Oracle's Expensive Data Centre Buildout
Oracle is spending more on building data centres than it earns in a quarter. The company revealed this week that it has $664 billion worth of uncompleted work, a significant increase from last year’s figure of $455 billion.
The Financial Breakdown
- Revenue for the latest quarter: $19.3 billion, up 30 percent year-on-year.
- Profit per share: Beat analyst expectations.
- Construction and equipment spending: $28 billion in a single quarter.
- Cash generated in three months: $23 billion, but after paying for construction, there was a shortfall of $5 billion.
The Strategy Behind the Spending
Oracle is deliberately ramping up its capital expenditures because existing contracts require it to maintain capacity. This is particularly evident in its cloud infrastructure business, where they rent out computing power by the hour. Revenue from this sector surged to $7.4 billion in the latest quarter, more than doubling year-on-year.
The Growing Backlog
The $664 billion figure represents the total value of uncompleted work. Importantly, the rate at which this backlog is growing has slowed significantly compared to last year when several major deals were signed with companies like OpenAI, xAI, Meta, Nvidia, and AMD. Over the past three months, the backlog grew by $26 billion, a considerable drop from the $138 billion growth in the same quarter last year.
Covering the Costs
To finance its massive capital projects, Oracle sold $20 billion of new shares on the open market during the quarter. They also sought support from bond investor PIMCO for a $16.3 billion financing after American banks withdrew. As a result, Oracle has cut its workforce by approximately 13 percent while managing these significant financial shifts.
Hilary Maxson, the newly appointed finance chief, faces the challenge of balancing the company’s balance sheet. Clay Magouyrk and Mike Sicilia have been joint CEOs since September last year, with Safra Catz moving into the role of Executive Vice Chair.