Red Hat's Layoffs

IBM, Red Hat's parent company, reported stellar gross profit margins in the first quarter of 2023. As for Red Hat, IBM CEO Arvind Krishna said he's "expecting 11% to 13% [growth] for the year." That sounds like good news to me! But, the stock market still seems to think that IBM is a growth stock while it's really been a value stock even after its Red Hat acquisition. Combine that with the current CEO fad of laying off employees for fear of recession, and it comes as no surprise that Red Hat told its staffers that it would reduce its associate base by just under 4% over the next few months.

This is the first time Red Hat has ever had significant layoffs. The reductions will primarily affect general and administrative roles across all functions, while roles focused on selling to customers and building products will remain intact. However, some Red Hat employees in customer-adjacent areas, such as the Enable Sysadmin group, which oversaw the well-regarded Open Source website, have also been laid off.

The restructuring process will begin immediately in some countries and continue through the end of the second quarter. With Red Hat's total staff of about 20,000, approximately 800 Red Hatters will be looking for new jobs.

Matt Hicks, Red Hat's CEO, said, "I know it is hard to reconcile that we are a successful, growing company and still need to take these hard actions. At the core of this decision is the need to rebalance where we are investing to enable Red Hat’s future. Our leadership team deeply cares about Red Hat’s ability to have as much impact in the next 10 years as we have had to date. Red Hat has a tremendous opportunity around open hybrid cloud with the evolution of public cloud and edge and in specific industries like telecommunications and automotive, but the market opportunities will not wait for us."

Mind you, Red Hat's cloud efforts have been doing quite well. IBM CFO James Kavanaugh confirmed that Red Hat’s OpenShift hybrid cloud platform has a $1 billion annual recurring revenue run rate. In addition, OpenShift grew by double digits during the fourth quarter of 2022.

I will credit Red Hat with doing well by their former staffers. Hicks, well actually his HR attorney, wrote, "The specifics for associates will differ based on the country they are located and be consistent with local practices. For example, associates in the U.S. will be eligible to receive a variety of benefits, including above-market severance pay; continued medical coverage for between three and six months based on years of service; Q1 bonuses paid at 100% of the funded target, and Q2 bonuses paid at 100% of their prorated quarterly target; six months of career transition services; and extended access to the Employee Assistance Program (EAP)."

Still, this didn't need to happen. It's one of the signs of our times that people are being laid off in the big tech companies to show that they're serious about increasing revenue per employee. The record shows that the reality is layoffs don't help companies become more profitable by almost any metric. Sure, there are times a company needs to retrench. Neither for Red Hat nor any of the other major tech companies slashing payrolls, however, are these those times.

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