Rackspace Layoffs Impact 275 People — What About Channel Leader?

Rackspace layoffs are in full effect.

Citing the ongoing macroeconomic downturn, Rackspace has confirmed that it’s shedding 275 employees.

“During this uncertain time, it is important that we align our cost structure to the demands of the business,” a spokesperson told Channel Futures on Tuesday via email. “This requires some elimination of roles across the company, which was communicated to ‘Rackers’ last week. These reductions represent less than 4% of our global workforce.”

Renee Taylor, vice president of global alliances and channels at Rackspace, remains at the head of the cloud managed service provider’s partner program.

“I can tell you Renee Taylor was not impacted by the layoffs,” the spokesperson said.

When it comes to the fallout from the Rackspace layoffs, the company says it will “treat impacted Rackers with respect and compassion and will provide severance and additional resources to help with the transition.”

In a March 24 email obtained by The Register, Rackspace CEO Amar Maletira told employees the company had reached a point where it needed to make a decision. Despite cutting costs – including implementing a hiring freeze, delaying bonuses and holding discretionary spending – the MSP continued to struggle.

Rackspace’s Almar Maletira

“As I have said before, we are facing an uncertain macro environment,” Maletira wrote. “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 a result, the San Antonio-based company “eliminated some roles across the company,” starting last week, Maletira said.

What Spurred New Rackspace Layoffs?

The Rackspace layoffs come as the company still tries to recover from a much-publicized ransomware attack in December. Rackspace was criticized for its seemingly slow response to the breach, as well as its subsequent hesitation to address it publicly.

Even so, the cloud MSP, which used to compete with the hyperscalers and now partners with them, keeps pursuing its latest business strategy.

After initially planning to divest its private cloud assets, Rackspace recently chose to keep those and instead reorganize into two groups: one for public cloud, one for private. That announcement came after Rackspace in spring of 2022 indicated the company would sell itself, but in pieces rather than as a whole. Public cloud was looking more lucrative than private cloud, so all signs pointed to the latter being jettisoned.

As part of that effort, Rackspace hired Dharmendra Sinha to lead the new public cloud division.

Then, in August, Rackspace backpedaled on its divestiture plans. Executives called off private cloud sale intentions. All of that happened under the guidance of then-CEO Kevin Jones, whom Rackspace booted last September. Maletira took his place.

After that, in January, Rackspace hired Brian Lillie as president of the private cloud business unit. Lillie came from Zayo Group, where he worked as chief product and technology officer.

Company Focused on Multicloud

Rackspace now continues to focus on multicloud, even as the cloud sector as a whole reels from post-pandemic customer pullbacks.

“Despite the downturn, we are in an attractive and growing multicloud market,” the spokesperson told Channel Futures. “We have a sound strategy and have successfully implemented our new operating model. … We are focused on executing our strategy and plans, which includes continuing to invest in strategic area of growth. Long-term, we are optimistic on the secular trends in multicloud. We are confident in our strategy, and now have the right operating model to win and thrive.”

The question becomes whether investors will agree. Rackspace’s stock has oscillated, especially since the ransomware attack. Its 52-week high stands at $12.13; its low at $1.57. The company’s stock was trading at $1.77 as of 1 p.m. ET, down 3.6% on Tuesday.