Oracle ‘Plans Thousands of Layoffs’ Amid Rising AI Data Center Costs

Oracle is reportedly planning to lay off thousands of employees as it struggles to keep up with the financial demands of expanding its AI data centers.

The layoffs are said to affect multiple teams and could begin as soon as this month.

Thousands of Job Cuts

According to Bloomberg, the job reductions in Oracle’s latest planned rounds of layoffs will be in the “thousands”, with the actual number of employees affected still unconfirmed. Planning for the workforce reductions is still active and could change.

People close to the matter said the cuts will reportedly affect multiple divisions and could kick off within the next few weeks, with some cuts likely to be aimed at roles the company believes will become less necessary due to artificial intelligence. The cuts are expected to be broader than Oracle’s usual rolling layoffs.

This week, Oracle also announced internally that it would review many of the open job listings in its cloud division, essentially slowing down or freezing the hiring process.

Last year, Oracle laid off around 3,000 people, heavily affecting its Indian workforce. In January, over 250 Oracle employees were laid off in the San Francisco Bay Area. 

A Plan in the Making

In January, CIO reported that CRM industry veteran Oracle was planning to cut between 20,000-30,000 roles, freeing up $8B-$10B in cash flow. This was according to a research report authored by investment bank TD Cowen. 

By that point, the report could only be regarded as predictive. Now, the prediction appears to be becoming reality. 

In September, Oracle revealed in a filing that it was planning its largest-ever restructuring, which will cost up to $1.6B in the current fiscal year ending in May, including severance checks to departing employees. This disclosure is much larger than any other similar plan the company has previously had.

Oracle has not immediately responded to a request for comment.

Why the Mass Layoffs?

The reason behind these particular planned layoffs is tied to Oracle’s data center mission. Once solely known for its database software and SaaS capabilities, the focus, like many of its competitors, has shifted to AI. 

As part of a larger AI effort, Oracle’s investment in AI infrastructure and data centers has been ramping up, intending to become a strong competitor to market leaders like Amazon and Microsoft.

The significant capital outlay required to construct new data centers is expected to put strain on Oracle’s financial position. Wall Street analysts predict that these investments could result in negative cash flow for the company over several years, with returns on this spending not expected until approximately 2030.

It also possibly ties to claims that US banks have begun to withdraw from financing the expansion of the company’s AI data centers needed to uphold its business with providers like OpenAI. 

According to TD Cowen’s report, lenders have roughly doubled the interest rate premiums they have charged Oracle since last September, meaning that a number of data center leases Oracle had been negotiating have been paused. 

“Both equity and EBT investors have raised questions regarding Oracle’s ability to finance this buildout,” the report said.

AI Layoffs Like Never Seen Before 

Although this round of layoffs is not directly attributed to artificial intelligence, unlike numerous tech layoffs last year, the connection between these layoffs and AI is arguably more difficult to justify. Contracts are on the line, data centers need to be built, and it seems ultimately, employees need to pay that cost. 

As tech layoffs continue to sweep the sector at alarming rates this year, it becomes more apparent just how cutthroat the AI race is. In the beginning, leaders only scrambled to release the newest, shiniest products the fastest – now, they’re willing to cut away their foundations to stay ahead. 

Summary 

These planned layoffs send several messages to the wider tech ecosystem, but one of the starkest is that even if a company appears to be doing well, there’s not always a way of knowing how hard it’s kicking its feet under the surface. As more information becomes available, we will be reporting on it as it happens, so stay tuned.