Is Apple's Spaceship a Sell Signal?

There's a rule of thumb on Wall Street: When a company starts building spectacular facilities, it's an ominous sign for investors. Apple's (Nasdaq: AAPL  ) proposal for the Cupertino office campus that it's purchasing from Hewlett-Packard (NYSE: HPQ  ) looks to be just that.

Apple CEO Steve Jobs himself presented the plan to Cupertino's city council. According to Jobs, the building looks "a little like a spaceship landed" and said "It's a pretty amazing building." Based on the artist's rendering, I agree. The circular four-story glass building is a futuristic head-turner. Though not yet approved by the city, it's already being hailed as an architectural icon for Silicon Valley and part of Jobs' design legacy. Cupertino's smiling mayor referred to the design as "the mother ship."

The plan sounds aesthetically pleasing -- and expensive. Jobs bragged that there's not a straight piece of glass in the building and noted that Apple plans to replace much of the surface parking with landscaping and trees. The company also intends to add an underground parking garage, a rarity in Silicon Valley.

Danger! Danger!
EDS
's spectacular headquarters, built before it stumbled and was acquired by HP, was also referred to as a mother ship. Silicon Graphics' (Nasdaq: SGI  ) monument campus in Mountain View, Calif., built before Rackable Systems acquired Silicon Graphics and adopted its name, is now Google's (Nasdaq: GOOG  ) headquarters -- a.k.a. the Googleplex. Sun Microsystems built an upscale campus in Menlo Park before it fell on hard times and was acquired by Oracle (Nasdaq: ORCL  ) . There's a disturbing pattern here.

I'm not suggesting that Apple is an acquisition target, particularly given its $66 billion cash stash and its position as the largest IT company. But an over-the-top campus suggests that management will make bad use of cash. It's a sign that complacency and arrogance are setting in. To compound the situation, these things typically come when the growth driving the need for more office space is getting harder and harder to sustain.

Few CEOs are considered as critical to their companies as Steve Jobs is. Consider that despite being on medical leave, he's spending time on a new facilities proposal. I think the stock probably has at least several good years left, but this development looks like a negative milestone -- and an early warning -- for Apple investors.

Foolish takeaway
I love great design, lush landscaping and early warnings. Apple's proposal for its new Cupertino campus appears to be all three.

What do you think: Is Apple's spaceship campus an ominous sign? To help you monitor your investments, The Motley Fool recently introduced a free My Watchlist feature. You can get up-to-date news and analysis by adding these companies to your Watchlist now:

Fool contributor Cindy Johnson owns no shares in any security in this story. The Motley Fool owns shares of Oracle, Apple, and Google. Motley Fool newsletter services have recommended buying shares of Google and Apple and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (25) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 10, 2011, at 8:59 PM, bjasleep wrote:

    Correction: Apple is not an IT company, it is a consumer technology company.

  • Report this Comment On June 10, 2011, at 9:02 PM, RHinCT wrote:

    You left out the unique Union Carbide headquarters building they built in Danbury, CT so they could move out of NY City. The same local newspaper that dubbed it CarbideStar Galactica when it was new said in a recent article, "And briefly, for about four years, working for Union Carbide was very nice. It was a progressive company that cared about its employees and built them a $400 million building that provided them handsome offices with nice views and all the amenities that its architects could think of."

  • Report this Comment On June 10, 2011, at 9:12 PM, arefool2b wrote:

    Interesting correlations, but not likely the sign of "complacency and arrogance" setting in. Rather, the Mother Ship will act like a magnet drawing talent that will produce advancements long after Jobs is gone. A worthy legacy indeed.

  • Report this Comment On June 10, 2011, at 9:19 PM, GeorgioG wrote:

    I think he should thinking about buying back some stock since Apple has been a bust for the last 6 months now. I would like to see some money come back to the shareholders ASAP.

