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Rackspace Layoffs, Offshore Strategy Buried in ‘Growth’ Announcement

Credit: Rackspace Technology

Rackspace Technology, the multi-cloud MSP, plans to earmark up to $75 million for new business growth investments. Where will that money come from? The short answer, if you dig a little deeper, involves layoffs and shifting more job responsibilities to offshore employees.

Indeed, the headline from the official Rackspace news announcement said this:

But the headline from the San Antonio Express News said this:

What gives? In our opinion, Rackspace -- a company that our editors have tracked and respected for more than a decade -- embarked on some overly ambitious PR spin today. And the spin has now backfired.

Rackspace's Multi-Cloud MSP Market Position

No doubt, Rackspace ranks among the world's Top 250 Public Cloud MSPs, according to ChannelE2E research. The multi-cloud MSP migrates, monitors and manages customer workloads across Amazon Web Services (AWS), Microsoft Azure, Google Cloud Platform and more.

On the financial front, there are some positive metrics to note. For instance, Rackspace's revenue for the second quarter is now expected to be in the range of $741 million to $744 million, which is at the high end of the previously forecasted range of $735 million to $745 million, the company said.

Looking ahead, Rackspace PR says the cloud MSP and technology services provider will fund more growth via...

"an estimated $95 $100 million of gross cost savings as a result of enhanced automation as well as restructuring programs to realign resources from mature and declining areas of the market, accelerate best shoring initiatives, and reduce general and administrative expenses."

Boil down the PR paragraph of financial and business jargon above, and Rackspace is essentially admitting they're conducting layoffs.

Rackspace Layoffs: 10 Percent of Employees

Alas, you won't find the "layoff" word in the press release. But you'll see the word "termination" in Rackspace's associated fact-filed SEC filing, which states:

"On July 21, 2021, the Company committed to an internal restructuring plan, which will drive a change in the types of and location of certain positions and is expected to result in the termination of approximately 10% of the Company’s workforce. The Company anticipates that approximately 85% of these roles will be backfilled in the Company’s offshore service centers. As part of the plan, the Company also is expanding its internal training program to further develop expertise in cloud services. The rebalance in workforce is a component of a broader strategic review of the Company’s operations that is intended to more effectively align the Company’s resources with its business priorities in high growth areas. Substantially all of the employees impacted by the reduction in force were notified of the reduction on July 22, 2021 and will exit the Company over the next 12 months."

"Best-Shoring" vs. "Offshoring" Jobs: Do Words Matter?

Now, reread the press release and SEC filing side-by-side.

  • The press release says Rackspace will "accelerate best-shoring initiatives."
  • The SEC filing says 85 percent of the job cuts will be "backfilled in the Company’s offshore service centers."

Hmmm.... Best-shore. Offshore. Regardless of the term Rackspace chooses, 10 percent of company employees just lost their jobs while the cloud MSP is essentially increasing its financial guidance for Q2 0f 2021.

No doubt, Rackspace has the right to staff up -- and down -- based on the performance of specific products and divisions; market forecasts; and emerging opportunities. But next time around, the company should avoid the overly ambitious PR spin.

Just give it to us straight: Rackspace restructures, cuts 10% of workforce, shifts some more worker responsibilities to offshore offices, and doubles-down on cloud automation opportunities.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.