Oracle is currently facing a considerable challenge with its capacity to meet the soaring demand for AI and cloud services. During a recent earnings call, executives admitted to having demand far exceeding their current capacity, signaling both a problem and an opportunity. Chairman Larry Ellison revealed that Oracle recently received an unprecedented order requesting all available capacity across their global operations.
CEO Safra Katz confirmed that the company is struggling to keep up with customer demands, indicating they are often forced to postpone orders. This scenario marks a unique moment in Oracle’s history, as they manage significant delivery delays due to a mismatch between their build-out strategy and the surge in demand, likely driven by the push for AI capabilities.
Analysts suggest that Oracle’s conservative approach to infrastructure development may have put them at a disadvantage compared to other hyperscalers who aggressively expanded their capacities well before demand surged. Scott Bickley from Info-Tech Research Group noted that while Oracle’s strategy may have stemmed from fiscal responsibility amid the debt from the Cerner acquisition, it’s resulting in significant delays for customers relying on Oracle’s AI workloads.
IDC President Crawford Del Prete commented that Oracle’s current capacity issues are reflective of their cautious engineering decisions, which, although aimed at avoiding idle capacity, have left them in a predicament today. He praised Oracle’s approach but indicated that the nature of their manufacturing process, involving custom components, may contribute to the unique shortfall they face—distinguishing them from competitors like AWS, Microsoft, and Google, who appear to have more resilient capacity management.
Katz clarified that Oracle’s capital expenditures are focused on revenue-generating equipment rather than idle infrastructure, stating their philosophy of only expanding capacity in response to confirmed orders. To address current capacity issues, Oracle has begun purchasing buildings and accelerating investment in infrastructure to fulfill customer demands.
Despite their ongoing challenges, Oracle is seeking to keep customers engaged through innovative solutions and flexible agreements. However, continued delays could result in enterprises seeking alternatives, prompting concerns that this situation might drive them towards competitors’ services. Del Prete highlighted the importance for Oracle to find ways to maintain customer interest and satisfaction amid these capacity constraints.