  • Report this Comment On June 10, 2011, at 9:24 PM, btblomberg67 wrote:

    Sorry Cindy, but a fools assessment is exactly what you gave. Apple has been renting a number of offices all over Silicon Valley and want to pull all those people into one place. Definitely not foolish. Add that it will take until 2015 to be finished I am certain, Apple will make more than enough to pay for this building and the benefit for the company long term is great. You may be trying to look at history with your reasoning, but Apple has been a company that defies most model comparisons. Every time people try to fit them into some other companies example they fail just link you have. For Apple and Cupertino they are building a landmark and reclaiming open space in the process. It may be an odd design for some, but it will likely fit the bill for Apple.

  • Report this Comment On June 10, 2011, at 10:12 PM, DefunctAcct wrote:

    This fool's errand posting is pure sensationalism? Or is it a severe lack of logic and reasoning?

    Apple has been hiring in the valley; I know because people I know are interviewing. Employees are scattered all over at this time; I know because old colleagues of mine who now work at Apple often have lunch with me.

    Apple has had to provide shuttles, bikes and all sorts of transportation to get everyone around "campus" in a safe and timely manner.

    Some groups were for a time, split inside a building, because they could not find room to all sit in one area.

    Apple wants to consolidate everyone into one site, if possible.

    Do you know how many man-hours are lost with employees walking, running, biking and busing between buildings? Do you know how much time is lost when 1000 employees must take almost a week off to attend WWDC?

    Have you even visited the site where Apple makes special product announcements on campus? I have been there when we have lunch at Apple. The room is getting small.

    I grew up in the Santa Clara Valley and Cupertino was my old haunting ground. What Jobs proposes to do for CUpertino is something locals and old timers really take to heart. We really appreciate this and hope it all come true by 2015.

    Lastly, bus-loads of tourists often show up on Infitnite Loop to visit Apple, the Store and take pictures. This campus, if accessible to tourists, will bring additional income to the city of CUpertino. It is a win-win-win for everyone.

    Ms. JOhnson's article serves only one good purpose and that is to let people like me share my experience with those who do not live and work in the valley and have no knowledge of the history of this valley.

  • Report this Comment On June 10, 2011, at 10:36 PM, sgaudani wrote:

    Soul reason Jobs proposed 13000 people in one circular building is that to maintain secrecy of products and future plans...Jobs must be hating the current situation where his employees are working further and further from main headquarter (the fact mentioned by himself, "employees are working in ever increasing radius", he said". One building and one campus means all meetings, discussions, R&D happen at one place. Add that to save cost of transportation and safety of employees by making their destination the same as everyone. Apple believes in focused and integrated approach with shine and sleekness in everything it does and this project itself is prime example of the same DNA...Apple is where science meets arts! call it complacent, call it arrogance...Steve Jobs has left a legacy that hardly anyone can imagine replicating! For Apple investors, well everyone knows how cheap AAPL is...buy it hand over fist because this company deserves 3 trillion dollar valuation within a year from FACEBOOK's IPO!

  • Report this Comment On June 10, 2011, at 10:47 PM, bsimpsen wrote:

    If Pixar didn't go into decline after Mr. Jobs lent his hand to the design of their HQ, why would Apple?

    Surely direct evidence trumps "rules of thumb" which don't exist.

  • Report this Comment On June 11, 2011, at 12:25 AM, G44ca wrote:

    Silliness.

    1. Apple will make much more than enough profit THIS QUARTER to pay for this building.

    2. If Apple the Apple brand stands for anything it's "highest quality, aspirational design." That fits this campus to a tee.

    3. The Apple brand is extremely important to Apple marketing and sales and will become even more so after Steve Jobs is gone.

    4. Apple has a long, long road ahead of it as it leads the technology world down the road of mobile computing. Apple will build more buildings, perhaps larger and certainly more advanced in the future. This is just a step along the road. Apple didn't get to be the second most valuable company in the U.S. by thinking small. One must think BIG to do BIG things.

  • Report this Comment On June 11, 2011, at 1:30 AM, alexkhan2000 wrote:

    What a dumb article. It seems the bloggers who follow Apple will write virtually anything to garner more hits. Just cheap tabloid sensationalism...

