Pakistan News

Tech giants take a break to reload in spending war

Tech giants take a break to reload in spending war

SAN FRANCISCO: We’re in an unusual period of détente in technology giants’ spending wars. Just don’t expect the calm to last.

Google, Microsoft, Amazon — three of the world’s biggest operators of Internet technologies — collectively ring up more than $20 billion each year on capital expenditures, including costs for building data centres and buying computer equipment to keep their global Web services running. After a couple of years of rapid increases in those capital expenditures, the bills are looking less striking.

Collectively, capital spending by the three tech giants has risen just 2.4 per cent in recent quarters, according to an analysis of the companies’ financial disclosures. That followed a collective jump of 42pc and 89pc, respectively, during the previous two fiscal years. At Amazon, capital expenditures actually fell, by 12pc, in the first nine months of this year compared with spending in the period a year earlier.

The companies don’t typically disclose the components of their capital expenditures, but each of the Big Three has ramped up spending to support their own Web and mobile services and to build out operations to rent computing horsepower to other companies. While Amazon’s spending also includes the mega warehouses for its e-commerce business, the company has singled out its growing Amazon Web Services cloud-computing operation as a chief reason for the spending jump in recent years.

Capital expenditures have become a big component in the tech companies’ jockeying for digital superiority. Even a fraction of a second delay in pushing out an ad on mobile phones, or in running a holiday retail sales forecast, is potentially lost business for the Web giants. That makes investments in computing networks an important area to watch.

Capital spending at Google (oops, Alphabet) is particularly interesting because expenses there have gotten a closer look since former Morgan Stanley executive Ruth Porat came on board as chief financial officer. Some analysts criticized the company last year for building sprawling computer server centres before Google actually had use for them.

And now look: The company’s cash capital expenditures rose just 5.5pc in the first nine months of 2015. In 2014, they climbed 49pc compared with those the year before.

On their recent earnings calls, executives at each of the companies sent a message that the “muted” spending levels, in Porat’s words about Google, won’t necessarily become a pattern. Even as she is looking askance at all those cans of Red Bull in Google’s employee kitchens, Porat last week told analysts that in 2016, “we do see accelerated investment given the nature of the businesses that we’re building.”

Amazon and Microsoft executives likewise didn’t commit to keeping a lid on capital spending. “Growth rates and margins and capital expenditure timing can be bumpy,” Amazon’s head of investor relations said on the company’s earnings call last week. Microsoft’s financial chief said the company expected to “accelerate” spending on data centres and capital equipment for its cloud-computing business during the rest of its fiscal year ending next June.

The reasons for the recent spending slowdown, then, are a bit unclear. Are the tech giants getting more efficient at how they spend money on capital costs, or have they tapped the brakes after what has been a phase of rapid data centre expansion?

Regardless, the cloud isn’t going anywhere, and neither are mobile phones or cat videos for that matter. Those giant server farms don’t build themselves. An upturn in capital spending is inevitable.

By arrangement with Bloomberg

Published in Dawn, November 1st, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play

Similar News
Recent News
Back to top