Microsoft Will Cut Data Center Spending

Microsoft (MSFT) will reduce its investment in its data center expansion, the company said yesterday, citing the economic slowdown and the need to cut expenses. In yesterday's earnings call, Microsoft CFO Chris Liddell said the company will reduce its projected capital expenditures for 2008 by $300 million, all of which will come from planned data center spending.  

Liddell said Microsoft is now focused on internal operational efficiency and expense management. "In the near term, we're reassessing our business plan and pulling back spending in lower priority areas," he said.

Microsoft is nearing completion on the first phase of its $500 million data center in Northlake, Illinois, and has announced plans for similar $500 million projects in Dublin, Ireland and West Des Moines, Iowa. The company has already opened huge new data centers in Quincy, Washington and San Antonio. We've contacted Microsoft with specific questions about the impact of its capital expenditure cuts, and will update if we get more information. 

Liddell said Microsoft's capital investments will be trimmed from $4 billion to $3.7 billion for the year. "On the CapEx side I would expect us to spend upwards of $300 million less than what we were anticipating, so we were talking about ($4 billion) before and probably a better number at this stage," he said. "That will all be in the data centers side. We will probably also slow our growth in some of the facilities just by virtue of not having as many people as were expected as well. But that's likely to be more of an FY '10 phenomenon."

The company will also reduce operating expenses by about $500 million, "If macroeconomic conditions worsen then we will endeavor to reduce our operating expenses accordingly," Liddell said.

 Microsoft has been building huge data centers to support the growth of its Live online services, which are the drivers behind its shift to a "software plus services" model to integrate its existing base of desktop software users into the cloud computing.