  • Report this Comment On June 11, 2011, at 1:36 AM, TechnoHistorian wrote:

    "Building spectacular facilities" -- Apple has been doing it all over the world during the past several years in some of the more spectacular Apple stores. And of course, "spectacular" also describes their many products. Those have done just fine, and so why not an imaginative main campus?!

  • Report this Comment On June 11, 2011, at 1:44 AM, stallings01 wrote:

    There are way too many square box buildings in the world. Thanks to Apple and Jobs for thinking out of the box. Add landscaping and underground parking and high tech in house power supply and you have

    typical Apple genius.

    Shelley Stallings

  • Report this Comment On June 11, 2011, at 2:36 AM, skippywonder wrote:

    Two words. Chrysler Building.

    They occupied the building from 1930-1950. It would be hard to say this magnificent HQ -- a global icon of architecture -- predicted their demise, unless you're saying Apple may fall on hard times in 2075...

  • Report this Comment On June 11, 2011, at 7:46 AM, hunglk wrote:

    The warnings look somewhat arrogant, don't they?

  • Report this Comment On June 11, 2011, at 8:07 AM, sgr7 wrote:

    AAPL's P/E is under 16, but their growth is conservatively north of 50%. That's a PEG of under 0.33.

    Why do AAPL investor's hate AAPL so much, when their customers clearly love them so much? Am I insane, or is this the bargain of a lifetime?

    This article is another example of the investment community (actually Fools, with an uppercase 'F', whom I admire greatly), trying to figure out some reason/justification for the stock's price right now.

    I believe that it's the global uncertainty right now, and if that uncertainty abates, even just a little bit, this stock is going northward.

  • Report this Comment On June 11, 2011, at 8:28 AM, lucasmonger wrote:

    Deciding to buy or sell a stock solely on the fact that Apple is building a new flagship office seems silly to me. As Father Guido Sarduchi from the original SNL says about economics and business, you buy and sell for more.

    So times to buy were 1997-98 before Steve became iCEO and the introduction of the iMac. The time to sell was when the dot com era went crazy in 1999-2000 where the stock climbed to $120-140. Then buy again during the dot bomb era (I got in at $13 per share before a split). Sell again Xmas 2007 when they spiked to about $200 with the runaway success of the iPod and iPhone. Buy again during the financial crisis where they dipped to the $80's and sell anytime within the last year when you've already tripled or quadrupled your money. I laugh at all of the analysts trying to confine people to buy now with price targets in the mid $400s.

    It's just a coincidence that the building announcement came the same week as the lion/ios5/icloud announcement and who knows what the analysts are going to try to pin as the reason for the recent price drop from $345 to $325. Ignore these types of news reports and don't follow the masses. When the masses are selling you buy and when the masses are buying you sell... Laughing your way to the bank.

  • Report this Comment On June 11, 2011, at 9:13 AM, midnightmoney wrote:

    Really, nudge me when something actually happens.

  • Report this Comment On June 11, 2011, at 11:01 AM, rlcato wrote:

    Roger Kay of Forbes is spewing similar diatribes - even referring to the Pharos. The company has over $60 bils, no debt. They opted to invest 'in-house'. To even give reference about investors funds going to some 'folly' and management making bad use of cash indicates to me that reporters are just grandstanding; wanting clicks and creating a stir. I just don't understand these types of reporting:

    'My point here is that when a man starts to build a monument to himself, he’s done as a producer.'

    What kind of crap is this?! A number of years ago, I worked at a company whose new, additional building was in a shape of the letter 'M' (viewed from above) with partial above and below ground parking. 20+ years later, the 60 year old company is still growing and going in such a BIG way. 

    I would be concerned if a company was doing this and had very little to show or treated its employees 2nd rate or any other negativities I could think of. In these economic hard times, Apple is able to continue to produce and expand, knowing that the average consumer and businesses trust their products and will pay for quality. 

    Write about a company that's expanding in a similar way and granted, that company is so far under water or a casino and are not giving anything back.

  • Report this Comment On June 11, 2011, at 12:31 PM, runner333 wrote:

    I wonder why these constant critism and attacks against Apple? I think, Apple is a great company and someone/someones/perhaps some organizations are doing anything to keep their stock price down.

