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Apple's 'spaceship' campus budget balloons from $3 billion to $5 billion

post #1 of 73
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Portraying Apple's new corporate campus as an "investor relations nightmare," a new report reveals that the project's budget has increased by $2 billion, causing it to become a year behind schedule as the architect looks to cut costs.

Apple headquarters 2.0 rendering


Citing five people close to the project, Bloomberg reported on Thursday that the cost of Apple's so-called "spaceship" circular campus could now exceed the $3.9 billion cost of New York City's new World Trade Center complex. The increase in costs has reportedly led to a delay in the project, as architect Foster + Partners seeks to cut $1 billion from the budget.

Apple Chief Executive Tim Cook already revealed in February that his company plans to move to its new "Campus 2" by 2016. That's a year later than the company had originally projected.

Late Apple co-founder Steve Jobs had a hands-on role in designing the facility. He personally revealed the project at a Cupertino City Council meeting in June 2011, just months before his death, where he noted that the project would be costly due in part to its use of curved glass.

"There's not a straight piece of glass in this building," Jobs said. "We've used our experience in building retail buildings all over the world. We know how to make the biggest pieces of glass for architectural use."

With the project now apparently over budget, Bloomberg questioned how investors would react to the cost of the project. At the end of its last quarter, Apple had $137 billion in cash reserves.

"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," author Peter Burrows wrote, adding that critics would ask whether "curved glass is the best use of funds."

Most of the cost of the project lies in materials and "fit and finish." Under the plans overseen by Jobs, there will be "no seam, gap, or paintbrush stroke showing; every wall, floor and ceiling is to be polished to a supernatural smoothness," the report said. Even the interior wood must "heartwood" from the center of trees from a a specific series of maple.

Apple campus rendering


The report speculated that some of the $1 billion in cuts that have been made to the project will come from some of those "fit and finish" aspects pushed for by Jobs. For example, the former CEO originally wanted polished concrete ceilings that will be cast in molds on the floor and lifted into place.

Apple's new corporate headquarters will be located about a mile east of its current location in Cupertino, Calif. The company plans to migrate about 12,000 workers to the site, but also plans to retain its existing office space at 1 Infinite Loop.

The circular four-story main facility will be one of the largest buildings in the world at 2.8 million square feet. The project earned its "spaceship" moniker from Jobs himself, who said at the Cupertino City Council meeting that the project would look like one had landed in the city.
post #2 of 73

I hope it ends up costing 150 billion. That way, apple kills the "problem" and the stock can skyrocket again.

 

/s

post #3 of 73
Who the heck budgeted this thing? If I gave an estimate of three bucks and it turned out to be five, no sweat. But if one was looking to spend 3 billion and it turned out to be $5 billion??? That's some serious scratch!

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post #4 of 73

Regarding this:

 

Quote:
"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," author Peter Burrows wrote, adding that critics would ask whether "curved glass is the best use of funds."

 

Well, the time for that question would have been long ago. Not going to save any money by scrapping it and changing it now.

post #5 of 73
It seems that even Apple's own infrastructure projects must follow the path most other infrastructures projects take - bloating costs and reductions in the end fit-and-finish.

But $2b is rather a lot to go over, in my opinion. But I guess that comes after a full in-depth expensing of what was desired, rather than pie-in-the-sky estimates.
post #6 of 73
Quote:
Originally Posted by Hattig View Post

It seems that even Apple's own infrastructure projects must follow the path most other infrastructures projects take - bloating costs and reductions in the end fit-and-finish.

But $2b is rather a lot to go over, in my opinion. But I guess that comes after a full in-depth expensing of what was desired, rather than pie-in-the-sky estimates.

