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Google, Amazon and Microsoft’s Costly Spending War
* Fiscal year ends June 30. Amazon figure for 2012 excludes approx. $1.4 billion for cost to purchase headquarters.
Being a tech giant ain’t cheap.Recent quarterly reports from GoogleGOOGL -0.02%, Amazon and MicrosoftMSFT +2.41% offered a glimpse of the expense of maintaining globe-spanning networks and big computing farms that can be rented to other companies.
In the first three months of the year, the three companies reported a cumulative $4.6 billion in capital expenditures, such as real estate or computer servers, about 65% more than a year earlier. By comparison, the companies’ collective revenue grew 12%.
The companies’ priorities vary. Amazon devotes big chunks of capex to its fulfillment centers – think warehouses. Google buys Internet pipes to link together its services. But each of the three companies has been highlighting growing capex needed to keep its network up to snuff as consumers and businesses demand more digital horsepower.
For a glimpse at costly wars among Google, Amazon and Microsoft, we dug into companies’ most recent financial disclosures.
Google: Google was the biggest spender and fastest growing in the first quarter. Capital expenditures nearly doubled to $2.3 billion.
Google said the majority of the jump related to building data centers, including acquiring the property. For all of 2013, Google’s capital spending rose even faster: more than doubling to $7.4 billion from $3.3 billion in 2012.
“Google’s remarkable capex increase over the last year has raised concerns among investors,” Bernstein Research analyst Carlos Kirjner wrote in a recent note. Kirjner speculated that Google may be building data centers even before the company needs them.
That view essentially was confirmed by Google’s Chief Financial Officer, Patrick Pichette, on the company’s April 16 conference call. “In the case of data center construction, we have found that the option value of having more capacity on standby and available to us to grow versus not having it is actually a real strategic issue for the company,” Pichette said.
Amazon: Capital expenditures were $1.1 billion in the first quarter, about 61% higher than the year-earlier quarter. In its quarterly financial statement, Amazon said the increase stemmed largely from “investments in technology infrastructure, including AWS, and additional capacity to support our fulfillment operations.” AWS, or Amazon Web Services, is the company’s popular pay-as-you-go computing service.
The web-services operation has been gaining more prominence in Amazon’s explanations of its capital spending. In its annual report for 2013, Amazon listed the “fulfillment operations” first, and “technology infrastructure” second. For the first quarter, technology came first.
Microsoft: Growth in capital expenditures in the March quarter slowed to 28%, to $1.2 billion. For the nine months ended in March, the first three quarters of Microsoft’s fiscal year, capital expenditures climbed 69%, to about $4.2 billion.
Still, Microsoft reiterated that it expects “capital expenditures to increase in coming years in support of our cloud and devices strategy.” Microsoft has been spending money to build additional data centers for Microsoft Azure, its rival to Amazon Web Services.
In the company’s fiscal year ended June 30, 2013, capital spending rose 85% from the prior year after falling a touch from fiscal 2011 to fiscal 2012.
A Microsoft spokesman referred to recent comments from CEO Satya Nadella, who last week said Microsoft is spending to meet demand from business customers moving more of their software online.
One to Watch: Facebook isn’t in the same capex league as the others, but it is emerging as a big spender. The company has said it expects $2 billion to $2.5 billion in capex this year, or 47% to 84% higher than 2013 levels. Like the others, Facebook saFB -2.72%ys its capital spending is largely for computer servers, computing network infrastructure and data centers.
A Facebook spokesman declined to comment.
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