Amazon to build out capacity for cloud, fulfillment and third party services

Amazon signaled that more infrastructure investment is coming as the company needs more capacity for businesses like Amazon Web Services, fulfillment services and third-party selling efforts. The capacity additions will be the first for Amazon since late 2008.

Amazon signaled that more infrastructure investment is coming as the company needs more capacity for businesses like Amazon Web Services, fulfillment services and third-party selling efforts. The capacity additions will be the first for Amazon since late 2008.

Amazon CFO Tom Szkutak signaled the increased spending on infrastructure on a conference call following the company's first quarter earnings. The results were solid, but Szkutak's talk of investment caused some slight hand-wringing on Wall Street, where capital spending is always scrutinized.

But overall, Amazon's investment in infrastructure is a good thing. For starters, the need for more capacity means that fledgling businesses like Amazon Web Services, third party selling and fulfillment by Amazon are growing at a healthy clip. These business are generally classified as "other" in Amazon's earnings presentation.

Szkutak said Amazon's first quarter capital expenses checked in at $140 million, a sum that was a bit higher than expected. "The increase in capital expenditures reflects additional investments in technology infrastructure including Amazon Web Services, additional investments and support of continued business growth including capacity to support fulfillment operations and investments and corporate office-base which we expect to continue throughout 2010," he said.

Naturally, Szkutak was peppered with questions after those comments. The CFO said:

We haven’t added you know any significant capacity in North America since Q3 of 08. You know certainly with growth rates that you are seeing, you should expect that we will be adding capacity over time there. But again it was driven by a lot of different factors and you know with a lot of different product categories are growing very strong and thus being able to leverage those expenses.

If you recall we were building capacity and then we had a financial disruption in the market, so we ended up having some excess capacity in Q4 of '08. We've been to leverage that capacity throughout and so that's resulting in the productivity that you are seeing. Now with the growth that we are experiencing, you should expect that we will have to add capacity overtime here to satisfy that growth.

Overall, Amazon's need to add capacity is a high-quality problem.

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