Oracle Plans Massive Layoffs: Up to 30,000 Jobs at Risk Amid AI Data Center Push

United States banks are pulling back from funding Oracle's expansion of its artificial intelligence data centres, so the business is contemplating laying off 20,000 to 30,000 workers and selling off some of its operations. According to TD Cowen's research, the elimination of jobs would result in a cash flow release of $8 billion to $10 billion.

Cerner, the healthcare software division that Oracle purchased for $28.3 billion in 2022, is also being considered for sale. Several US banks have reduced their lending for data centre projects tied to Oracle, prompting these actions. Equity and debt investors both have expressed concerns about Oracle's capacity to fund this expansion, according to the article.

Layoffs Aligned with Ongoing Financial Challenges of Oracle

With a capital investment of $156 billion needed, Oracle's infrastructure commitments are massive and pose a funding difficulty. Oracle has seen a significant increase in its borrowing rates due to the financial retreat. Since September, the interest rate surcharges charged by lenders to Oracle for funding of data centre projects have nearly doubled. This has resulted in borrowing charges that are often associated with enterprises that are not considered investment grade.

Deals have stopped due to the rising prices. Private operators had trouble acquiring funding for several Oracle data centre leases, which prevented Oracle from leasing the data centre capacity. Private data centre operators are unable to construct the necessary facilities due to a lack of funding, which is causing a delay in Oracle's infrastructure rollout. With a total of $38 billion for Texas and Wisconsin facilities and $20 billion for New Mexico, Oracle has already raised over $58 billion in just two months through heavy reliance on loan markets. Still, that's not nearly enough, and US banks are showing no signs of wanting to lend the business any additional money.

Asian Banks Stepped in, to Back Oracle

When US lenders pull back, Asian banks are ready to lend at premium rates because they want a piece of the growing AI infrastructure pie. That doesn't address Oracle's capacity issues in the US, but it does give the business an alternate way to expand internationally.  Oracle's ability to increase revenue is cast in doubt if the company is unable to get the data centre capacity that its clients anticipate, all because of the US funding limits.

In light of these limitations, Oracle is actively seeking to decrease its capital requirements through a variety of means. Clients are being asked to help finance the infrastructure buildout, as the corporation has started requesting 40% upfront payments from new customers. To take capital needs out of Oracle's books, it is also looking into "bring your own chip" (BYOC) arrangements in which clients provide their own hardware.