The city says Apple accounts for about 70 percent of Cupertino's office research and development space, a figure that includes the tech company's construction of a 2.8 million-square-foot office building on its new campus, what many call "the spaceship." In 2013, 15,000 Apple employees worked in Cupertino, and when the new campus opens, that number will grow.
Drive down De Anza Boulevard, and at one point, you see Apple logos on both sides of the street.
"We appreciate the fact that they are in town, that they continue to stay here," said assistant city manager Aarti Shrivastava. "The fortune of the property owners rise and fall with the company."
But Apple is rapidly outgrowing Cupertino. The iPhone maker has been on a major expansion streak in recent months, purchasing 43 acres of land in San Jose, leasing office space in San Francisco and securing property on an 18-acre site in Sunnyvale. Apple has rapidly grown its workforce in Texas. The company received a $21 million incentive package over 10 years from the state for its commitment to invest $304 million in a new campus in Austin, where it now has more than 5,000 employees.
So what happens to Cupertino if Apple shrinks significantly, or worse, leaves Cupertino altogether?
"Today, if Tim Cook wanted to, he could move Apple most anywhere he wanted with little, if any, negative effect," said Charles King, president of information technology analysis firm Pund-IT, explaining that the company's popularity and commercial success make it relatively immune to some of the pressures facing other businesses.
Risks to city
The risks for Cupertino are not lost on city leaders. "The city is trying to diversify," said Shrivastava, adding that there are plans to redevelop a Cupertino mall. "While we love having a great company in town, we would love to have other sources of revenue."In his January state of the city address, Mayor Rod Sinks said three companies wanted to expand in Cupertino -- including one called Pertino -- but because there wasn't available office space, they landed elsewhere.
In other parts of the Bay Area, tech giants also represent huge chunks of the commercial real estate in their respective cities -- but not as much as Apple does in Cupertino. In Menlo Park, Facebook owns or leases roughly 30 percent of the city's commercial real estate, according to August data from Cushman & Wakefield. In Mountain View, Google represents 21 percent of the city's office space, according to Cushman & Wakefield.
"We are always looking for diversity," said Mountain View Mayor John McAlister. "We need a steady flow of businesses. We don't want to put all our eggs in one basket."
Trouble in Torrance
For a cautionary tale of what happens when a city doesn't diversify enough, look no further than Torrance -- a city with roughly 148,000 residents, about 20 miles from Los Angeles. The largest employer in Torrance is Toyota, which opened offices there in the 1950s and grew its presence to more than 100 acres. But last year, the city learned that Toyota would be moving about 3,000 jobs by 2017 to Plano, Texas, and settling its North American headquarters there. Now, city officials are wondering what type of business will move into the large chunk of Toyota-owned land."It was a huge blow," said Fran Fulton, Torrance's economic development manager.
When Toyota employees move, it could have a major impact on housing and businesses that workers support. As for the land, the automaker has been leaning toward selling it to just one buyer, Fulton said. Tech companies and other auto-related businesses have inquired about it, but the city doesn't have final say on who gets the property. A Toyota spokesman said no decision has been made on the property and declined to say whether the preference was for just one buyer.
"For ease and swiftness and maybe less of a negative impact, it would probably be better to have a big business move (into that space)," Fulton said. "But then you kind of worry that you run the risk of a similar thing happening."
To be sure, Apple's recent actions indicate that it plans on staying in Cupertino. In addition to its 856,000-square-foot campus and leased space in the city, Apple is also developing a campus on a 175-acre site that formerly housed offices for Hewlett Packard. The new space will have a 1,000-seat auditorium, fitness center and a 2.8 million-square-foot main building. The building will run on 100 percent renewable energy and 80 percent of the new campus will be green space, Apple said.
Head count grows
From June 2013 to the time construction on the new campus is completed, Apple was projected to add 7,400 employees, bringing its total headcount to 23,400 people in the Cupertino area, according to a 2013 economic impact report. Apple said it currently employs more than 25,000 people in the area, but did not break out exactly how many of its employees work in the City of Cupertino.Apple said it was proud to call Cupertino its home.
"We're deeply committed to our roots in the valley and look forward to continuing to grow here," Apple said.
Still, some analysts say that it's possible one day Apple could move. Most manufacturing for large technology firms happen outside of Silicon Valley, giving more leeway for companies to open offices elsewhere like Austin, which has become a tech hub, King said. Apple recently opened its new Austin campus after receiving financial incentives as part of a 2012 deal and pledged to add 3,600 jobs there, more than doubling its workforce in Texas in 10 years. And in Ireland and elsewhere in Europe, tax laws are simply too favorable for a giant like Apple to pass up. In 2013, a Senate subcommittee found that Apple paid "little or no corporate taxes" over four years on at least $74 billion held at subsidiaries in Ireland, according to the Wall Street Journal.
For now, Cupertino continues to rely on Apple for a significant portion of its funding. In 2013, the iPhone maker employed 15,000 people -- taking up nearly half of the jobs in Cupertino, according to the most recent data available by the city. By comparison, Seagate Technology -- Cupertino's second largest tech employer -- had 500 employees, or just 2 percent of the jobs in Cupertino in 2013, the city said. Apple paid $9.2 million in tax revenue to the city of Cupertino for its 2012-13 fiscal year, which represents 18 percent of the city's general fund budget, according to the 2013 economic impact report.
If Apple's business were to fail or the company were to relocate, one safety net is that there are other large tech companies in Silicon Valley and if they were growing, they could snap up Apple's office space, analysts said. But if the entire tech sector were suffering, that's a different story.
"The real risk is that it shrinks and there is no other company in the area that is growing," said Enrico Moretti, a UC Berkeley economics professor.
Need to diversify
Analysts say that Apple could do more to diversify its business. IPhone sales represent the majority of the company's revenue, making up 56 percent of overall net sales in the fiscal 2014 year. The iPad, in contrast, was 17 percent of total net sales and in decline from the previous fiscal year, according to Apple's annual report.If iPhone sales took a turn for the worse, it would be very hard on Apple, King said.
"It's somewhat similar to investors piling over half of their assets into a single company or industry," King said. "They're fine so long as business is good and growing but suffer immeasurably if or when things hit the rocks."
Earlier this year, Google lost a battle over office space in North Bayshore. Mountain View's City Council decided to award most of the new commercial real estate space in North Bayshore to a project proposed by LinkedIn and SyWest Development. Google had wanted all of the available space -- 2.2 million square feet -- to build a new, futuristic campus and received just 515,000 square feet.
Problem worth having
Part of the reason the council gave more land to LinkedIn's project was that it included space for retail and entertainment, in addition to offices. LinkedIn occupies just 2.5 percent of Mountain View's commercial real estate space, according to August data from Cushman & Wakefield."It was the diversity of items that made that project unique," McAlister said. The Mountain View mayor said he would be worried if he were Cupertino, regarding the large percentage that Apple represents of its office space.
"I would be very concerned about that percentage," McAlister said. "They are getting a lot of their city budget based on how Apple does. As Apple goes, so does Cupertino."
Despite the risks involved in having a large corporate business be the dominant employer in a city, many locales would love to have Apple move into their neck of the woods because the tech giant brings high-paying jobs, said Moretti, the UC Berkeley economics professor.
"The typical problem is opposite of what Cupertino is facing," Moretti said.
©2015 San Francisco Chronicle Distributed by Tribune Content Agency, LLC.
