How Tech Companies are Extending the Life of Their Servers
In recent years, big tech companies like Meta, Alphabet, Microsoft, and Amazon have extended the estimated useful life cycle of their servers. By doing so, they have been able to reduce costs, increase operating income, and improve sustainability. This move has clear profit benefits but has also allowed companies to avoid semiconductor supply chain problems and improve equipment reliability. However, a breakpoint is coming, and companies may not be able to stretch server life estimates any further.
Why Tech Companies are Extending the Life of Their Servers
Tech companies are always looking for ways to reduce costs. Extending the life of their servers is one way they have been able to do so. The cost of new servers can run into the billions of dollars, and small changes mean big savings.
For instance, Meta has increased the estimated useful life cycle of its servers from four to five years, while Alphabet has extended it from four to six years. Both moves have helped to increase operating income by reducing depreciation expenses. For instance, Meta reported a reduction in depreciation expense of $860 million in 2022 full-year earnings. Alphabet, on the other hand, says that its change will reduce depreciation by about $3.4 billion for the current fiscal year.
Other tech companies have also made similar moves. In 2021, Alphabet raised its estimate from three to four years. Last year, both Microsoft and Amazon made the same move. Amazon added an extra year to the lifespan of servers used by its AWS cloud business, while Microsoft increased the depreciable useful life of its server and networking equipment assets from four to six years. The company expects this move to add $3.7 billion to operating income in the current fiscal year.
How Extending Server Life Improves Sustainability
Extending the lifespan of servers also improves sustainability. By delaying purchases and using equipment longer, businesses can avoid contributing to waste and conserve resources. Furthermore, by extending server life, companies can reduce their reliance on the semiconductor supply chain. This is particularly important as the semiconductor industry has been hit hard by shortages in recent years, which have affected the production of everything from smartphones to cars.
Moreover, improving equipment reliability can also help companies reduce repair costs, saving them even more money in the long run. Delaying purchases should also mean a more noticeable performance improvement, even in new equipment.
However, there is a breakpoint coming. While there is no industry standard for server life, most respondents in a 2017 survey conducted by IDC expected to replace servers after five years. This means that tech companies may not be able to stretch server life estimates any further.
Additional Piece
The increasing demand for tech products and services has put a squeeze on the semiconductor industry, with shortages affecting the production of everything from cars to smartphones. As tech companies continue to extend the lifespan of their servers to avoid contributing to waste and conserve resources, they could further alleviate the stress on the semiconductor supply chain.
However, extending the lifespan of servers could also result in reduced performance and increased downtime. For instance, a five-year-old server is likely to be less efficient than a new one, which could lead to increased power usage and cooling costs. Additionally, the server is likely to require more maintenance and repairs as time goes by, leading to increased downtime. Over time, the cost of maintenance and repairs could outweigh the cost benefits of extending the lifespan of the server.
Therefore, tech companies need to find a balance between extending the lifespan of their servers and ensuring that their infrastructure remains efficient and reliable. This could involve investing in new technology or upgrading existing equipment to ensure that it is up to par with the company’s needs. Furthermore, tech companies could also make use of predictive maintenance tools to identify potential issues before they occur, reducing the risk of downtime.
In conclusion, extending the lifespan of servers has clear cost benefits and has allowed tech companies to improve sustainability. However, with a breakpoint looming, companies need to find a balance between extending server life and maintaining infrastructure efficiency and reliability. By doing so, they can reduce repair costs, avoid contributing to waste, conserve resources, and alleviate the stress on the semiconductor supply chain.
Summary
Tech companies like Meta, Alphabet, Microsoft, and Amazon have extended the estimated useful life cycle of their servers to reduce costs and increase operating income. This move has also allowed companies to avoid semiconductor supply chain problems and improve equipment reliability. By delaying purchases and using equipment longer, businesses can avoid contributing to waste and conserve resources. However, extending the lifespan of servers could result in reduced performance and increased downtime. Therefore, tech companies need to find a balance between extending server life and maintaining infrastructure efficiency and reliability.
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When costs run into the billions of dollars, small changes mean big savings. This year, both Meta and Alphabet have decided to extend the lifespan of their servers. Meta has increased the estimated useful life cycle from four to five years. Alphabet from four years to six. In little more than a keystroke, both companies increased operating income.
Companies are looking for ways to reduce costs. The meta’s revenue fell 1% last year. Alphabet has experienced the slowest pace of revenue growth since 2009. Changing how long servers are used allows companies to extend the time they’re spent on it. Meta reported a reduction in depreciation expense of $860 million in 2022 full-year earnings. Alphabet says the change will reduce depreciation by about $3.4 billion for the current fiscal year.
This isn’t the first time tech companies have made such changes. In 2021, Alphabet raised its estimate from three to four years. Last year, both Microsoft and Amazon made the same move. Amazon has added an extra year to the lifespan of servers used by its AWS cloud business. In the company’s latest annual earnings report, this change it pointed to as helping to offset higher personnel costs and increased operating income. Microsoft has increased the depreciable useful life of its server and networking equipment assets from four to six years. It expects this to add $3.7 billion to operating income in the current fiscal year.
Estimate changes have clear profit benefits. But if equipment reliability can be increased and businesses can add years to their IT equipment usage without spending more on repairs, it could also help them avoid semiconductor supply chain problems and improve sustainability. Delaying purchases should mean a more noticeable performance improvement even in new equipment.
However, a breakpoint is coming. There is no industry standard for server life. But in a 2017 survey conducted by IDC, most respondents expected to replace servers after five years. Big Tech may not be able to stretch server life estimates any further.
https://www.ft.com/content/e2a0b865-9681-4568-948f-049b874fe5e6
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