Server Life Extension adds $900 million to Amazon’s Net Income

Amazon.com has concluded a “useful life study” on its servers, determining that they can be effectively utilized for an additional year, extending their working life from five to six years. The company anticipates that this adjustment will result in a $900 million contribution to net income in the first quarter of 2024.

Starting from January 1, Amazon implemented the extension of server lifespan to six years, building upon the 2022 decision to prolong it to five years. This update was revealed during Amazon’s Q4 FY 2023 earnings call, where the company reported a total revenue of $170 billion, marking a fourteen percent increase from the previous year’s Q4. Amazon Web Services (AWS) contributed $24.2 billion, growing by 13 percent year-over-year, and concluded the year with a revenue of $90.8 billion, representing another thirteen percent rise. Amazon CEO Andy Jassy expressed enthusiasm about approaching an annualized revenue run rate of $100 billion.

In comparison, Dell reported a revenue of $102 billion for its most recent full year. Although Amazon Web Services (AWS) operates in the business-to-business sector exclusively, it outpaces Dell, which also caters to consumers. AWS’s annual revenue of $90.8 billion surpasses the combined revenue of B2B peers Hewlett Packard Enterprise (HPE) at $29.1 billion and Cisco at $57 billion. Notably, Microsoft’s enterprise business is even larger. Amazon CEO Andy Jassy anticipates that artificial intelligence (AI) will generate “tens of billions of dollars of revenue” in the coming years, acknowledging that, as of now, AI does not significantly contribute to AWS revenue. Jassy expressed satisfaction that AWS customers have largely transitioned from projects focused on cost optimization, contrasting with the trend observed across major cloud providers in 2022 as customers sought to streamline their expansive rented infrastructure.

“As these optimizations slow down, we’re seeing more companies turning their attention to newer initiatives and reaccelerating existing migrations,” elucidated Jassy. This shift resulted in an additional quarter-on-quarter revenue of $1.1 billion for AWS. The increasing demand, coupled with the requirement to establish AI infrastructure, is expected to lead to a significant rise in Amazon’s capital expenditure (capex). In the fiscal year 2023, the capex amounted to $48.4 billion, a $10.2 billion decrease compared to the previous year, mainly influenced by reduced expenditures on fulfillment and transportation.