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Houston is winning the competition to establish tech hubs in Texas – MarketWatch

An artist’s rendering of Hewlett Packard Enterprise Co.’s new corporate headquarters in Houston. It is scheduled to open in early 2022.

Illustration courtesy HPE

A crumbling Sears department store is being converted into a sparkling, state-of-the-art space for early-stage tech startups to receive financing and expert advice. The shell of a Baker Hughes Co. facility that manufactured oil and gas equipment is home to a bustling “maker lab” for 33 tenants. A 300,000-square-foot complex incubating the next tech ideas for the likes of Johnson & Johnson and AT&T Inc. is known affectionately as “the cookie factory,” because it was originally the home of Nabisco. 

These scenes from Houston are part of an attempted industrial resurrection for the nation’s fourth-largest city, which is trying to move from older companies that were a part of the city’s oil-propelled boom to an economy based on fostering technology. The crown jewel of this renaissance could be the gleaming new corporate headquarters of Hewlett Packard Enterprise Co. HPE, +1.96% in northern Houston — when the sprawling, 439,000-square-foot complex designed in part by HPE Chief Executive Antonio Neri opens in early 2022, it will be home to about 3,000 people, making HPE the city’s eighth-biggest employer.

“Every company [in Houston and elsewhere] is an IT company now,” Neri told MarketWatch in a 30-minute video interview last week. “They all need to turn their talent in different directions, and reinvent themselves.”

HPE’s decampment to Houston offers a vivid snapshot of a new tech frontier where the energy industry, three major local universities, the world’s largest medical center, the mayor’s office, and the local tech ecosystem are working hand-in-hand to accelerate research in medicine, climate change and cloud computing.

A confluence of events — stepped up by the pandemic and a steady migration of Californians to Texas — has helped Houston shed its image as an oil town and position itself as the hardware-solutions tech nexus to Austin’s business-to-consumer software/app focus, and the old-school sensibility of Dallas (the global headquarters of AT&T Inc. T, +0.96% ). San Antonio, too, is part of the mix, as a data-center destination.

Houston’s resurgence is part of a Texas tech wave: Oracle Corp. ORCL, +2.54% is relocating its corporate headquarters to nearby Austin, and Tesla Inc. TSLA, +0.63% is expanding operations to the state capital as well.

“I want the rest of the world to know how much Houston is changing,” Amy Chronis, managing director of Deloitte Houston, told MarketWatch. “The wakeup call was Amazon looking at candidates for HQ2, and Houston not making the second cut. Not enough technological talent was their reason. It was incorrect, but it lit a fire here.”

Mixing the old and the new

Seen through the prism of old, established facilities converted into accelerators and incubators, Houston may be America’s preeminent new tech hub. Sure, the pandemic played a part in a recent migration of tech workers from California to Texas, but the trend was already in motion, as energy companies and medical facilities pivoted to tech.

“For years, Houston was lagging the rest of the county in its innovation-engine system. Houston was always an industrial, major organization city,” Bob Harvey, CEO of Greater Houston Partnership, the business organization for the 12-county region that functions as a Chamber of Commerce, told MarketWatch. “What we didn’t do well was startups. Houston is now showing up in lists of tech talent.”

What has changed is an intertwined economy that includes three major universities in the area: Rice University, the University of Houston and Texas A&M University. The likes of Chevron Corp. CVX, +1.43%, Shell RDS.A, +1.39% and Halliburton Co. HAL, +3.56% are working more closely with local tech startups in an attempt to expand their businesses after relying for years on in-house R&D, and cloud giants such as Microsoft Corp.’s MSFT, +0.19% Azure, Amazon’s AMZN, -0.32% AWS and Alphabet Inc.’s GOOGL, +0.38% GOOG, +0.31% Google Cloud are placing more talent in Houston to work with the energy industry.

Circling back to Compaq

Change is coming, but with deep Houston roots. In 2001, then-Hewlett Packard Co. merged with Compaq Computer Corp., based in Houston, for $25 billion in one of tech’s most controversial mergers. By the time the corporate dust had settled, in 2015, HP was split into HPE and HP Inc.

To be sure, an influx of startups has set the stage for HPE’s return. The appeal of a massive labor market teeming with engineers, a booming enterprise market, a low cost of living, and a thriving health industry led to several sizzling startups to open second headquarters in Houston.

Among the transplants are Roboze Inc., an Italian-based robotics company specializing in 3-D printing of high-spec parts for energy and aerospace industries; autonomous driving unicorn Nuro; fintech firm; and Solugen Inc., a green tech company that processes and cleans water in petro-chemical plants.

In a state teeming with tech expansion, Houston appears to be the hot spot, as Austin grappled with flagging funding over the past year. Venture-capital investments in Houston increased to $753 million in 2020 from $284 million in 2016.  Last year, Houston-based health-care companies generated $256 million in VC funding, accounting for $1 of every $3 VC dollars raised there. 

“One way to keep people in Houston is to get more venture funding and develop talent here,” said Sandy Guitar, managing director of the HX Venture Fund. She knows from personal experience: She founded a company in Palo Alto, Calif., and commuted there from Houston for years.

Talent has always been in Houston, which ranks first in the U.S. for tech workers in non-tech companies, according to a Cyberstates study in April 2021.

