Oracle Firing Tens Of Thousands As CDS Explodes To Financial Crisis Record
Two months ago, when ORCL announced it would raise $50 billion in a combination of stock and bonds to ease market fears about its soaring funding costs and lack of actual revenues and "to build additional capacity to meet the contracted demand from the company’s largest cloud customers, including Advanced Micro Devices, Meta Platforms, Nvidia, OpenAI, TikTok and xAI" we said that this latest example of financial engineering, which perhaps most importantly was meant to push its soaring Credit Default Swap lower, was doomed to fail.
We didnt have long to wait: since the Feb 1 announcement, the stock has tumbled to fresh multi year lows...
... but the big risk is that despite the company's best equity-diluting intentions, ORCL 5 Year CDS just hit the widest on record, a level first (and only) seen during the global financial crisis.
This is a problem because despite Larry Ellison's best efforts to convince the market that Oracle has more than enough projected revenue - and a massive enough backlog - to grow into its bloated balance sheet, which is approaching $200 billion including off-balance sheet exposure, and refute such claims such as the following from Barclays which warned two months ago that the market "Underestimates the Infrastructure Build Out Necessary to Execute to Oracle's $512 billion RPO Balance"...
... and that the company will badly miss estimates, as it is forced to fund a much higher capex (some $275 billion) than consensus projects...
... the market simply is not buying it. Literally.
So what is Oracle to do? Well, it is literally going down the list of what Barclays proposed two months ago would be "next steps" as the cold hard reality slams Oracle's publicly traded securities, the first of which was...
- RIF of 20-30K employees which could drive ~$8-10B of incremental free cash flow,
And sure enough, this morning Oracle told employees that it’s conducting a major round of layoffs.
According to CNBC "the layoffs were in the thousands" although with the company employing some 162,000 people, to make an actual dent in free cash flow (which ORCL does not have), it will have to fire tens of thousands.
Layoff emails began landing in inboxes around 6:00 a.m. EST, informing recipients that their roles had been "eliminated" and that the day of notification would be their last working day — with no prior discussion or HR outreach.
"We are sharing some difficult news regarding your position. After careful consideration of Oracle's current business needs, we have made the decision to eliminate your role as part of a broader organizational change. As a result, today is your last working day. We are grateful for your dedication, hard work, and the impact you have made during your time with us," the email read.
Industry sources estimate that between 20,000 and 30,000 positions have been impacted, potentially affecting up to 18% of Oracle's global workforce of roughly 162,000.
Employees reported that the automated mass emails were their only notification, with system access revoked shortly thereafter and instructions to provide personal email addresses to receive severance paperwork.
With Oracle slashing overhead, it will use the funds to invest in CapEx instead. Here is CNBC "While continuing to push its flagship database for storing and serving up corporate information, Oracle has ratcheted up its capital expenditures as it builds data center infrastructure that can handle AI workloads."
Needless to say, this process has been anything but smooth for the most indebted tech giant, and the company many view as the first canary in the AI bubble coalmine.
While Oracle disclosed that its remaining performance obligations (basically backlog) jumped 359% to $455 billion following an agreement with OpenAI worth over $300 billion, the market refused to reward the company for the circular financing number, and weeks later, Oracle picked executives Mike Sicilia and Clay Magouyrk to replace its CEO, Safra Catz.
As for ORCL's employees, while tens of thousands are about to be fired, expect many more to leave the company if Barclays is right and the company's CapEx spending ends up being some $85 billion above the current consensus of $189 billion...
More in the full Barclays report available to pro subs.