Hoping Is Hard in Silicon Valley
Since the Tech Stocks Went Bust
By MYLENE MANGALINDAN
Staff Reporter of THE WALL STREET JOURNAL
Updated July 15, 2002
SAN JOSE, CALIF. -- David Callisch wistfully remembers "all those 0s."
By that, he means the seven zeros in the monthly statement that arrived from his stock broker back in 2000 -- showing Mr. Callisch's investment worth $10,000,000 in just one stock, Alteon WebSystems Inc.
Alteon's shares had quadrupled the day of its initial public stock offering in September 1999, and Mr. Callisch, the communications director of the Internet switch-maker, figured he was set for life.
If only he had sold.
But when Nortel Networks Corp. agreed to buy Alteon in July 2000 in a stock swap, he decided to keep the shares of Nortel, then a highflying telecommunications company, which were trading for $73 at the time but had fallen to $66 when the deal closed. He held on as Nortel's stock fell -- and fell, and fell. By the time he gave up and dumped it at $7 a share, his portfolio had dwindled to about $400,000.
While that hardly qualifies him for food stamps, the 41-year-old laments, "Guys like me don't get that shot. I'll never get that shot again." He tells his 11-year-old son: "We missed the boat."
In a time that now feels long, long ago, in a place that seems far, far away -- Silicon Valley , circa 2000 -- Mr. Callisch was just one of many megamillionaires, on paper. Nowhere did the tech-stock bubble inflate more spirits and fortunes than here, where even the lowest-level employees could rationally expect to become rich. Now, nowhere is the worsening tech-stock debacle being felt more acutely, dimming the little remaining optimism in this famously optimistic region.
Though it covers a small geographic area -- technically the region from San Jose to Palo Alto -- Silicon Valley came to represent the tech world throughout the San Francisco Bay area and, more broadly, a place where dreams came true. Two years ago, the talk around office water coolers focused on the good life. Real and wanna-be entrepreneurs and venture capitalists congregated frequently at eateries like the Blue Chalk in Palo Alto and Bucks in Woodside, bantering about the next new thing that would make them richer than rich.
Even until early this year, most felt that eventually -- and possibly soon -- things would turn around. While few expected a return to the days of the dot-com frenzy, many felt that stocks would rebound, the value of stock options would rise above water and tech workers could once again pay cash for BMWs and million-dollar homes.
Not anymore. The continued bloodletting of the Nasdaq Composite Index this year and dimming prospects for a tech recovery have created a distinct change in mood. The nouveau not-so-riche are tightening their belts. And the well-educated dreamers who moved here to seek their fortunes are increasingly disillusioned, with some considering bank-teller and other hourly-rate jobs to make ends meet. Even many venture capitalists who fueled the bubble are sitting on the sidelines rather than looking for new start-ups to bankroll.
A San Jose State University study shows that more than seven-of-10 consumers here say conditions in Silicon Valley are worse than a year ago. And people in the valley are less confident than the rest of the nation, according to the 1,000-person survey, released Friday. Nor are consumers convinced things will get better any time soon. Fewer than half, or 48%, now expect business conditions to be better in 12 months, down from 63.6% in March.
No wonder. Many of the residents of Silicon Valley equate their wealth with the financial markets, particularly the Nasdaq Stock Market, now at a five-year low and down 73% from its March 2000 peak. It isn't just dot-com companies like Yahoo Inc. -- whose stock is down 95% from its high -- causing financial losses. Cisco Systems Inc.'s stock has plunged 82% from its peak, Hewlett Packard Co. 80%, Oracle Corp. 79% and Intel Corp. 76%.
"The Nasdaq represents the fortunes of the high-tech world," said Philip Trounstine, director of the Survey and Policy Research Institute at San Jose State University, which conducted the Silicon Valley consumer-confidence study. "As the Nasdaq suffers, so do those people who depend on those companies either for their income directly or their investment value. There are an awful lot of people who have relatives who used to work at these silk-stocking blue-chip companies that are the backbone of the Internet economy. These are the machine-tool companies of the Information Age."