The shadow of nearby Austin

Yet Austin, home of the SXSW digital conference/musical festival/film festival, has traditionally been Texas’ tech darling.

“Austin did a good job of being viewed by the coasts as the tech center of Texas,” Harvey of Greater Houston Partnership said. “But it has become more expensive and crowded. Plus, what Houston has to offer is culture, professional sports and a more diverse community.”

What also distinguishes the Houston tech scene is the nature of its mission. Many of its companies are tackling big problems — health, climate change — that require “hard tech,” said Dr. Emily Reichert, CEO of Greentown Labs, the largest climate-tech startup incubator in North America. Its tenants include SolarFi, a maker of solar-powered pods, and Katz Water Technologies.

Ambitions are equally sky high at Texas Medical Center (TMC) Innovation, a 300,000-square-foot facility that was the former home of Nabisco, the cookies and snacks subsidiary of Mondelēz International Inc. MDLZ, +0.11%. One of TMCI’s occupants, Johnson & Johnson’s JNJ, +0.40% JLABS, works with Stellanova Therapeutics, which is developing an antibody that targets fiber blast cells that protect cancer cells against treatment and promote cancer cell growth, and biotech firm Tvardi Therapeutics. Tvardi, which is developing medicines for cancer, chronic inflammation and fibrosis, just landed $74 million in funding.

Pharma and medical devices are the focus at JLABS, Fiona Mack, the lab’s head, told MarketWatch.

Meanwhile, catty corner from Greentown Labs is The Ion, a six-story, 266,000-square-foot art deco building that opened as a Sears department store in 1939. When the tech and innovation hub opens in the fall, it will be home to Chevron Technology Ventures and Microsoft Corp., according to Jan Odegard, Ion’s executive director.

The ’15-minute city’

“Eventually, we want to turn midtown here into a 15-minute city,” Odegard told MarketWatch, referring to a major business/lifestyle movement among the under-40 crowd in the San Francisco Bay Area, Phoenix and elsewhere — where people work and live within a 15-minute driving radius. This is an especially novel approach in a metropolis like Houston, where it often takes an hour to get from one location to another, traffic pending.

On the other end of town, in an industrial section, the $37 million East End Maker Hub was once home to Baker Hughes Co., one of the world’s largest oil-field services companies that was acquired by General Electric Co. GE, +2.25% in 2017. The 307,000-square-foot facility (yes, it seems everything in Houston is large) houses 33 local manufacturers, fabricators, crafters and innovators. One standout is Volumetric Biotechnologies Inc., a Houston startup that makes 3-D-printed human organs. It has leased about 11,000 square feet.

“We have it all here — welders, shop artists, robotics, all manufacturers, a prison-entrepreneurship program,” Mike Pittman, vice president of real estate for Urban Partnerships Community Development Corp., told MarketWatch.

Halliburton Corp., which reported $14.45 billion in sales last year, is taking an in-house approach. The multinational conglomerate just opened a new tech center to “lower the friction” between itself and startups. Its initial cohort, NanoTech Inc., is a material-science company focused on fireproofing and insulation technologies that recently completed its $5 million seed round of financing.

“This is a front door for the company to engage with companies, and expand into areas where Halliburton is already working,” Dale Winger, managing director of Halliburton Labs, told MarketWatch.

Neri’s deep Houston roots

At the Greater Houston Partnership’s first State of Technology event in April, HPE’s Neri struck a familiar theme: The original Silicon Valley startup, whose roots extend to Palo Alto, Calif., in 1939 as Hewlett-Packard Co., moved its corporate headquarters to Texas to take advantage of a large, diverse talent base.

There is some personal history there, in addition to generous state tax breaks. Neri, who lived in Houston from 2007-’15 while working as an HP executive, acknowledged that HPE has to do “way more work” in inclusion and diversity, and that the task is more easily achievable in Houston than in the more competitive San Francisco Bay Area. He promised a new facility in Houston in 2018, and announced the corporate headquarters move to Houston in December 2020.

HPE’s new campus serves as a blueprint for the hybrid work experience — an interconnected phalanx of office space, amphitheater, gym and cafe. HP Inc. HPQ, +0.40% and Exxon Mobil Corp. XOM, +1.81% also have facilities in the same Springwoods Village development just north of Houston.

“I made a promise in 2018 to build a new campus in Houston,” said Neri, who had a major hand in its design. (Neri also studied art in Argentina for nine years and has taught art, specializing in drawing and painting.) “It’s really the best of both worlds, with major operations in Houston and San Jose.”

HPE will maintain a large workforce focused on product innovation in San Jose, Calif., though it is in Houston that HPE has its second-largest workforce, behind India.

“The talent is in Houston and Silicon Valley,” said Neri, who will spend most of his time in Houston, with other executives sprinkled between the two regions. He also mentioned the geographical advantage Texas offers for traveling to Latin America and Europe for business.

Pradeep Kumar, who as senior vice president and general manager of HPE’s Pointnext Technology Services group, leads a $6 billion business that employs 17,000 people. HPE reported $27 billion in 2020 sales; it employs about 60,000 worldwide.

“There is always competition for up-and-coming talent in [Silicon] Valley, and it will continue despite antitrust backlash,” Kumar, a Compaq veteran who has lived in Houston for 23 years, told MarketWatch. “We have an advantage in Houston with college grads and existing talent. It is our city’s time.”