verb (used with object), downsized, downsizing.
to design or manufacture a smaller version or type of: The automotive industry downsized its cars for improved fuel economy.
to reduce in number; cut back.
Also, downsized. being of a smaller size or version: a downsize car.

1970–75, Americanism; down1 + size1

downsize, fire, lay off, rightsize, terminate. Unabridged
Based on the Random House Dictionary, © Random House, Inc. 2014.
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World English Dictionary
downsize (ˈdaʊnˌsaɪz)
vb , -sizes, -sizing, -sized
1.  to reduce the operating costs of a company by reducing the number of people it employs
2.  to reduce the size of or produce a smaller version of (something)
3.  Compare rightsize to upgrade (a computer system) by replacing a mainframe or minicomputer with a network of microcomputers

Collins English Dictionary - Complete & Unabridged 10th Edition
2009 © William Collins Sons & Co. Ltd. 1979, 1986 © HarperCollins
Publishers 1998, 2000, 2003, 2005, 2006, 2007, 2009
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Word Origin & History

1986 in reference to companies shedding jobs; earlier (1975) in reference to U.S. automakers building smaller cars and trucks (supposedly a coinage at General Motors), from down (adv.) + size. Related: Downsizing.
Online Etymology Dictionary, © 2010 Douglas Harper
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American Heritage
Cultural Dictionary

downsize definition

To reduce in number, especially personnel: “The company decided to downsize half the workers in the aircraft division.” It can also be used in reference to objects: “I decided to downsize my wardrobe and threw out all my old T-shirts.”

Note: Downsize is a recent euphemism for “fire, lay off.” Company managers often use this term in an attempt to soften the blow of wide-scale layoffs.
The American Heritage® New Dictionary of Cultural Literacy, Third Edition
Copyright © 2005 by Houghton Mifflin Company.
Published by Houghton Mifflin Company. All rights reserved.
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Computing Dictionary

downsizing definition

The process of moving an application program from a mainframe to a cheaper system, typically a client-server system.

The Free On-line Dictionary of Computing, © Denis Howe 2010
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Example sentences
What began as downsizing went on to wholesale abandonment.
It seems that during a labor shortage rising wages result in downsizing,
  offshoring, and other forms of restructuring.
Many would sell the home in time, using the money for retirement after
And the loss will also keep the firm's downsizing on track.
Related Words
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