Rackspace Cutting 10% of Workforce as It Zeros In on Multicloud

Rackspace is cutting 10% of its workforce, or about 700 employees, as part of an internal restructuring plan.

The managed cloud computing company detailed its plans in its latest Securities and Exchange Commission (SEC) filing. It also said COO Subroto Mukerji will transition to president of the Americas region on Aug. 1.

In addition, Rackspace unveiled a strategic initiative to seize the expanding market opportunity in multicloud.

Rackspace wouldn’t say which roles are being impacted by the layoffs and where they’re located. The company did say it continues to hire globally and has 700 open roles for top talent. It has about 7,000 workers globally.

Kevin Jones is Rackspace’s CEO.

Rackspace’s Kevin Jones

“The initiatives announced today will enable Rackspace Technology 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,” he said. “In addition, we are more closely aligning our ‘Rackers’ with next-generation service offerings that offer more compelling growth potential both for them and the company.”

Rackspace Workforce Reduction Plan

Rackspace notified all of the impacted workers on Thursday and they will exit the company over the next 12 months. It anticipates it will backfill about 85% of these impacted roles in the company’s offshore service centers.

The company is also expanding its internal training program to further develop expertise in cloud services.

The workforce rebalancing is a component of a broader strategic review of the company’s operations. It will more effectively align the company’s resources with its business priorities in high-growth areas.

Rackspace will incur $70 million-$80 million in expenses related to the restructuring over the next 12-24 months.

“These expenses will consist primarily of termination benefits to the affected employees including, but not limited to, severance payments, health care benefits and other exit costs,” it said. “The remainder of these expenses will consist of various costs associated with the restructuring plan, including one-time offshore buildout costs, asset write-offs, professional fees and expected investments in automation and technology.”

Rackspace expects $95 million-$100 million in gross annual savings. These savings will fund $65 million-$70 million in new investments in “fast-growing” product and service offerings, including cloud migration, elastic engineering, cloud-native application development, data/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 more, Rackspace said.