Or maybe the cost overrun is simply based on wild-a$$ed guesses.
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Gatorguy 5/31/13
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"I'm way over my head when it comes to technical issues like this"
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post #7 of 73

Leave it to Bloomberg to find a way to get Samsung and D&G about Apple's product roadmap into this story.  Oh and Google too.  And what a surprise, Bloomberg prefers Google's campus to Apple's.

post #8 of 73
Quote:
Originally Posted by Rot'nApple View Post

Who the heck budgeted this thing? If I gave an estimate of three bucks and it turned out to be five, no sweat. But if one was looking to spend 3 billion and it turned out to be $5 billion??? That's some serious scratch!

I say we blame Jony Ive.  1biggrin.gif

 

Quote:
He also has another, very different project on the horizon -- Apple's new "spaceship" campus in Cupertino, on which he has said he is "working very closely" with Sir Norman Foster.
post #9 of 73
Significant savings can be achieved if they plant new apricot trees in the middle of spaceship rather than relocated fully grown trees. AI reported that each tree would cost $60K to relocate. If I, as an investor, were given a vote on the matter, I would kill that plan.

Anyway, it's hard to imagine how the rents Apple saved would justify the $3B cost, plus whatever amount for the land.
post #10 of 73
Having a lot of experience with construction I'd wager that it's not so much a result of poor initial estimates but ideas changes by Apple that have constantly inflating costs and causing delays.

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post #11 of 73
The additional costs are less than 2 percent of Apples cash hoard. So What!
post #12 of 73

It's stuff like this that gives CEOs pause in building their US presence. Whether it's in the government or in the private sector, stuff never seems to come in on budget or on time.

 

A 67% budget balloon, if true, is absolutely ridiculous.

post #13 of 73
Quote:
Originally Posted by MacHarry de View Post

The additional costs are less than 2 percent of Apples cash hoard. So What!

This is the kind of thinking that validates my post above!

post #14 of 73
As an investor, I don't give a damn about the cost of this campus (within reason). If this campus does not reach Wow! then it wasn't worth building for any amount.
post #15 of 73

It sounds like my local municipal government calculated the budget for this building.
 

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post #16 of 73
Quote:
Originally Posted by SolipsismX View Post

Having a lot of experience with construction I'd wager that it's not so much a result of poor initial estimates but ideas changes by Apple that have constantly inflating costs and causing delays.

Yes, the long lead and developement times offer lots of room for "just one more thing...".

post #17 of 73
Quote:
Originally Posted by AppleInsider View Post

"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," author Peter Burrows wrote, adding that critics would ask whether "curved glass is the best use of funds."
.

Problem is Apple never dominated the smartphone market in regards to market share. They've dominated in profit share, however.
post #18 of 73
Quote:
Originally Posted by zoffdino View Post

Significant savings can be achieved if they plant new apricot trees in the middle of spaceship rather than relocated fully grown trees. AI reported that each tree would cost $60K to relocate. If I, as an investor, were given a vote on the matter, I would kill that plan.

Anyway, it's hard to imagine how the rents Apple saved would justify the $3B cost, plus whatever amount for the land.

I don't think it's justified solely on the basis of rent savings. If that were the goal, they would simply have built a conventional high-rise tower. This project's goals were far more ambitious.

I agree, however, that some of the objectives led to silly decisions. Relocating trees for $60 K each (if that's correct) is silly. They can buy very nice, well established trees for $100 each. Granted, it would take a few years for them to fill in enough to meet the appearance objectives, but that's a reasonable penalty to save millions of dollars.
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post #19 of 73
Who.

Cares.
post #20 of 73
Quote:
Originally Posted by Rot'nApple View Post

Who the heck budgeted this thing? If I gave an estimate of three bucks and it turned out to be five, no sweat. But if one was looking to spend 3 billion and it turned out to be $5 billion??? That's some serious scratch!

The funny thing about this Bloomberg article is that Apple hasn't broken grounds and isn't even accepting bids from contractors till May.

I find it hard to believe that anyone can accurately predict $2 billion / 66% over budget expenses before a project even starts.

Bloomberg is just writing this stuff bc Apple made peace with the Chinese Gov this week and they can't find anything else negative to write Apple or positive to write about Samsung.


