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Rackspace Cuts 10% Of Workforce In One Of Largest Employee Shake-Ups

Courtesy Rackspace

This story is developing and will be updated.

Around 700 people will find out today they don’t work for San Antonio-based Rackspace anymore. According to the Bexar County Judge's office, as many as two-thirds of those being let go are in San Antonio.

The company announced one of the largest layoff rounds in company history today, as it will terminate about 10% of its workforce over the next 12 months, according to a filing with the U.S. Securities and Exchange Commission Thursday.

The company says it will "backfill" or absorb about 85% of the roles to its offshore service centers, likely a cost-cutting measure. It doesn't list where those roles will go specifically. The company did partner with Tech Mahindra — an India-based firm — in 2019.

“It’s really unfortunate that they are going to where there are lower labor costs, but I just don’t know what the impact is here,” said Bexar County Judge Nelson Wolff.

“I don’t think it's necessarily a negative for the company... but it's certainly negative for us,” he said.

Wolff later shared that Rackspace told him the company had created special training programs and procedures to train current workers for the hundreds of open roles in new technology areas, and they anticipate many will transition and remain.

Rackspace layoffs have become nearly an annual event, as the company shed between 100-200 employees from 2017-2019. Each time, the company framed it as shrinking the staff in slowing profit areas, and pivoting to higher profit growth areas.

"It's unfortunate, but we want a healthy and viable Rackspace," said David Heard, CEO of Tech Bloc, the local technology advocacy organization.

To Heard, it's best that the company stay strong and profitable and — most importantly — in San Antonio, "and they are in the best position to make those decisions," he said.

In 2017, the firm laid off about 6% of its employees — about 275 — six months after being acquired by Apollo Global Management. It sent shockwaves through San Antonio as the community struggled to keep those technology workers in the area. This is a much larger layoff, with potentially larger implications.

This time around Wolff — who has been adamant that technology jobs are vital to the region's development — said the city’s technology workforce is more diversified and he hopes anyone impacted by the layoff can find work here, even if it is remote for a company in another city.

"I'd give us a solid 'B,'" said Heard of the community's attempt to keep former Rackers here. "We had some very targeted programs to keep them here."

His organization can improve on that effort, he said. The city consistently ranks at the bottom of the top 50 North American cities in a report focused on tech workers. Keeping former Rackers here is easier than going out to find new workers to move here, Heard said.

Last year CEO Kevin Jones was optimistic about the company’s San Antonio workforce:

“We are really excited about this time at Rackspace Technology. We are in growth mode, for sure,” he said in June 2020.

The company's revenues have grown in the past year, but it still expects a net loss of as much as $50 million in the second quarter, according to the filing.

The layoffs will cost the company $70-80 million in severances and other associated costs, according to the filing with the SEC.

“We are more closely aligning our Rackers with next-generation service offerings that offer more compelling growth potential both for them and the company,” said Jones in Thursday press release.

It anticipates saving $100 million in costs, much of which it said in the statement will be put into new investments.

The cost-cutting measure evidently didn't please Wall Street with Rackspace stock prices dipping around 6% after the announcement.

The company’s earnings call is scheduled for Aug. 11.

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Paul Flahive can be reached at Paul@tpr.org