The mega-datacenter battle: Internet giants continue to increase capex

Some truly staggering numbers here.....

451 Research Mega-datacenter battle

Four of the largest-scale Internet firms – Apple, Google, Microsoft and Amazon – continue to invest heavily in building out datacenters globally, with capital spending at the four companies over the past 10 quarters totaling more than $69bn, according to publicly filed earnings releases. In Q3 2015, capex at the four companies increased 13.1% sequentially and 31.1% over the same quarter two years ago. The pace of capex at large-scale Internet firms in general has been increasing over the past several years.

The 451 Take

We are not surprised that the capex for large-scale Internet companies has increased at a rapid pace over the past few years. The largest-scale Internet firms continue to build out very large datacenters that exploit economies of scale, but are still very costly – in some cases costing more than $1bn each. Many of the datacenter expansions by these companies continue to be on existing campuses, which have basic infrastructure and staffing already in place. While the amount spent on capex may fluctuate from quarter to quarter for these companies due to the timing of major expenses, we continue to expect that, in general, a high level of capex is likely to continue over the next few years for these companies as they continue to build out datacenter capacity.

Context

Unfortunately, none of these four large firms break out capex just for datacenters. The capex disclosures at these firms include a wide range of properties, such as retail stores, storage facilities, manufacturing and distribution facilities, and office space. However, some of the largest expenditures by these firms in recent years have been for building out large datacenters globally. For example, Amazon has disclosed that the majority of its capex is to support both its AWS business (with datacenters) and fulfillment business (warehouses supporting product sales). The following table illustrates capex by the four hyperscale Internet operators over the past 10 quarters up to Q3 2015, based on data provided in company reports:

Capex per calendar quarter ($M) 

Source: Company reports

Over the past 10 quarters, both Apple and Google have allocated nearly the same amount to capex. Microsoft spent about 42% less than Apple and Google over the same time period, and Amazon spent about 56% less.

Apple's datacenter footprint

Most of Apple's existing datacenter footprint is located in the US. Apple's Maiden, North Carolina campus currently has two buildings (500,000 square feet and 21,000 square feet), and supports the iCloud service and additional Apple online services. 

In 2014 the company announced that it was adding four more facilities, totaling 103,000 square feet, to its Reno, Nevada complex, as well as a 137-acre solar array. Additionally, Apple has datacenters in Prineville, Oregon, and in both Cupertino and Newark, California. In 2015 Apple filed paperwork to expand its datacenter campus in Prineville with two additional pods that measure more than 35,000 square feet each.

Apple is also in the process of building three large datacenters. The company is investing $2bn to build a new datacenter in Mesa, Arizona, a suburb of Phoenix. The new datacenter will be located in a former 1.3-million-square-foot manufacturing plant intended to produce sapphire screens. The company is also investing €1.7bn ($1.9bn) to build two datacenters in Europe, located in Athenry, Ireland, and Viborg, Denmark. The two facilities (opening in 2017) will be used to support Apple's online services, including the iTunes Store, App Store, iMessage, Maps and Siri for Apple's customers in Europe. 

The company also leases some datacenter space from multi-tenant datacenter (MTDC) providers, but the bulk of the company's datacenter footprint is in company-owned facilities. With Apple building several large internal datacenters, the company may be exiting some of its leased MTDCs in the coming years, as Google has done.

Google's datacenter footprint

Google has datacenters located in Berkeley County, South Carolina; Council Bluffs, Iowa; Douglas County, Georgia; Mayes County, Oklahoma; Lenoir, North Carolina; The Dalles, Oregon; Quilicura, Chile; Changhua County, Taiwan; Singapore; Hamina, Finland; St. Ghislain, Belgium; Dublin; and Eemshaven, Netherlands. The company has also historically leased space from MTDC providers, but has been vacating some of this space over the past few years as it builds out internal datacenters.

Google has been building out datacenter capacity at a rapid pace globally. Some of the company's most recent projects have included a €600m ($710m) new datacenter in Eemshaven in northern Netherlands; a $600m expansion at its campus in Berkeley County, South Carolina; and another $600m expansion at its datacenter facilities in Lenoir, North Carolina. Google also invested $150m to build its first datacenter in Latin America, located in Quilicura, near Santiago, which became fully operational in January.

In January 2015, Google received approval to invest $66m to expand the company's datacenter in Taiwan. In March 2015, Google confirmed that it is investing an additional $1bn in its Council Bluffs, Iowa datacenter campus, which is on top of about $1.5bn the company has already invested. It is also spending about $380m to build its second datacenter in Singapore, and more than $300m to build its second datacenter in Douglas County, Georgia (a suburb of Atlanta). The company is adding a new $600m datacenter in Alabama on the site of a power plant that is closing, with construction to start this year. Google is also investing $600m to transform a former semiconductor site in Clarksville, Tennessee, into a datacenter.

Microsoft's datacenter footprint

Microsoft continues to build out datacenter capacity globally to support growth into cloud computing with Office 365 and Azure, as well as to support the Xbox Live gaming service, the company's Bing search service and Skype. Microsoft's datacenter footprint consists of more than 100 datacenters globally. Some of these are large internal facilities, but many are located in space leased from MTDC providers. Microsoft datacenters are located in many locations, including Amsterdam; Australia; Boydton, Virginia; Brazil; Cheyenne, Wyoming; China; Chicago; Des Moines, Iowa; Dublin; Hong Kong; Japan; Quincy, Washington; and San Antonio, Texas. 

Microsoft has been building out datacenter capacity, with several datacenter expansions under way over the past few years. The company purchased 200 acres of land in late 2013 for a new datacenter in Quincy, Washington, its second in the area (the first was built on 75 acres). In late 2013, Microsoft started work on a new $250m datacenter in Finland. In early 2014, the company started building a second datacenter in San Antonio, Texas. In late 2014, Microsoft disclosed that it was spending about $23m to set up three cloud datacenters in India located in Mumbai and Pune in the west, and Chennai in the southeast, which opened in 2015. Microsoft is also building its first two datacenters in Canada to strengthen the company's ability to deliver its Azure cloud platform in Canada.

Amazon's datacenter footprint

Amazon doesn't share how much it spends on datacenters, and is fairly secretive about its datacenter footprint, but we believe it to have spent more than $12bn since 2005. In 2014 Amazon reported $4.89bn in capital expenditures, a figure that was up 42% from $3.44bn in 2013. 

Amazon builds its own specialized computers, data-storage systems, networking systems, optical fiber systems and even power substations (with capacities in excess of 50MW). Amazon currently has datacenters in 11 regions supporting its Amazon Web Services, including four regions in the US, as well as Brazil, Ireland, Frankfurt, Singapore, Japan, Australia and China. Amazon is adding datacenters in India to support a new AWS region by 2016.