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1/26/2009
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Microsoft's Data Center Delay A Sign Of The Times

The work stoppage in Des Moines, Iowa, comes shortly after Microsoft announced plans last week to lay off 5,000 employees as part of a $1.5 billion spending cut.

In an economy so uncertain that the company can't even provide investors with revenue guidance for the rest of the fiscal year, Microsoft is in the hunt for all sorts of ways to contain costs.

In addition to the job cuts announced last week, the company's scaling back on another huge expense: data center buildouts. On Friday, Microsoft announced it would delay indefinitely a $550 million data center in Des Moines, Iowa.

"Given the current economic climate, we're going to do the right thing for our business and shareholders and revisit our plans on a quarter-by-quarter basis," Arne Josefsberg, general manager of infrastructure services, and Michael Manos, general manager of data centers, wrote in a blog post last Friday. The delay comes shortly after Microsoft announced plans last week to lay off 5,000 employees, part of a $1.5 billion spending cut.

Microsoft had been on a recent tear building expensive new data centers. A new data center opened last year in San Antonio, while others in Dublin and Chicago are nearing completion. "We see this as a time of change and a paradigm shift for the company, and the cloud is the infrastructure," Microsoft global foundation services VP Deborah Chrapaty, who oversees the company's data centers, said in an interview last year when asked about the pace with which new data centers were coming online at the time. "I hope people are thinking, wow, they're making these investments and they're going to continue to make these investments."

With so much capital on the table, however -- the data center in San Antonio alone cost about $550 million -- Microsoft's online services division has been losing money hand over fist as Microsoft's online properties such as search continue to struggle. In the second fiscal quarter 2009, announced last week, Microsoft's online services lost $471 million, a 91% decrease in profit from the same period a year ago. However, revenue for the division barely budged.

Microsoft had only announced the Des Moines data center build in August, but those who looked for indications that the project was destined for delays would have found them. In October, Microsoft said it would be decreasing its data center spending by $300 million. Later that month, the press release accompanying the unveiling of Microsoft's Windows Azure cloud computing platform mentioned "additional centers scheduled to open in Chicago and Dublin" but not the one scheduled to open in Iowa.

The project is a blow for Des Moines, where local authorities had pledged almost $20 million in tax credits for the data center build and for related building projects such as roads. Construction of the facility likely would have employed hundreds, though only about 75 employees would work in the data center once completed. Through a spokesman, Iowa Gov. Chet Culver expressed disappointment with the news of Microsoft's delay, but said he remained hopeful Microsoft would pick up where it left off "soon."

Though new data centers continue to sprout up with the emergence of cloud computing and moves toward virtualization and energy efficiency, Microsoft isn't the only company that's had to make some tough decisions. In October, Google announced it would be delaying a $600 million data center in Pryor, Okla.

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