Rackspace slashes workforce in favour of offshoring

23 July 2021 | Antony Savvas

Cover

Rackspace is making around 10% of its staff redundant as it focuses on the “growth” areas of its business.

The move will result in about 700 people losing their jobs as part of the restructuring plan, with around 85% of the roles “backfilled” in the firm's offshore service centres.

All employees impacted were notified yesterday (22 July) and will exit the company over the next 12 months.

The company estimates that it will incur expenses of approximately $70 million to $80 million related to the restructuring plan, to be incurred over the next 12-24 months with the majority of expenses incurred in the next 12 months.

After the restructuring plan is implemented, Rackspace expects to realise around $95 million to $100 million in gross annual savings compared to current expense levels.

These savings are expected to be used to fund approximately $65 million to $70 million in new investments in faster-growing product and service offerings, including cloud migration, elastic engineering, cloud native application development, artificial intelligence/machine learning and security services.

The investments are expected to include new service development efforts, additional delivery capabilities, go-to-market enhancements and the expansion of “best-shoring centres of excellence”, Rackspace said.

Kevin Jones, chief executive officer of Rackspace, said: “The initiatives announced will enable us to take full advantage of current market trends, drive significant earnings leverage as revenue continues to grow and compete even more effectively with other cloud service providers.”

The company has now revised its financial guidance for the second quarter of 2021. Revenue is now expected to be in the range of $741 - $744 million, “at the high end” of the previously-forecasted range of $735 - $745 million.

The firm expects second quarter bookings to be around $258 million, an increase of 6% compared to the first quarter of 2021.

But it is warning of a GAAP net loss of between $30 million and $50 million.