  • Report this Comment On June 12, 2011, at 12:15 PM, beetlebug62 wrote:

    "spectacular facilities"? It may be spectacular looking down on it from Google Earth, because it's circular, like a supercollider, but it's only 4 stories high. From the ground, it won't look that spectacular at all. It'll nestle in to the landscape with a very light footprint. Hardly an ode to Steve.

    Building a Sears tower, or a Chrysler Building is "spectacular" for a company. A 4-story building is not "spectacular".

  • Report this Comment On June 12, 2011, at 3:14 PM, baldheadeddork wrote:

    @beetlebug62 - The Pentagon has only five stories above ground. Are you saying that doesn't qualify as a spectacular building?

    The Pentagon is a good point of reference to get an idea of the scope of Apple's plans. The Pentagon has a 33 acre footprint, including the five acre "Ground Zero" courtyard. There will be enough room in the Apple courtyard for five Pentagons. Say whatever you want, but a building that big isn't going to nestle anywhere.

    *******

    @sgaudani: "Soul reason Jobs proposed 13000 people in one circular building is that to maintain secrecy of products and future plans...Jobs must be hating the current situation where his employees are working further and further from main headquarter."

    No. Security for critical projects becomes harder to manage when you have a massive building with different security requirements. If you're concerned about secrecy, you want to set a stand-alone facilities and control access starting at the gate. When you have one building with 12,000 people, and most of them work on low or no security projects, that becomes a security risk in itself.

    About having all Apple employees under one roof, that's running sharply against what most companies have come to believe is good management. Putting 12,000 people in the same building becomes an unavoidable breeding ground bureaucracy and overhead.

    Huge buildings also create their own inefficiencies, particularly in getting people in and out of the building. I expect that will be a particular issue in Cupertino since traffic already sucks at buildings that are much smaller. Even if you have four or five entrances to the parking garage, getting 12,000 people in and out at the same time is going to be massive PITA. (And don't underestimate the importance commuting time has on recruitment. Trust me, if working at Apple means an extra 30-60 minutes on a commute a lot of talented people will choose to work elsewhere.)

    And doesn't having everyone under one roof go against everything IT promises? This would be like McDonald's only allowing local-grown organic food in its corporate cafeteria.

    I don't think this is a reason to sell Apple stock, but I don't see a single practical or logical reason for doing this. Call it a monument to Jobs, or call it ego, but it is one or the other. It won't make Apple a better company.

  • Report this Comment On June 12, 2011, at 4:46 PM, deemery wrote:

    The Pentagon is a similar design for a similar reason. Specifically, it was built to house the large and growing staff at the beginning of WWII, consolidating offices from around DC. The Pentagon design (pretty much circular) is designed to get you from any one part of the building to another in about 10-15 minutes walk.

    What conclusions can we draw from this?

  • Report this Comment On June 12, 2011, at 5:17 PM, baldheadeddork wrote:

    @deemery: Not much. The design of the Pentagon differs in one major way: They use five inner rings that are connected at every level to get nine million square feet of floor space in a 33 acre footprint. Apple is proposing a massive single ring on over 150 acres to get one-third as much floor space.

    You're not going to be able to walk to the other side of the Apple building in fifteen minutes.

  • Report this Comment On June 13, 2011, at 12:24 AM, rlcato wrote:

    Unless you have a Segway and cut across the middle (chord). If you're a big bloke, that may be an indication that it's time to look after yourself... chubby!

  • Report this Comment On June 13, 2011, at 3:01 PM, scottgeiger wrote:

    "Interesting", but... I wouldn't sell a stock based only on price, so I certainly wouldn't sell based on what kind of headquarters the company is building. The examples given of companies that soon after building a lavish HQ failed, have no correlation; what was the financial state of the company when(before) they built the HQ? What was the business environment like? etc.... you get the idea.

    At best this new HQ just gives credence that Steve Jobs is more of a narcissist than we already thought (or maybe it just proves it). But that aside, this is marketing - something AAPL excels at; just look at all the "buzz" this has gotten. AAPL will succeed or fail based on dozens of other factors beyond the building of a new HQ.

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