Hewlett Packard Enterprise is pulling up its stakes in Silicon Valley and heading for Texas. It is not the first large technology company to move, nor will it be the last.
If you visit a private HP Garage museum in Palo Alto, California, you will see a plaque announcing it as “Silicon Valley Birthplace.”
“This garage is the birthplace of the world’s first high-tech region, Silicon Valley,” the marker reads. He names two Stanford students, William Hewlett and David Packard, who “in 1938 began to develop their first product, an audio oscillator, in this garage.” (The pair’s first customer? Walt Disney, who at the time was working on the 1940s Fantasy.)
Earlier this month, Hewlett Packard Enterprise (HPE) announced – as the company is now known – that it would leave Silicon Valley for Houston, Texas, where it is currently building a world-class campus when. (HPE, which makes servers and networking gear, should not be confused with HP Inc., the laptop and printer maker. Both companies were created in 2015 after the Hewlett-Packard Company split its businesses.)
It is not the first technology company to relocate its headquarters from California to Texas, which by far has a much more favorable business climate. SignEasy, QuestionPro and DZS all made moves during the last 12 months. What makes HPE’s decision especially noteworthy is not just its size – the company reported $ 7.2 billion in sales in the quarter ended Oct. 31 – but also its role as one of Silicon Valley’s founding companies.
Elon Musk Snubs California. Is Tesla Next to Come to Texas?
I don’t think HPE will be the last big tech company to say goodbye to the Golden State and hello to Lone Star State. There is speculation right now that Tesla could be next to move.
It would make sense. Tesla CEO Elon Musk already has strong ties with Texas. SpaceX, the entrepreneur’s other major venture, has a rocket production facility and a testing site in Boca Chica, just south of Brownsville.
Construction on Tesla’s next production facility is taking place in Austin. When completed next year, the factory will build not only EVs – including the carmaker’s upcoming Cybertruck – but batteries as well. Musk Piercing Company, which specializes in tunneling and transportation infrastructure, is also eyeing the capital of Texas, an emerging technology hub in its own right.
Now the world’s second richest person, Musk this month relocated from Los Angeles to Austin and brought with him his private Musk Foundation, which grants grants to support renewable energy, artificial intelligence, space exploration and more.
The move follows fellow technology entrepreneur Joe Lonsdale, cofounder of big data analytics firm Palantir Technologies. Citing California’s high tax rate, Lonsdale moved his family as well as his venture company, 8VC, from San Francisco to Austin. Palantir, which went public at the end of September, also left Silicon Valley, settling on Denver.
Like Lonsdale, Musk had sharp words to share about California when he spoke to the Wall Street Journal this week, likening the state to a sports team that has grown complacent after winning too many games.
Such teams “tend to get a little complacent, a little entitled, and then they no longer win the championship,” he said, adding that California “has been winning for a long time. And I think they took [those wins]allow a little. ”
Texas: No Income Tax, Big Opportunity
I often say that money flows where it is most respected, and this story confirms that. While California takes as much as 13.3% of the top earners’ income – one of the highest rates in the US – Texas is one of only seven states that have no income tax.
By becoming a resident of Lone Star Province, Musk is set to save billions in taxes. This year alone, it has seen its wealth grow an unbelievable $ 120 billion as Tesla’s stock surged more than 660% ahead of its December 21 debut in the S&P 500 Index.
But it’s not just the uber-rich who are moving to Texas. According to the New York-based fintech company SmartAsset, Texas was number two among provinces where upper-middle-class families are moving. Between 2017 and 2018, Texas saw a net gain of 6,706 upper middle-class people, second only to Florida, which saw a staggering 18,876 people, SmartAsset reported in October. The company defines upper middle class such as those with incomes between $ 100,000 and $ 200,000.
California, meanwhile, has seen a net outflow people. In 2019, more than 653,000 Californians left the state while only 480,000 became residents – resulting in a deficit of 173,000. Texas was the main destination for those fleeing the state.
Looking at house prices helps to explain why. At $ 242,000, the typical price of a single-family home in Texas was well below the national average in October, according to Zillow data. Buying a similar home in California cost you almost three times more, with the typical asking price pushing past $ 700,000.
If that’s not bad enough, the cost of doing business in California is too high. The state was nearly dead last in the Tax Institute’s State Business Tax Climate Index for 2021. Only New Jersey ranked lower.
By comparison, Texas was number 11. (Wyoming was top of the list, followed by South Dakota at number two and Alaska at number three.)
Thank goodness for Texas
There’s a saying in Texas you may have heard before: “I wasn’t born in Texas, but I got here as fast as I could.”
It’s a trite expression, and looks good on t-shirts and coffee mugs. But it’s more than that. As many of you know, I was raised in Toronto, but San Antonio has been my home for over 30 years now. The city has also been home to US Global Investors for more than 50 years. I would have no other way.
People are moving to Lone Star State in droplets because they can find all the amenities, culture and opportunities you might expect in places like California, at a fraction of the cost. Likewise, companies like HPE and, possibly, Tesla, recognize the benefits that Texas offers – low cost of living, large talent pool, exceptional infrastructure and more.
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Originally published by US Funds, 12/10/20
All opinions expressed and data provided may change without notice. Some of these views may not be appropriate for all investors. By clicking on the link (s) above, you will be directed to a third party website (s). US Global Investors does not endorse all information provided by this website (s) and is not responsible for their content.
The S&P 500 Index is a stock market index that measures the stock performance of 500 large companies listed on US stock exchanges. The Zillow Home Value Index is a smooth, seasonally adjusted measure of typical home value and market changes across a specific region and type of housing. It reflects the typical value for homes in the 35th to 65th percentile range. The State Business Tax Climate Index is a measure of how well states are structuring their tax systems. It enables policymakers, business leaders and taxpayers to measure how their states’ tax systems compare, and provides a roadmap for improvement.
Holdings can change daily. Holdings are reported to be from the most recent end of quarter. The following securities mentioned in the article were held by one or more accounts managed by US Global Investors on 9/30/2020: Tesla Inc.