CyrusOne, one of the largest data center providers, is laying off 55 employees, or about 12 percent of its workforce, to cut expenses, as its largest customers’ footprint expansion remains slow.
“In recognition of the continued moderation in demand from hyperscale customers, a trend we first identified in late 2018, we believe it is appropriate to reduce our cost structure to more closely align the business with current market conditions,” the company’s CEO, Gary Wojtaszek, said in a statement Monday.
The company also announced that Tesh Durvasula, who’s been running its European business, will be stepping down from the role in March, replaced by Matt Pullen, who is currently the company’s managing director for Europe.
Hyperscalers are operators of the world’s largest cloud platforms, such as Google, Microsoft, and Amazon Web Services. The definition of a hyperscaler varies from expert to expert, but many also include the likes of IBM, Oracle, and Alibaba in the category, which is meant to describe companies that use massive data centers to host cloud infrastructure at global scale.
CyrusOne expects to save about $10.7 million a year as a result of the layoffs and incur a charge of about $5.9 million in the first quarter “with respect to such matters.” The affected employees will get severance, “and customary transition assistance will be provided,” the company said.
After a few years of unprecedented rates of expansion of hyperscalers’ data center footprint – around 2016 to 2018, when developers like CyrusOne couldn’t build new facilities fast enough to meet the demand – the cloud giants’ data center investment slowed last year.
Some explained the slowdown by the fact that the hyperscalers had leased so much capacity in the prior years that they were still “digesting” what they already had, while others said the top data center markets, such as Dallas and Northern Virginia, had been well saturated with capacity and projected higher rates of growth in secondary or emerging markets, such as Latin America and Eastern Europe.
CyrusOne, which has focused investment on primary markets, did well in the boom years, emerging as one of the leading players thanks to its ability to build new hyperscale data centers quickly and a creative construction funding strategy. Hyperscale bookings would account for as much as 60 percent of its leasing in a typical quarter.
Wojtaszek told us in June 2019 that even though hyperscale leasing in top US markets had slowed down, he wasn’t worried about the company’s future prospects. Long-term demand drivers remained intact, he said, explaining that the cloud companies were simply working through the record amount of space they had leased in the top markets in the previous year.
Plus, hyperscale demand in Europe was still going strong. Almost all US-based hyperscalers were leasing large in Frankfurt, London, Amsterdam, and Dublin, he said.
CyrusOne has been expanding in Europe in recent years, buying the European provider Zenium, with data centers in London and Frankfurt, and building facilities in Dublin and Amsterdam. (Pullen, who will be taking the reins of CyrusOne’s European business in March, led Zenium’s sales and marketing before the acquisition.)
While CyrusOne’s stock price saw a lot of turbulence over the last five years, it’s gone up consistently over the period overall, growing from just below $30 per share in early 2015 to about $70 last Friday. The price dropped 8 percent Monday on the announcement of layoffs and the European leadership change.
CyrusOne reported $250.9 million in revenue for the third quarter of 2019 – up 21 percent year over year. Funds from operation (FFO) per share for the quarter was $0.91 – up 15 percent.
Rumors emerged last year that CyrusOne management had been in acquisition talks with potential buyers. News reports citing anonymous sources said those potential buyers included institutional investors such as KKR, StonePeak Infrastructure Partners, and I Squared Capital, as well as CyrusOne’s gigantic rival Digital Realty Trust.
Wojtaszek sought to put an end to the speculation on an earnings call in October, saying the management was “not currently pursuing a sale of the company.”