Red Hat Layoffs: Cuts, ‘Cultural Change’, CEO Decision -- 5 Key Things To Know

From how many Red Hat employees will be terminated to CEO Matt Hicks’ reasoning behind the layoffs, CRN breaks down five key things you need to know.

Red Hat CEO Matt Hicks

Red Hat CEO Matt Hicks

How many Red Hat employees, known internally as Red Hatters, will be laid off in the coming months? Which departments will be hit? What is Red Hat CEO Matt Hicks’ reasoning behind the layoffs?

CRN answers these questions and more after the open-source superstar confirmed today that the company will be laying off several hundred employees.

“There have been several occasions where we’ve had to make tough decisions at Red Hat, but no decision has been harder than the one I must communicate to you today: We will reduce the associate base of Red Hat over the next few months,” said Matt Hicks in a letter to employees today which CRN reviewed.

[Related: AWS Confirms Layoffs Impacting ‘Single Digit Percentage’ Of Employees]

CEO: Red Hat Must ‘Do Fewer Things Better’

Hicks, who took over the CEO reins at Red Hat in July, said the decision to lay off hundreds of employees is “appropriate to ensure Red Hat’s ability to compete in a new environment.”

“We must continue to sharpen our focus and do fewer things better,” said Hicks. “This will be difficult for all of us; there is no way around that.”

Red Hat is a Raleigh, N.C.-based software company— owned by IBM—which generates billions of dollars in software sales each quarter.

In IBM’s latest fourth quarter 2022 financial earnings report, the company reported software revenue of $7.3 billion, up 3 percent year over year. IBM’s software segment includes Red Hat sales. Although IBM doesn’t break out the exact revenue figures, IBM said Red Hat sales grew 10 percent year over year.

IBM Chief Financial Officer (CFO) James Kavanaugh confirmed that Red Hat’s popular OpenShift hybrid cloud platform has a $1 billion annual recurring revenue run rate. OpenShift and Red Hat’s Ansible subsidiary grew double digits during the fourth quarter of 2022, he said.

CRN breaks down five of the most important things Red Hat employees, customers and partners need to know about the layoffs.

‘Just Under’ 800 Employees To Be Terminated

Red Hat confirmed to CRN it has approximately 20,000 full-time employees worldwide.

CEO Hicks said “just under 4 percent” of its global workforce would be impacted.

A four percent reduction in a company with 20,000 employees is 800 people. Meaning, Red Hat is planning to lay off just shy of 800 employees over the next few months.

“Notifications will begin today in some countries, and the process will continue through the end of Q2,” said Hicks in his letter to employees today.

What Positions Will Be Cut? Answer: G&A

CEO Matt Hicks specifically pointed out which roles inside Red Hat will be terminated.

“Our reductions will focus on general and administrative (G&A) and similar roles across all functions,” said Hicks.

However, Red Hat’s CEO pointed out that the company will not cut positions in sales and engineering.

“We will not reduce roles directly selling to customers or building our products,” he said.

In an email to CRN, Red Hat declined to comment further on whether a specific organization inside Red Hat or a specific geographic region would be impacted.

The Reason For Red Hat Layoff Round: Added Priorities Resulted ‘In More Complexity’

Over the past few quarters, each member of Red Hat’s corporate leadership team considered what a “best-in-class organization” looks like for their function and articulated a vision for their organization over the next few years—including the talent and skills needed to execute that vision, according to Hicks.

“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,” said Hicks.

He said over the years, Red Hat created more offerings without removing “other things from the system.”

“Once things exist, we rarely revisit them and earnestly question if they are delivering what we need them to with measurable impact. Sometimes, even when things are performing well, we must still make an intentional decision to simplify and focus,” he said. “Each added priority results in more complexity over time, and as big teams get bigger, we start investing more in the process than the outcome of the process.

The company has a “tremendous opportunity” ahead around open hybrid cloud due to the evolution of public cloud and edge computing, but the market opportunities will not wait for Red Hat, Hicks said.

“What’s become evident is that we must adapt and make this change to ensure we’re able to invest in ways that will enable Red Hat to do this, including how we align budget and headcount,” he said.

IBM’s 3,900 Layoffs

It is key to note that Red Hat’s parent company, IBM, unveiled a significant layoff round in January, reportedly affecting around 4,000 employees.

IBM confirmed to CRN this year that it plans to cut between 1 percent and 1.5 percent of its global workforce. IBM’s layoff round is expected to affect upwards of 3,900 employees at the company of over 250,000.

IBM told CRN at the time that the layoffs are related to the Kyndryl spinoff and healthcare divestiture and not based on 2022 performance or 2023 expectations.

IBM, and subsequently Red Hat, are set to unveil its first quarter 2023 financial earnings this week.

CEO’s Message Remaining Employees: ‘Cultural Change’ Needed

Matt Hicks told Red Hat employees who are remaining with the company that they must sharpen their focus and do “fewer things better.”

Our ways of operating must evolve—there will be a required change in the work we all do. We must be willing to engage and learn the intersections between our teams and to manage them more directly, with fewer layers of interface,” Red Hat’s CEO said. “This is not work we can delegate to others; instead, we must put our energy into simplifying our structure.”

Red Hat’s structural change needs to be accompanied by a “cultural change as well,” said the CEO.

“We must choose to work and prioritize differently, or we will simply recreate the challenges that got us here,” said Hicks.

For those Red Hat employees being terminated, Hicks said U.S.-based employees 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; first quarter bonuses paid at 100 percent of the funded target, and second quarter bonuses paid at 100 percent of their prorated quarterly target.

“In my 17 years at Red Hat, I’ve seen us navigate many challenges, and each one has made us stronger because we have adapted. And I believe we will do the same here,” said Hicks. “Our ability to adapt will bring our remarkable opportunity within reach, and I have every confidence Red Hat will seize it.”