Google's Data Center Spending Soars

Google's data center spending soared in the third quarter of 2010, as the company reported capital expenditures of $757 million, the second-highest quarterly total in the company's history. The only precedent for these spending levels is the first quarter of 2008, when Google (GOOG) was building three major data center projects in the U.S.

Google throttled back its capital spending after the economic meltdown gripped Wall Street in the third quarter of 2008. In 2009 the company's quarterly CapEx spending ranged between $139 million and $263 per quarter. Google's data center investment began to rise in the second quarter, when it spend $476 million on infrastructure.

The change in course can be clearly seen in this chart of Google's historic capital expenditures:

google-capex-3q2010

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A capital expenditure is an investment in a long-term asset, typically physical assets such as buildings or machinery. Google says the majority of its capital investments are for IT infrastructure, including data centers, servers, and networking equipment. The company's CapEx spending has closely tracked its data center construction projects, each of which requires between $200 million and $600 million in investment.

The company said it made some investments in infrastructure in the third quarter to prepare for the launch of Google Instant, the company's new search mode that generates 5 to 7 times more results pages for most searches. "We did increase our back-end capacity, but we also pursued a variety of strategies to efficiently address the incredible demand from Google Instant," Google's Ben Gomes wrote in a blog post about the back-end preparation for the Instant launch.

Google has not announced any new data center builds in the U.S. since June 2007, and has confirmed just one international project in Hamina, Finland. The surge in infrastructure investment over the past two quarters could mean that Google has commenced work on unannounced data center construction projects.

Google has often sought to maintain secrecy about its data center development, but that approach has become harder to maintain as the company has taken advantage of tax incentives to reduce operational costs in recent builds. These economic development incentives typically require approvals from local and state officials, widening the circle of awareness of the projects, which often are given code names.

Expanding Existing Sites?
Another possibility is that Google has begun to ramp up construction on additional phases of existing data center campuses. The company's recent projects typically include plans for two and sometimes three data center structures in a single location.

Google's recent CapEx "breather" has been enabled by the company's building boom in 2007-08, during which it announced major data center construction projects in Lenoir, North Carolina; Goose Creek, South Carolina; Pryor, Oklahoma and Council Bluffs, Iowa. In late 2008, Google announced that it would delay construction of the Oklahoma project.