Bloomberg source:
You know, there's this big company, they're going build a new office, they haven't started yet, but I think its going to cost them 66% more then they predicted. Write a story about this. Oh, and they are delaying the project so they can figure out how to save $1 billion so they project only goes 25% over budget. But you should use the $2 billion figure if you want more page views.

The world is filled with idiots, but I'm guessing the Bloomberg article won't be the stupidest thing I read today.
post #21 of 73
That's crazy. The Burj Khalifa only cost about $1.5 billion U.S. and at least that is something really spectacular to see. So much for Tim Cook's BS about treating every penny as it was their last. They'd better have a particle accelerator under that thing in order to justify that outrageous cost. $5 billion??? Now that seems like a waste of shareholder money because I don't see what they'll get back from it. It's a fine-looking building, but do they really need something that fancy.

Still, as long as Apple increases my dividends, I guess they can do whatever they want whether I understand their reasons or not. As an investor, would I kill the plan? Probably not. $5 billion is a drop in the bucket for Apple since they earn twice that much cash every quarter. This building's cost would not stop Apple from carrying out any other plan if they chose to do so. I've never been involved in any of Apple's other decisions, so there's no point in getting in a huff over this one. If it will help make Apple employees more productive, then go for it.
post #22 of 73
Quote:
Originally Posted by Constable Odo View Post

That's crazy. The Burj Khalifa only cost about $1.5 billion U.S. and at least that is something really spectacular to see.

The Burj construction labor and costs have a lot more in common with the Great Pyramids of Giza than with Apple's new campus.

Also note it's estimated Apple has already spent about 1/2 billion dollars on just the property.

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post #23 of 73
Quote:
Originally Posted by MacHarry de View Post

The additional costs are less than 2 percent of Apples cash hoard. So What!

Dangerous thinking, my friend. Having a lot of cash doesn't mean you are allowed to squander it all away. This is exactly a reason why I, as an investor, don't like corporations keeping too much cash on hand. They will fall into the mindset of "we have too much, this amounts to nothing". They will build corporate jets, pay for expensive retreats, or overpay on acquisitions (think Microsoft). I prefer that company keeps a good amount of cash, say $50B, for capital projects, R&D and acquisitions, and distribute the rest to investors. With their cash hoard near $150B now, you've gotta admit it's more than they need to run their operations.

post #24 of 73
Quote:
Originally Posted by Rot'nApple View Post

Who the heck budgeted this thing? If I gave an estimate of three bucks and it turned out to be five, no sweat. But if one was looking to spend 3 billion and it turned out to be $5 billion??? That's some serious scratch!

I don't know how many projects of this size actually are done within estimated budget.

post #25 of 73
The project seems amazing, I hope they spend 10 billion on it. I love how these dumb a holes in the media continue to think they have anything meaningful to contribute in their discussion of apple. By the time the campus is done, apple will have half a trillion in the bank.

   

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post #26 of 73
Quote:
Originally Posted by PatchyThePirate View Post

The project seems amazing, I hope they spend 10 billion on it. I love how these dumb a holes in the media continue to think they have anything meaningful to contribute in their discussion of apple. By the time the campus is done, apple will have half a trillion in the bank.

I can certainly help with that. I coincidently started today an apricot tree relocation service. Only $180,000 per tree.

