Server Lifecycle – Critical Cost Factor

In the last two years, several technology giants obtained a profit of $10 Billion Dollars thanks to the extension of the useful life of the equipment that is at the center of their operations and data centers, it is extremely interesting to analyze how this decision It is founded on the optimization of current resources and also an extremely accurate growth forecast.

In this article, we will discover the rest of the factors that can help us reduce costs without affecting our operational responsibility and uptime.

Current outlook:

Big tech companies, which last week reported strong quarterly growth in profits, have in recent years been reviewing how they account for the expected useful life of their technical equipment, while facing pressure to reduce costs and reallocate resources. towards artificial intelligence products.

This resulted in a $6 billion increase in revenue for Google and Microsoft alone last year. Other groups, such as Amazon, have further extended the estimated useful lives of their assets this month, which will mean more profits this year.

As part of their financial accounting, companies estimate how long assets will last to calculate how to depreciate them quickly, which impacts how much they charge against profits each year.

Extending the estimated useful lives of assets reduces depreciation charges, in this case adding approximately $10 billion to companies' collectively reported earnings.

If the estimates are correct and companies can get more use out of their servers, they would also reduce the amount they spend in the future, giving them more leeway on the huge expected capital expenditure on AI.

Advancement in the face of adversity:

At the same time, companies are anticipating supply chain problems due to shortages of semiconductors, the chips crucial for central processing units that power servers and computers. The companies have warned investors that they will make large investments in their technical infrastructure this year as they develop advanced generative AI systems.

Big tech companies are caught between investors who are increasingly focused on margins, profitability and returns on capital, and the need to invest aggressively in the cloud and AI, taking this scenario into account, it makes a lot of sense that for the giants technological organizations to carry out an exercise of recurring operating costs resulting in changes to the life cycles of various equipment that make up their operation centers.

In contrast, extending the life of servers was not a “top priority” a few years ago when cash flow and margins allowed critical equipment to be renewed (on average) every 4 years, now, companies are increasing capital spending while attempt to “protect against margin dilution” such accounting changes are likely to continue.

Particular cases:

The parent company of the world's most used search engine reduced depreciation costs by extending the useful lives of its servers and network equipment from four and five years respectively to six years, saving $3.9 billion in 2023 and increasing revenue net at $3 billion for the year, according to its accounts.

The tech giant and developer of the world's best-known Operating System similarly decided that its servers would last six years, not four, boosting its net income by $3 billion last year. It said last week that “advances in technology” and “increased efficiencies” in how its equipment operates allowed it to extend its estimated useful life.

The conglomerate of multiple social media and instant messaging platforms reduced depreciation expenses by $860 million in 2022, adding $693 million to net income that year. Its expenses increased in 2023, however, this week it warned that they would increase by a larger amount in 2024.

Earlier this year, the Marketplace, owner of multiple streaming services , said it had further extended the life of its servers, which it predicted would increase operating income by $3.1 billion in 2024, generating additional profits of $900 million. only in the first quarter.

Conclusion:

The bottom line is that companies can follow the example of extending the useful life of their technological equipment to reduce depreciation costs and maximize their income. This strategy allows for better use of current technology and frees up resources for critical investments in new infrastructure and advanced services, such as artificial intelligence and cloud computing. In this way, multiple companies can maintain their competitiveness and adaptability in a constantly evolving technological environment.

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Written by Aaron Rodriguez, xFusion LATAM