Oracle Layoffs Don't Alarm Some Industry Analysts

 
 
By Brian Prince  |  Posted 2009-01-14 Email Print this article Print
 
 
 
 
 
 
 

Oracle won't comment officially on news reports that it laid off several hundred employees. However, tech analysts say the layoffs are not necessarily reflective of any serious sales or financial problems at the giant database and enterprise application software company. Instead it looks like Oracle is making modest and prudent cuts to reflect slowing business demand, some analysts say.

Several tech industry analysts said they were not alarmed by the recent round of layoffs at Oracle.

While Oracle has declined to comment publicly on the layoffs, it was reported by Reuters that the software giant fired several hundred members of its 86,000-person strong work force. The Wall Street Journal put the number of fired employees at 500.

The employees were in the sales and consulting part of the business in North America, according to reports. Given the size of Oracle's staff, the amount of layoffs is relatively small, analysts noted.

"The number of layoffs in this round is so small that I'm not sure that it's a statement about Oracle's business," said Jasmine Noel, an analyst with Ptak, Noel & Associates. "I think it's mostly reacting to a slowdown in client demands-both real and expected-for consulting projects."

To David M. Hilal, an analyst with Friedman, Billings, Ramsey & Co., the cuts are in keeping with what is happening throughout the tech industry.

"In isolation, and in a better environment, layoffs are certainly indicative of a company's slowing business," Hilal said. "However, in this environment we have seen practically every company in the sector start to downsize to one degree or another. Business is clearly slowing, and companies are trying to preserve margins and earnings. In software companies, most of your costs are in bodies, so the easiest way to control cost is to unfortunately let bodies go."

There certainly has been no shortage of cuts in the tech industry. Seagate Technology, for example, disclosed Jan. 14 that its restructuring plans would slash nearly 3,000 jobs globally.

As for Oracle, Mark Murphy, senior research analyst at Piper Jaffray & Co., said the company is going back to the playbook it used during the dot-com bubble between 2000 and 2003.

"Amazing, Oracle grew its operating margins from 30 percent to 36 percent during that period of economic difficulties," Murphy said. "This was achieved while many large tech firms sank into a loss position."

Oracle has excelled at anticipating trend changes in customer demand, he added, noting that the company's operating margin expansion has accelerated in its last two quarters.

"I believe this is a completely appropriate and rational response to the multitude of mounting signs suggesting a deteriorating global economy," he said. "It would be a mistake to ignore the warning signs on the horizon."

 
 
 
 
 
 
 
 
 
 
 

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