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

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post #27 of 73
Quote:
Originally Posted by SolipsismX View Post

Having a lot of experience with construction I'd wager that it's not so much a result of poor initial estimates but ideas changes by Apple that have constantly inflating costs and causing delays.
I fully concur with that.
A new building proposal is never fully costed at the outset with the exception of design and build turnkey projects and multiple unit factory built production line projects such as housing where repetition keeps costs in check.
This sort of one-off design has to be negotiated through many regulatory frameworks starting with the local authorities, planning, health and safety, engineering, services...you name it, they all have a part to.ay in cost over-runs and delays. Add in unknown site clearance problems(formerly HP buildings), Apple inspired changes, architectural impossibilities that must be engineered around(this one can be a killer), inflation, increases in labour costs, insurance, new regulations and the inevitable 'Doh...we didn't see that coming!' mea culpas and a 50% cost increase is not impossible.
Everything here is a one-off and I can't see Apple wanting to cut corners at any price. The source article is and will be the first of many such pieces of FUD emanating from agenda driven outlets.
post #28 of 73
Quote:
Originally Posted by SolipsismX View Post


I can certainly help with that. I coincidently started today an apricot tree relocation service. Only $180,000 per tree.


Just to remind you... this is not a military contract.

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post #29 of 73
Apple increases their profits by $13 Billion dollars in one quarter and you fuss because the Campus is going to cost 5 instead of 3. Ridiculous!! Apple increasing the budget to $5B is like me upsizing my combo in drive-thru. I hope Tim Cook continues the vision for this world-class campus for this world-class company.
post #30 of 73
Quote:
Originally Posted by swaylon View Post

Apple increases their profits by $13 Billion dollars in one quarter and you fuss because the Campus is going to cost 5 instead of 3. Ridiculous!! Apple increasing the budget to $5B is like me upsizing my combo in drive-thru. I hope Tim Cook continues the vision for this world-class campus for this world-class company.


The finance department at Microsoft is calling you.

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post #31 of 73

Working environment is important, if you're surrounded by perfection you're more likely to try and create perfection I think.

post #32 of 73
Quote:
Originally Posted by Rot'nApple View Post

Who the heck budgeted this thing? If I gave an estimate of three bucks and it turned out to be five, no sweat. But if one was looking to spend 3 billion and it turned out to be $5 billion??? That's some serious scratch!

 

Yes, but 5B to Apple is nothing, they make over that every two months.

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post #33 of 73
Quote:
Originally Posted by zoffdino View Post

Significant savings can be achieved if they plant new apricot trees in the middle of spaceship rather than relocated fully grown trees. AI reported that each tree would cost $60K to relocate. If I, as an investor, were given a vote on the matter, I would kill that plan.

 

They money wouldn't be going to you, though. I think it's money we'll spent and it shows how Apple thinks different.

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post #34 of 73
Quote:
Originally Posted by swaylon View Post

Apple increases their profits by $13 Billion dollars in one quarter and you fuss because the Campus is going to cost 5 instead of 3. Ridiculous!! Apple increasing the budget to $5B is like me upsizing my combo in drive-thru. I hope Tim Cook continues the vision for this world-class campus for this world-class company.

Apple's $13.1 billion in net profits last quarter is averages to $4.3 billion per month. That means it would it's a drive thru meal that costs more than 5 weeks of profits to pay for and about 2 weeks of profits just for the combo upsize.

If one makes, say, $25 hour and an upsized combo meal is $8 then to be apropos to your example I round up (your favour) to a half hour of work to have enough proft for this drive-thru meal. By my calculations that comes out to $126.7 million for the entire meal and at a 40% just for the combo upsize that's $50.7 million dollars over budget to eliminate any hyperbole with your example.
Edited by SolipsismX - 4/4/13 at 7:44am

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post #35 of 73
Quote:
Originally Posted by Constable Odo View Post

That's crazy. The Burj Khalifa only cost about $1.5 billion U.S. and at least that is something really spectacular to see.

 

I think this Apple campus will be the most beautiful corporate headquarters in the world. It's poetic in its beauty. No taxes in Dubai. The Burj is amazing is pure epic size/height, but it's not as beautiful as, say, The Empire State Building.

 

Say what you want but I love this circular building. The circle is the most beautiful shape in existence.

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post #36 of 73
Quote:
Originally Posted by ascii View Post

Working environment is important, if you're surrounded by perfection you're more likely to try and create perfection I think.

 

If your surroundings are inspiring you'll be inspired.

