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Amazon Says It's Spending Less On IT

Part of the savings is attributed to the use of cheaper Linux systems.
Amazon.com Inc. is spending less on IT this year after an aggressive period of computer-systems upgrades, and the company says part of the savings comes from shifting more of its software to run on Linux.

In a filing Tuesday with the Securities and Exchange Commission, Amazon (AMZN-Nasdaq) said it spent $54 million on IT systems, content development, and technology consulting during the quarter ended Sept. 30, compared with $71 million during the third quarter of last year, a decline of nearly 24%. Put another way, Amazon spent 8% of net sales on what it calls "technology and content" during the most recent quarter, compared with 11% of sales one year ago.

"The decline in absolute dollars spent ... primarily reflects our migration to a Linux-based technology platform," Amazon said in the filing. The decrease in IT spending also resulted from lower prices for telecommunications services, the online retailer said.

A May 2000 deal with Hewlett-Packard to supply Amazon with servers, storage, and IT services is helping the retailer move its infrastructure to Linux, Amazon said this week. The open-source Linux operating system and associated open-source application software such as Web servers are generally available at very low prices. Linux and open-source apps also run on relatively inexpensive Intel hardware. During the past 18 months, Amazon has been replacing RISC servers from Sun Microsystems and Compaq with HP machines.

In June, Amazon CIO Rick Dalzell was quoted as saying that the company's cost of serving Web pages is falling faster than demand for those page views is rising. That trend could bode well for Amazon, which hosts E-commerce sites for companies such as Toys R Us.

Still, Amazon's decreased IT spending contrasts sharply with last year, when the company increased technology spending as it undertook projects with vendors such as Oracle, HP, Manugistics, and E.piphany. An Amazon spokesman said Wednesday that the IT spending reduction is a cost-savings that is primarily attributable to the HP contract , and the company expects continued investment in IT, including new product categories and business alliances.

In the SEC filing, Amazon portrayed its reduction in IT spending as part of a broader cost-cutting program it's undertaken since the beginning of the year. Since the first quarter, Amazon has taken restructuring charges totaling $177 million to cover the elimination of 1,300 jobs, the closure of three customer-service centers, and migration of its IT platforms to Linux. Amazon said the charges included lease commitments on computers it's no longer using.

Amazon reported a net loss of $169.9 million on sales of $639.3 million during the quarter ended Sept. 30. Shares of Amazon closed down 63 cents Tuesday at $6.42.