Mr. Callisch, the former Alteon employee, is one of those feeling the pain. When he joined the company in December 1997, Mr. Callisch told his wife, Carin, to give him four years and they would score big. At Alteon, he often worked from 7 a.m. to 11 p.m., rarely getting home before his kids were in bed.
'I Should Have ... Sold It All'
The bet seemed to pay off when Alteon went public. He and Carin popped a bottle of Champagne. He remembers making plans -- to retire, to go back to school, to spend time with his three sons. His relatives, his colleagues, his broker all told him to diversify his holdings. He didn't.
"I should have stopped, sold it all, taken some time off and figured out what to do," he says. Instead, even though he stayed at Nortel for only six months after it bought Alteon, he held onto his Nortel stock and waited for the right time to sell. It's humiliating, he says: "It's all because of ignorance and greed. You don't know when to sell. You think you deserve a certain share price, and you don't."
Mr. Callisch says his phantom wealth didn't significantly change his lifestyle, so he hasn't had to scale back. The family lives in a comfortable four-bedroom house here, and he isn't complaining. He is back to working long hours, at Allegro Networks, a pre-IPO networking start-up, but he knows there is little chance the eventual IPO will produce a dramatic payday.
Though he can still hope. When he sold his Nortel shares he bought Cisco shares, figuring they will go up with the market (so far, the shares are little changed from when he bought them). With the lease on his Saturn sedan almost up, he is planning to take out a loan to buy a new car. "I don't want to sell stock to get a car, because I would have to sell low," he explains.
'Bizarre Twist'
Jason Thompson is on the other end of the extreme. The Oxford-educated journalist moved to Silicon Valley in 1999 during the height of the boom. After a brief stint at an Internet start-up and getting laid off from a magazine called Streaming Media, his "professional roller-coaster ride" took a bizarre twist.
Unable to find a media job and desperate for cash, Mr. Thompson was forced to find work as a roller-skating demonstrator at an FAO Schwarz toy store. During the Christmas season, he skated and sang karaoke for $12 an hour before hundreds of little children and their parents. "It was amusing at the time but it was pretty bleak," Mr. Thompson recalls.
From that experience, he managed to win some free-lance newspaper assignments. The work isn't enough to support him and his wife, so Mr. Thompson continues to network and search for new job leads. He has company in that task: On a recent weekend camping trip, half of the eight participants didn't have jobs, he said. "When times were good, there were hundreds of postings on Craigslist," an informal job-postings Web site. "Now, it's different. People are hiring their friends exclusively."
Mr. Thompson is considering taking a job as a bank teller just to pay the bills. He and his wife are "committed to staying in the Bay Area, we love it here," he says. "I wouldn't want to feel we were being forced out because of economic forces. So I'm prepared to look for work in areas I wouldn't have imagined in the past."
Many here are quick to acknowledge they are fortunate in comparison. Still, the somber news on Wall Street has put a crimp in their spending and their mood. Eric Wolff, a 42-year-old marketing pro, two years ago traded in a used Lexus for a new BMW323. Now, he refuses to replace his personal organizer with a newer model that includes a phone. "There's no way in this economy I'm going to throw away $400," he says.
Some Silicon Valley workers have mostly abandoned tech stocks and -- gulp -- kept shares in what once were derided as Old Economy companies. Kurt Scherer, a senior manager at online software firm UpShot Corp., says he's holding onto only his shares of Procter & Gamble Co. and "a couple of dogs," like BroadVision Inc., which are now trading for less than $1.
The venture capital field has "had its hat handed to it" after the boom years, says Bill Burnham, a partner at Mobius Capital in Mountain View, Calif. Even so, he notes, the atmosphere is strangely calm, in part because of the still-exuberant real-estate market, which remains heated and is behaving like it was the year 2000 despite the Nasdaq's slide. "It's like reading in the paper that there was a 7.0 [Richter scale] earthquake and walking outside and seeing everything normal," Mr. Burnham says.
But he acknowledges that unbridled faith in high housing prices is specious at best. "When the housing market cracks in Silicon Valley , then the spirit will finally be broken," he says. "That's the one belief that's left."
-- David Bank, Rebecca Buckman and Scott Thurm in San Francisco contributed to this article.
Write to Mylene Mangalindan at mylene.mangalindan@wsj.com |