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post #37 of 73
Quote:
Originally Posted by MacHarry de View Post

The additional costs are less than 2 percent of Apples cash hoard. So What!
Quote:
Originally Posted by island hermit View Post

It sounds like my local municipal government calculated the budget for this building. 
Quote:
Originally Posted by zoffdino View Post

Dangerous thinking, my friend. Having a lot of cash doesn't mean you are allowed to squander it all away. This is exactly a reason why I, as an investor, don't like corporations keeping too much cash on hand. They will fall into the mindset of "we have too much, this amounts to nothing". They will build corporate jets, pay for expensive retreats, or overpay on acquisitions (think Microsoft). I prefer that company keeps a good amount of cash, say $50B, for capital projects, R&D and acquisitions, and distribute the rest to investors. With their cash hoard near $150B now, you've gotta admit it's more than they need to run their operations.

It seems clear to me that Jobs' intimations of his own mortality overlapped somewhere in the conception and design of the new campus - and while it should be a functional structure, its aesthetic overspeccing is a metaphorical pyramid/memorial ("seamless," "all curved," the heartwood of specific maples, the transplantation of mature trees [to look "finished" as soon as built], etc.).

The analogies to both government and corporate overreach are equally apt. New York is officially (and once was in actuality) "the Empire State," and as it sinks in a sea of debt, although it was already past its apex at the time, Gov. Nelson Rockefeller gave birth to the Albany Mall, a towering futurist campus to house the burgeoning bureaucracies now helping drag it under in a world where it's increasingly difficult to compete with more "lean and hungry" nations (and states for that matter).

And that campus is both a) still impressive, b) ludicrously out of place in the town of Albany and c) emblematic of a status New York state once, but no longer has - partially because of exactly the "it's only a few billion, so what?" attitude that passes for debate on public spending, e.g., "We can do this (and this and this and this and....), we're frikkin' America!"

The best description I read, then or now, and which applies here, as many smart and hard-working companies and people simply don't lie down and leave the production of new personal digital products to Apple, is that Rockefeller had "an edifice complex."

As soon as anyone or any organization begins to assume their place in the pecking order and scheme of things is secure and worthy of immortalization, with hubris still one of the "seven deadly sins" and pride still going before falls, it almost always already isn't anymore.

Apple ignores this at its own peril.

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post #38 of 73
Quote:
Originally Posted by Rogifan View Post

I say we blame Jony Ive.  1biggrin.gif

Maybe Jony can 'flatten' the design? 1wink.gif
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post #39 of 73
First, as others have said, big projects like this almost always have underestimated budgets.

Second, come on people. It's not like everyone on this thread has never splurged on a one-time purchase. It's not like Apple is buying OMGPop for $183,000,000 because they made one successful casual iPhone app (cough, Zinga) or buying Palm for $1,200,000,000 (hack, HP) or buying Yammer for... oh you get the picture.

Apple is investing in a new company headquarters and this real estate will have REAL value, business value, as well as perceived value. This cannot be compared to some slippery slope for bonehead exorbant purchases. That is unless Apple decides to build a headquarters in each country it has a presence in.
When a company stops chasing profit and start chasing the betterment of their products, services, workforce, and customers, that will be the most valuable company in the world.
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post #40 of 73
Quote:
Originally Posted by SolipsismX View Post

Apple's $13.1 billion in net profits last quarter is averages to $4.3 billion per month. That means it would it's a drive thru meal that costs more than 5 weeks of profits to pay for and about 2 weeks of profits just for the combo upsize.

If one makes, say, $25 hour and an upsized combo meal is $8 then to be apropos to your example if round up (your favour) to a half hour of work to have enough proft for this drive-thru meal. By my calculations that comes out to $126.7 million for the entire meal and at a 40% just for the combo upsize that's $50.7 million dollars over budget to eliminate any hyperbole with your example.

Last time I use metaphors in replying to you! 1wink.gif
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