By Peter Burrows
At what turned out to be his last public appearance, Steve Jobs stood before the Cupertino City Council on June 7, 2011, to present plans for a new corporate campus for Apple (AAPL). Scarecrow thin but forceful as ever, Jobs displayed several renderings of a headquarters intended to accommodate more than 12,000 employees in a single, circular building. “It’s a little like a spaceship,” he said of the massive, four-story ring, which, at 2.8 million square feet, would be two-thirds the size of the Pentagon and set among 176 acres of trees where today there are mostly asphalt parking lots. “We have a shot,” he said, “at building the best office building in the world. I really do think that architecture students will come here to see it.”
Jobs died four months later, before the final plans could be submitted to Cupertino city planners, but he had made it clear that this corporate Shangri-La would be expensive. Apple would add 6,000 trees and hide nearly all the roads and parking spaces underground. There would be plenty of cafeterias, including one that could handle lunch for 3,000 employees. Jobs highlighted the main building’s curved exterior walls. The plans call for unprecedented 40-foot, floor-to-ceiling panes of concave glass from Germany. Before the Cupertino council, Jobs noted, “there isn’t a straight piece of glass on the whole building … and as you know if you build things, this isn’t the cheapest way to build them.”
He had that right. Since 2011, the budget for Apple’s Campus 2 has ballooned from less than $3 billion to nearly $5 billion, according to five people close to the project who were not authorized to speak on the record. If their consensus estimate is accurate, Apple’s expansion would eclipse the $3.9 billion being spent on the new World Trade Center complex in New York, and the new office space would run more than $1,500 per square foot—three times the cost of many top-of-the-line downtown corporate towers.
Before his death, Jobs had hoped to break ground in 2012 and to move in by the end of 2015. Apple will start tearing down the 26 buildings on the site in June, according to another person familiar with the plan. At the company’s annual meeting on Feb. 27, Chief Executive Officer Tim Cook said the move-in date has been pushed back to 2016. Apple declined to comment for this article.
One reason for the new timetable, say three people who have spoken to Apple personnel about the project, is that the company has been working with lead architect Foster + Partners to cut $1 billion from the budget before proceeding. Jobs and Apple first hired Norman Foster’s firm, renowned for the rebuilt Reichstag in Berlin and Hearst Tower in New York, in 2010. Apple has named a general contractor—a joint venture of DPR Construction, in Redwood City, Calif., and prefabrication specialists Skanska USA Building in New York—but has not finalized agreements with the scores of subcontractors needed to complete the job. Some contractors will be submitting bids by May. There’s so much dirt to be removed, excavating the site will take six months and require a continuous, 24-hour convoy of trucks, says a former Apple manager who heard a presentation from Foster’s firm.
Cost overruns are to be expected on large construction projects, and the scale of this one has evolved—from an initial plan to accommodate 6,000 employees, to offices for 12,000 or even 13,000 in one place. Meanwhile, $1 billion is still less than 1 percent of Apple’s $137 billion in cash reserves. Yet the multibillion-dollar budget for Campus 2 could add fuel to the debate about what Apple’s doing with all its money. Investors didn’t squawk much when Apple was dominating the smartphone and tablet market, but shares have fallen 38 percent since September amid rising competition from Samsung Electronics and concerns about Apple’s product pipeline. Now shareholders are calling for a big dividend, stock buyback, or, in the case of Greenlight Capital’s David Einhorn, the issuance of a new class of preferred shares.
Apple has hinted it might oblige in some way, but critics are sure to question whether curved glass is the best use of funds. “It would take some convincing for me to understand why $5 billion is the right number for a project like this,” says Keith Goddard, the chief executive of Tulsa-based Capital Advisors, which owns 30,537 shares of Apple. “This is rubbing salt in the wound, to spend at a level that most anyone would say is extravagant, at a time when they’re being so stingy on dividends.” If the stock continues to underperform, Goddard predicts, “this headquarters would perpetuate the negative story.”
To read it in full: http://www.businessweek.com/articles/2013-04-04/apples-campus-2-shapes-up-as-an-investor-relations-nightmare