Amazon: We’ll Spend More on Data Centers, Less on Warehouses

When Amazon unveiled a Q1 2022 loss of nearly $4B in April—its first quarterly loss since 2015—the company said it had overestimated the pace of e-commerce growth and overextended its logistics network, which doubled in size during the pandemic with dozens of new fulfillment center projects and 370M SF of leased industrial space. 

In Q2, Amazon has been busy slashing unneeded warehouse space by postponing ribbon-cuttings at newly built warehouses for up to two years, subleasing up to 30M SF and terminating some leases. The company also has abruptly canceled numerous projects—approved by local officials, but yet to break ground—for new fulfillment centers on parcels of the 4,000 acres of land Amazon bought during the pandemic.

Now, as it unveils a second consecutive quarterly loss—this time it’s $2B, but the underlying financial fundamentals are stronger than in Q1, especially sales revenue—the e-commerce titan has made it clear that at least through the end of next year it will be building more data centers and fewer warehouses.

In a relatively brief Q2 earnings call, CFO Brian Olsavsky said Amazon had slowed plans to expand operations through next year and is shifting the focus of capital expenditures towards expanding the technology infrastructure of its world-leading Amazon Web Services cloud-computing platform and away from its retail business, including the company’s e-commerce logistics network.

“We expect [technology] infrastructure to represent a bit more than half of our total capital investments in 2022. We expect the fulfillment and transportation dollars spent on capital projects to be lower in 2022 versus the prior year,” Olsavsky said during the earnings call.

Olsavsky said Amazon made “good progress” in Q2 2022 in bringing its logistics operations—built to support Amazon’s e-commerce sales growth rates of 40% from May 2020 to May 2021—back into balance with e-commerce demand that is still growing, but at a slower pace than Amazon anticipated last year.

“We made strides to improve fulfillment network productivity in Q2. Staffing levels were more in line with Q2 demand, and we saw better optimization of our fulfillment network,” Olsavsky said.

“We’ve slowed our 2022 and 2023 operations expansion plans to better align with expected customer demand. While there’s still work to be done, we made good progress in Q2,” he added.

Amazon spent about $18B on capital expenditures to expand its fulfillment capacity in 2021, about 30% of a total of $60B that was spent overall on capex by the online retail giant. Olsavsky didn’t indicate how much lower he expects the fulfillment capital expenditures to be this year.

However, the scope of Amazon’s plans to expand its technology infrastructure are coming into focus, and they appear to be massive.

In May, Amazon filed documents with Oregon’s Morrow County to build five more data centers at its Columbia River data center complex about 160 miles east of Portland—an investment projected to total nearly $12B, one of the largest capital investments in Oregon’s history.

The five new data centers will more than double the footprint of Amazon’s Oregon data processing cluster, which currently has four hyperscale data centers in operation. Each of the new data centers will cost more than $2B to complete.

The first new data center in Amazon’s Oregon expansion is scheduled to come online in late 2023; the last of the five is expected to be delivered in early 2027.

Amazon is negotiating with Morrow County, a remote, rural area with only 12,000 residents, to extend a series of incentives that have delivered an estimated $161M in tax breaks to the e-commerce giant as it scaled up the Oregon data center cluster over the past five years, according to a report in OregonLive.