Google spent $1.9 billion on capital expenditures in 2006, primarily for data centers and related equipment, company executives told securities analysts during yesterday’s conference call to discuss the company’s fourth-quarter earnings. Here’s the relevant excerpt, from CFO George Reyes:
Turning to a favorite topic of ours, capital expenditures for the quarter totaled $367 million, bringing total capital expenditures for 2006 to $1.9 billion. The majority of our CapEx is related to IT infrastructure investments, including data centers, servers and networking equipment. Our leadership in search and ads is a direct result of our relentless focus on building the most robust platforms for our users. As we scale, our business increasingly requires substantial computational power. In 2007, we expect to make significant capital expenditure investments.
The fourth quarter capex number prompted some interesting analysis by Henry Blodget at Internet Outsider:
The peak quarters for CAPEX appear to be behind us. CAPEX for the quarter was $367 million, down from $492 million in Q3 and $699 million in Q2. The company’s statement about future CAPEX, moreover, is that it will continue to be “significant” – a noteworthy change from mid-last year, when it said CAPEX would continue to grow “faster than revenue.”
Is Google really on the downslope on data center capex? The company’s recent announcement of a $600 million North Carolina project and reports that Google will spend hundreds of millions more on South Carolina sites makes me think Blodget’s assumption is a little premature.
One thing is certain: as we’ve noted here numerous times, Google believes this is money well spent. “It is important to point out that the strategy of aggressively investing in our infrastructure has paid off handsomely and remains critical to our success, and we intend to follow this strategy for the foreseeable future,” said Reyes.
CEO Eric Schmidt echoed that sentiment: “On the CapEx side, as long as we have a healthy, vibrant, growing business like we have today, we have no choice but to continue to invest in CapEx because it just regenerates more competitive advantage for us,” said Schmidt.