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Is Cupertino sacrificing its core to Apple?

Silicon Valley city ponders tying its fate to a single company

September 27, 2013|By Chris O'Brien and Jessica Guynn
  • By the time Apple plops a campus the size of the Pentagon into this city of 60,000 people, Cupertino, Calif., will be more economically dependent on one company than any other Silicon Valley town.
By the time Apple plops a campus the size of the Pentagon into this city of… (Joel Kimmel, For The Times )

CUPERTINO, Calif. — Welcome to Appletown, USA.

Apple's phenomenal success and expansion into buildings across this city over the last decade have already made it hard to know where Cupertino ends and the company begins. But just wait.

By the time Apple plops a campus the size of the Pentagon into this city of 60,000 people, Cupertino, Calif., will be more economically dependent on one company than any other Silicon Valley town.

Two years after the project was announced, as the details have come into sharper focus, it's almost impossible to overestimate the effect Apple Campus 2 will have on Cupertino. Apple envisions the 176-acre campus as its own Fortress of Solitude that will cut off northeast Cupertino from the public.

This week, the city begins a series of hearings to grant final approval for the project. The hearings, and a development agreement under negotiation, represent the city's best chance to set the terms of its relationship with the company for decades to come. Although Apple is eager to move forward on a project already behind schedule, the city must consider what concessions it wants before tying its economic fate so closely to a single company.

"In a high-tech area, even the most powerful companies disappear surprisingly quickly and employment can scale down much quicker than it scales up," said Jerry Davis, a professor at University of Michigan's Ross School of Business. "There is definitely risk."

Big numbers

When the new campus is built — sometime in 2016 — Apple will cast a larger economic shadow over Cupertino than even Internet search giant Google does in nearby Mountain View.

The numbers contained in a recent economic impact report commissioned by Apple tell the story:

• Apple's 16,000 employees in Cupertino make up 40% of the city's jobs. When the new campus opens in 2016, Apple projects 24,000 Cupertino-based employees.

• Apple paid $9.2 million in tax revenue to the city in the last fiscal year, about 18% of the city's budget. Apple predicts that will grow to $13 million.

• Apple currently accounts for 9.6% of Cupertino's property tax valuation, up from 1.21% in 2001. The new campus will triple its valuation.

Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto, says there is little risk of Cupertino being too dependent on Apple. After all, this is Silicon Valley, where onetime giants fall and are replaced by hot young start-ups.

"I doubt that Apple will all of the sudden move their design headquarters to Nashville," Levy said.

Still, the company seems more vulnerable than it did two years ago when the project was first proposed. Its stock has fallen about 30% in the last year as growth has slowed.

"Six months ago, I would have said if we were going to rely on one company, this would be the company to rely on," said Cupertino Mayor Orrin Mahoney, a former Hewlett-Packard employee. "But things change fast in this business."

Prestigious address

Apple co-founder Steve Jobs, who grew up in nearby Los Altos and went to high school in Cupertino, originally didn't even want to put his company here.

In the 1970s, a feed and grain mill hinted at the town's rural roots. Apricot orchards flowered alongside young computer companies.

Jobs yearned for the cachet of Stanford University, which helped give rise to HP. He rented a post office box in Palo Alto to lend Apple more prestige, recalled early Apple employee Daniel Kottke, and he scouted Los Altos for a headquarters with "a higher-class address." Unable to find anything, Jobs settled on Cupertino.

After years of leasing office space, Apple completed a new headquarters at 1 Infinite Loop in 1993. By then, Cupertino was being transformed into the suburban model of strip malls, office parks and concrete that sprawl across Silicon Valley.

Over the last decade, Apple has outgrown its Infinite Loop address, which has 3,000 employees stuffed into 856,000 square feet. The company purchased or leased an additional 2 million square feet of space in the Cupertino area for 13,000 more employees, including 76 acres adjacent to the old HP campus.

Along the way, Apple put Cupertino on the map.

"We felt proud of ourselves getting some fame for our tiny part of the world," Apple co-founder Steve Wozniak said. "Apple became hugely successful and so valuable, and we were the shining star of Cupertino."

Beyond the glamour of being associated with Apple, Cupertino has reaped big economic benefits, such as the $4.6 billion that Apple says the company spends each year at local Silicon Valley businesses. There are smaller intangibles, such as Apple employees who volunteer in schools.

But it's only in the last decade that Apple has become the city's dominant economic force. That's the result of Apple's growth and a decision by HP, once the city's largest employer, to abandon its Cupertino campus.

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