and the people they worked with.

These layoffs on July 2 were part of a global cut where Microsoft let go of 9,000 employees, including 830 in Washington state, where Halo Studios is located. The Xbox division has seen many firings, canceled games, and even closed studios. Microsoft says Xbox didn’t take the majority of layoffs, but since Xbox is a smaller part of the company, that might not show the real impact.

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

Microsoft has been focusing more on AI, which helped its stock price reach new highs. At Meta’s Llamacon in April, Microsoft CEO Satya Nadella said about 30% of the company’s code is now written by AI. Activision also admitted to using AI in their Black Ops 6 game. It’s not clear how much AI is behind these layoffs, but using tools like Copilot is “no longer optional” inside 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 with news outlets. Microsoft had already cut 1,900 Xbox jobs in January 2024 and 650 more in September 2023. They also shut down studios like Arkane Austin, Alpha Dog Games, and Tango Gameworks last year. Microsoft reported $25.8 billion in revenue for the first three months of 2025, with an 8% yearly increase from Xbox content and services.

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