Microsoft's Data Center Belt-Tightening update from October 2008

Will a $300 million reduction in capital expenditures for Microsoft (MSFT) mean any changes change in either the scope or timetable of existing projects?

Rich Miller

October 30, 2008

3 Min Read
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For most companies, a $300 million reduction in data center capital expenditures would have an enormous impact. But what does it mean for Microsoft, which is cutting $300 million from a capex budget totaling $4 billion? The company is in the midst of a massive data center building boom to support its growing suite of online services. 

Will that spending reduction mean a change in either the scope or timetable of existing projects? It's a timely question, given the announcement by Google that it will push back the opening of its Oklahoma data center into 2010.  

With that in mind, Microsoft's Windows Azure announcement included an interesting reference to its data centers. "Over the past year, Microsoft has opened major datacenters in Quincy, Wash., and San Antonio, with additional centers scheduled to open in Chicago and Dublin, Ireland," the company said in Monday's press release.

What's missing from this sentence? It doesn't mention Microsoft's planned $500 million data center project in West Des Moines, Iowa, which was announced with fanfare by Iowa Gov. Chet Culver in August.

Was the non-mention of the West Des Moines project just an oversight? We contacted Microsoft to ask whether there had been any changes in the company's plans. "We are still in the process of completing the design of the Iowa data center," said a Microsoft spokesperson. "Once the design process is finalized, we will announce next steps for construction and beginning operations at the facility." Beyond that, Microsoft won't offer any details on when the West Des Moines data center might be completed. 

To be fair, the timeline for the Iowa project has always been vague. At the time it was announced, Microsoft said its data center construction process typically takes 12 to 18 months, but that it was developing design innovations for the Iowa project that would mean a longer design phase, perhaps five to eight months.       

Microsoft's Mike Manos said the West Des Moines facility will be "significantly different than anything that has come before.” Rather than standardizing on a single  approach, Microsoft has introduced design refinements in each of its major data centers. Manos compares them to battleships and aircraft carriers, in which the “Quincy class” facility is surpassed by the innovations in the “Chicago class” and “Dublin class” centers.

When will the "West Des Moines Class" emerge? Microsoft just opened its new San Antonio facility, and has begun testing as its massive new Chicago data center. Like Google, it has plenty of new data center capacity coming online, and isn't likely to run out of server space anytime soon.  

But in an era when states compete energetically for major data centers, project timetables matter to the local community. To gain the Microsoft project, the Iowa legislature passed an incentive package offering a six-year exemption of state sales and use taxes on purchases of computers, equipment and electricity. The payoff: the West Des Moines data center is expected to create 50 to 75 jobs paying $70,000 a year. In the current economic climate, Iowans would probably like to see those jobs arrive sooner rather than later.

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