When costs run into billions of dollars, small tweaks can add up to big savings. This year, both Meta and Alphabet decided to extend the life of their servers. Meta increased their estimated useful life from four to five years. Alphabet from four years to six. With little more than a keystroke, both companies increased operating profit.
Companies are looking for ways to cut costs. Meta’s turnover fell by 1 percent last year. Alphabet reported the slowest rate of revenue growth since 2009. By changing the length of server usage, companies can extend the time over which they are billed. Meta reported a $860 million reduction in depreciation expense in its 2022 annual revenue. Alphabet says the change will reduce depreciation for the current fiscal year by approximately $3.4 billion.
It is not the first time that technology companies make such changes. In 2021, Alphabet increased its estimate from three to four years. Last year, Microsoft and Amazon both made the same move. Amazon has added an extra year to the life of servers used by its cloud company AWS. The company’s latest annual report pointed out that this change helped offset higher labor costs and rising operating profit. Microsoft has increased the depreciable useful life of its server and network equipment 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 advantages. But if equipment reliability can be increased and companies can add years to the use of their IT equipment without spending more on repairs, it can also help them avoid semiconductor supply chain problems and improve sustainability. Postponing purchases should also mean a more noticeable performance boost in new equipment.
Yet there is a turning point. There is no industry standard for server life. But in a 2017 IDC study, most participants expected to replace servers after five years. Big Tech may not be able to stretch server lifespan estimates much further.
