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Microsoft to invest $1.1 billion to build new Des Moines Iowa data center

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April 22, 2014

Microsoft said earlier this morning that it has been given the green light to build a $1.1 billion data center just outside Des Moines, Iowa which, when taken together with its existing data center infrastructure, will raise the company's investment in the area of close to $2 billion.

On Friday, the Iowa Economic Development Authority (IEDA) approved a $20.3 million sales tax rebate on construction materials for the project, available until 2021, a sum that's in addition to $18 million in infrastructure improvements already promised by the city.

But naturally, Microsoft isn't getting off that easily. In return for those improvements, Nadella & Co. have agreed to a minimum taxable assessed value of $255 million once the project is completed – an amount that The Des Moines Register reports will bring the city of West Des Moines an annual tax revenue of about $8 million.

The state of Iowa also will require Microsoft to create 84 permanent jobs when the project is completed, and that 66 of those jobs must pay at least $24.32 per hour.

The data center will be built on a 154-acre site, with the facility comprising 1.16 million square feet. The data center project has been finding its way among the appropriate decision-makers, but under the code name of "Project Alluvion" – it wasn't until last Friday's meeting that Microsoft was revealed to be the company behind the development.

Project Alluvion was originally scheduled to have been on the IEDA's agenda in Mid-March, but was pushed forward to last Friday's meeting at the last minute.

The delay was caused by Willow Creek needing more time to ensure that it could acquire enough land. We'll keep you posted on this and other stories as they happen.

In other IT news

Now that Windows XP's end-of-life support is behind us, system admins will soon have another critical date to watch out for, this time it will be next year.

If you're still using Windows Server 2003 R2, Microsoft's product lifecycle advisories say that support for that operating system expires on July 14, 2015. That's only 449 days from today.

Both the Standard, Enterprise and Datacentre versions of the operating system, in 32-and-64-bit versions, will receive their last Windows security update on that date.

However, the obsolescence of Windows Server 2003 won't be as big an issue as the EOL (end of life) of Windows XP, and for two main reasons.

The first is that servers tend to be be upgraded more often than PCs, because the former are cared for by knowledgeable and skilful server technicians who understand the need to migrate from decade-old operating systems and have therefore probably already made the move.

The second reason is that there are many fewer servers than PCs. Gartner estimates that about 2,581,724 servers shipped in 2013's 4th quarter.

That's still a lot of servers, but also a lot fewer potentially-troubled machines to deal with than PCs that were impacted by Windows XP's EOL support.

In other IT news

As many industry analysts had already expected, IBM's lower first quarter storage revenues dragged down Big Blue's revenues from the rest of its operations. The storage business is getting more competitive.

Revenues from IBM's Systems and Technology unit (STG) were $2.39 billion for the quarter, down 23 percent compared to 2013's 1st quarter.

IT industry analyst Stifel Nicolaus' Aaron Rakers says-- "IBM’s storage results have posted year-to-year declines for the past ten consecutive quarters."

In a series of prepared remarks Martin Schroeter, IBM’s senior vice president and CFO, Finance and Enterprise Transformation, said-- "Looking at hardware, as expected, the combination of secular and cyclical challenges continued."

Additionally, secular changes are the long-term ones, while cyclical changes refer to quarter-to-quarter differences, Schroeter pointed out.

Then he added-- "Our flash solutions contributed to some growth again this quarter, but we saw substantial weakness in high-end storage."

That means the DS-8000, primarily, Big Blue's monolithic array that competes with EMC's VMAX and Hitachi/HDS' VSP (which is OEM'd for Hitachi by HP as the XP).

Rakers had this to say about the flash revenues-- "Gartner estimates a $46.7 million revenue contribution from FlashSystem during the December quarter, up from $37.1 million in the prior quarter. This compares to EMC’s XtremIO at $49.5 million, albeit including beta customer revenue recognition, and NetApp’s EF-540 at $14.6 million in the December quarter."

And that flash revenue portion is a very small part of STG's storage revenues. IBM has previously committed to spending a billion dollars to increase its flash business.

Schroeter continued-- "We are selling our industry standard server business to Lenovo. We are repositioning Power and building an ecosystem around OpenPOWER, and we’ve taken actions across Power and Storage to right-size the business to the market dynamics we took actions to align our structure to the demand profile we are currently seeing."

So IBM is right-sizing its storage business, meaning possible or probable headcount reductions and product line shrinkage.

In IBM's view, there's no prospect of growth in any of its storage product categories in the short term, at least sufficient to get storage revenues overall growing in a meaningful way.

And it's not just cuts in storage. Schroeter added-- "Our focus for STG this year is to stabilise the profit base. The repositioning of the Power platform, the announcement of POWER8, new announcements in storage, and the right-sizing of the business will all contribute, as we move through the rest of the year."

"This, together with the divestiture of System x, will result in a smaller and more profitable hardware business going forward," he added.

He emphasized that "IBM will remain a leader in high-performance and high-end systems, in storage and in cognitive computing."

"This, we think, with reference to storage, is dubious. We wouldn't really class IBM as a leader in storage, not with its history of declining revenues," he said.

Tivoli, IBM's systems and network management framework software, was a brighter segment, however, with Schroeter saying-- "Tivoli grew revenue 7 percent. This quarter we had growth in all three of Tivoli’s product segments, systems management, storage, and security. Security grew double digits for the sixth consecutive quarter."

In other IT news

In just the first three months of 2014, Google reported in its financial statements yesterday that it spent an incredible $2.35 billion on its data centers and infrastructure. There's no question that the company is growing very fast.

The investment was revealed by Google deep within its financial results and clearly demonstrates just how much the company has grown in the past 8 to 10 years, considering that it spent the same amount during the entirety of 2008.

What Google now spends on purchases of property and equipment in just one quarter, most of which goes on data centers and associated IT equipment, it used to spend in a whole year.

And such a level of expenditure dwarfs Google's data-intensive competitors as well. For example, Amazon just spent $880 million in its most recent quarter, and Microsoft only spent $1.7 billion.

The significant difference in capital expenditures between Google and its competitors illustrates both the globe-spanning scale at which the company operates and also demonstrates its wider strategy of designing systems to not only organize but store and analyze the globe's information.

For example, Google Street View was launched in the summer of 2007 and since then has been gobbling up tons of visual data captured on land and even at sea.

All of that data has to go somewhere and even with Google's in-house technical resources this carries a certain cost, like it or not.

And while all of this is happening, the company has been buying more and more computer chips as it tries to run sophisticated analysis tasks over this voluminous information, such as the so-called "cat face" recognizing layered neural network it trained using 15,000 CPUs.

Now, we're reaching a point where Google's "Deep Learning" endeavors have grown enough to be put into wide production use for such tasks as image recognition, natural language processing and, of course, its very first project-- search.

This means that the company is also going to be buying more computer chips than before to let it analyze all that data.

Google's spending on property and equipment for the entirety of 2013 was $7.35 billion, including operating lease agreements. Given this quarter's significant spending, Google's massive and secretive artificial intelligence push, and the fact that it has just begun a serious price competition war for cloud services with Amazon and Microsoft, Google could spend upwards of $10 billion this year.

Source: City of Des Moines, Iowa.

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