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Here's Why Tech Companies Are Fleeing Silicon Valley

In recent weeks, we've learned that tech heavyweights including Oracle (NYSE: ORCL) and Hewlett Packard Enterprise (NYSE: HPE) have decided to move their headquarters away from Silicon Valley. This would have seemed crazy just a few years ago, but it seems as if the tech world might finally be starting to look elsewhere.

In this Fool Live video clip from our Dec. 14 Industry Focus show, host Jason Moser and Fool.com contributor Matt Frankel, CFP, discuss why tech companies are deciding to relocate, and whether other major cities could see companies leave as well.

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Jason Moser: Well, Matt, we're seeing signs that companies and leaders are starting to grow a little weary with California. Elon Musk recently moved to Texas. Now, Oracle has announced its moving its headquarters to Texas. Matt, I understand the sentiment. There's some concerns with regard to regulatory issues, taxes, yada, yada, yada. I'll read a quick quote here from Elon Musk where he said, "If a team has been winning for too long, they do tend to get a little complacent, a little entitled, and then they don't win the championship anymore. California has been winning for too long and I think they're taking them for granted a little bit." Them being the business people and the innovators. Matt, we're seeing businesses and companies continuing to look at leaving California for one reason or another as remote work becomes more consideration, more an opportunity. It feels like to me that's something we may see some more of here in the coming year. We were talking over the weekend about this. It seems like it's going to be a catalyst for a handful of real estate oriented stocks out there, right?

Matthew Frankel: It's good for some and bad for others. [laughs] Just to add to that list, Hewlett-Packard's another one that's leaving California.

Moser: Yeah.

Frankel: First of all, why are companies leaving California? High taxes, extremely high cost of living in Silicon Valley, which also translates to high cost of employment. I don't remember the exact data, but I remember the average salary of Facebook (NASDAQ: FB) is something like $300,000 a year.

Moser: That's amazing.

Frankel: The reason is not because Facebook pays it employees exorbitant amounts of money, it's because it costs that much to live in Silicon Valley.

Moser: Yeah.

Frankel: It's not just a remote work thing, it's a cost-saving thing. Question number 2 is why Texas?

Moser: No state income taxes. That's one thing.

Frankel: No state income taxes, real estate is relatively cheap. If a company wants to get a couple of dozen acres of land and build a new headquarters, it's a lot cheaper to do in Texas than in Silicon Valley.

Moser: Sure.

Frankel: No state income taxes. Miami is other popular destination for that reason. I can't remember which companies that they were moving to Miami. Goldman Sachs (NYSE: GS) said they're bringing a lot of their operations down to Miami.

Moser: Wow. Okay.

Frankel: That's another. Florida has no state income tax, which is another big motivator and the weather's nice. It's like Silicon Valley on the east coast weather-wise, I guess you'd call it.

Moser: Maybe a little rainy. Well, I don't know.

Frankel: Little rainier, but warm. Tech guys don't like it cold for whatever reason. [laughs] One question, before I get into some real estate things, do other cities have to worry about the same thing? Which if it's a remote work thing they do? If the thesis is people are going to be able to work remotely, they're not going to want to do it where it's expensive. They're going to leave. Then other cities have to worry. But I don't think cities like New York have as quite as much to worry about.

Jason Moser: Maybe not.

Matthew Frankel: New York doesn't have nearly as many company headquarters, especially in the tech industry, as silicon valley does, what companies are headquartered in New York? Mostly financial service companies.

Jason Moser: Financial capital.

Matthew Frankel: Because they need a good proximity to Wall Street. Wall Street's not moving. I don't think Wall Street itself is going to relocate to Texas.

Jason Moser: Very doubtful. That would be pretty cool. I'm not going to lie [laughs] Now, if you had plenty of barbecue catering lunches, afternoon siesta, just a little bit more of a lay back workday, that'd be pretty sweet actually. [laughs]

Matthew Frankel: You can make a case for it, but that doesn't mean it's going to happen. [laughs] But point being, I think this is a disproportionately California issue.

Jason Moser: Yeah, I think you're right.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jason Moser has no position in any of the stocks mentioned. Matthew Frankel, CFP owns shares of Goldman Sachs. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.


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