Why is server life increasing?

[Snowman48]

First time poster, so please take it easy on me.

I've seen that Microsoft, Google, and Amazon (but not yet Apple or Facebook) have all increased the expected lives of server and networking equipment from an accounting perspective, adding a year to two to their expected lives. What do you think has caused this change? I don't believe that it is because the metal boxes are suddenly lasting longer, so could it have something to do with server chip performance limits and a reflection of their future purchasing habits? Or maybe it is just as simple as they were aggressive in over-depreciating equipment and now have been told they can't.

Appreciate your insights!

 

[Tanj]

I believe it is a side effect of the stall at Intel, where we have gone through 5 years with very modest advances in server cores. If the change from Broadwell to Cascade Lake have been, for average customers, relatively slight then they feel no compulsion to upgrade their VMs and so the clouds see relatively little reason to obsolete the older machines.

As TSMC process comes to dominate CPUs and we resume a more healthy process progression, which Intel will keep up with one way or another, this may revert over time. Not just due to improvements in speed of a core, but due to packing density and lower power operation of cores which will increase the incentives to clear out older, less efficient and more bulky servers to make room for higher density servers which can do a lot more work for the same unit of energy (even as density may mean higher power per server).

THe accounting procedures ultimately simply track the value of the product to customers, and as we get past the process stall the accounting will adjust again.

 

[hist78]

First time poster, so please take it easy on me.

I've seen that Microsoft, Google, and Amazon (but not yet Apple or Facebook) have all increased the expected lives of server and networking equipment from an accounting perspective, adding a year to two to their expected lives. What do you think has caused this change? I don't believe that it is because the metal boxes are suddenly lasting longer, so could it have something to do with server chip performance limits and a reflection of their future purchasing habits? Or maybe it is just as simple as they were aggressive in over-depreciating equipment and now have been told they can't.

Appreciate your insights!

Do you have a source link for this development? Thank you.

 

[Snowman48]

Do you have a source link for this development? Thank you.

Microsoft 10-Q for the period ended 12/31/2020:
In July 2020, we completed an assessment of the useful lives of our server and network equipment and determined we should increase the estimated useful life of server equipment from three years to four years and increase the estimated useful life of network equipment from two years to four years. This change in accounting estimate was effective beginning fiscal year 2021. Based on the carrying amount of server and network equipment included in property and equipment, net as of June 30, 2020, the effect of this change in estimate for the three months ended December 31, 2020, was an increase in operating income of $787 million and net income of $649 million, or $0.09 per both basic and diluted share. The effect of this change for the six months ended December 31, 2020, was an increase in operating income of $1.7 billion and net income of $1.4 billion, or $0.19 per both basic and diluted share.

Alphabet (Google) 10-K for the period ended 12/31/2020:
In January 2021, we completed an assessment of the useful lives of our servers and network equipment and determined we should adjust the estimated useful life of our servers from three years to four years and the estimated useful life of certain network equipment from three years to five years. This change in accounting estimate will be effective beginning fiscal year 2021. For assets that are in-service as of December 31, 2020, we expect operating results to be favorably impacted by approximately $2.1 billion for the full fiscal year 2021. The effect of the change may be different due to our capital investments during the fiscal year 2021.

Amazon 10-K for the period ended 12/31/2020:
We review the useful lives of equipment on an ongoing basis, and effective January 1, 2020 we changed our estimate of the useful life for our servers from three years to four years. The longer useful life is due to continuous improvements in our hardware, software, and data center designs. The effect of this change in estimate for the year ended December 31, 2020, based on servers that were included in “Property and equipment, net” as of December 31, 2019 and those acquired during the year ended December 31, 2020, was a reduction in depreciation and amortization expense of $2.7 billion and an increase in net income of $2.0 billion, or $4.06 per basic share and $3.98 per diluted share.