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Rackspace racks up job cuts amid market downturn and talk of offshoring

Everything from inflation, to war in Ukraine and high interest rates 'point to recession', says CEO in memo to staff

Exclusive Cloud reseller and integrator Rackspace Technology is kicking off a restructuring process involving the loss of nearly 4 percent of the global workforce due to a slowdown in cloud computing growth rates.

The organization, which was hit by ransomware in December, has written to staff to inform them of the actions designed to prepare for what the CEO sees as business bumps ahead.

"As I have said before, we are facing an uncertain macro environment," said Amar Maletira, who became CEO in September. "From inflationary pressures, high interest rates to the ongoing war in Ukraine and persisting supply chain issues – all signs are pointing to a recession."

As world + dog knows, cloud computing growth accelerated during the pandemic as companies, faced with a series of lockdowns that forced their employees to work from home, where they leaned in on services from companies including AWS, Microsoft and Google.

Maletira pointed out in his missive, dated March 24, that cloud companies are now more cautious about their growth. "Hyperscalers indicate growth rates are slowing. We are also experiencing similar trends as we are too part of the cloud ecosystem."

Rackspace had, he added, tried in recent months to "control costs while making selective investments in strategic areas." These include a hiring freeze, reducing third party costs and non-labor spending, putting a hold on discretionary spending and delaying the "merit cycles from Q2 to Q3 of fiscal 2023."

"Unfortunately, given the uncertain macro environment these actions are not enough. I am writing to let you know that yesterday some Rackers were impacted as we eliminated some roles across the company," the CEO said.

"Rackers affected in the United States were notified yesterday, and Rackers whose roles are at risk outside of the US are being notified and a consultation process is being started where required. Depending on the business situation, the last day of employment for affected Rackers will vary, as some will be asked to transition their work and responsibilities," added Maletira.

Rackspace used to compete directly with the big cloud providers, before realizing that was a losing game. Now it helps to resell and provide multi-cloud consultancy services to customers. It also provides fully managed hosting services and other solutions in the mix.

In calendar 2022, Rackspace reported a loss from operations of $679 million on revenues of $3.122 billion. This compared to an operating loss of $2.5 million on turnover of $3.009 billion in the prior 12 months.

In a separate email to UK employees, local HR lead Katerina Frolich, pointed to "lengthening sales cycles", the losses recorded in Q4 and the ongoing "organizational transformation" happening across the company.

She said Rackspace needs to "align" cost structure to revenue and bookings. Following a review, "a restructuring of operations is now proposed to improve efficiencies – we have made the difficult decision to commence consultation on the removal of roles from various functions."

"Whilst these proposals are subject to consultation, we do appreciate that this news might be concerning, and that this may be a difficult time for you. However, I can assure you that the company is very grateful for your continued hard work, dedication and support at this time. We will consult with a view to avoiding redundancies if and where possible."

Soothing words for employees, we are sure.

Employees representatives are to be elected this week in regions where consultancy is a legal necessity. Collective consultation is expected to begin from April 3 and conclude on May 3, and this is when individual consultations will start.

The Register has seen excerpts from internal communications in which employees speculated that 30 percent of the private cloud team could be at risk, and others reckoned more roles will go to countries where wages are cheaper.

If correct, this won't be the first time Rackspace has played that game: in summer 2021 it let go one in 10 so-called Rackers and backfilled 85 percent of those with personnel in "offshore service centers."

So far this year, 513 IT companies have laid off more than 150,000 people, including Microsoft, Amazon, Google, Accenture, Salesforce, Dell, Lenovo, Zoom, GitLab, Intel and many, many others. Some say this is simply copycat behavior, that many of those businesses remain highly profitable. Sadly Rackspace is not currently among them.

In a statement sent to The Register, a spokesperson at Rackspace said:

“Like so many companies that are feeling the effects of the macroeconomic downturn, Rackspace is no exception. During this uncertain time, it is important that we align our cost structure to the demands of the business. This requires some elimination of roles across the company, which was communicated to Rackers this week. These reductions represent less than 4% of our global workforce.”

The company employs around 6,800 people.

Rackspace added: “Despite the downturn, we are in an attractive and growing multicloud market. We have a sound strategy and have successfully implemented our new operating model. We’ve reorganized into two business units – Public Cloud and Private Cloud. We are focused on executing our strategy and plans, which includes continuing to invest in strategic area of growth.” ®

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