I'm not sure you guys are going to like this TSC article...caviar anyone?
thestreet.com
Easy Money: Lifestyles of the Rich and Anonymous
By Jeffrey Hoffman
Staff Reporter
7/29/98 10:43 AM ET
PALO ALTO, Calif. -- Vintage Merlot and Chardonnay flowed
freely at the open bar. Bow-tied servers plied guests with
mini moo-shoo burritos and other canapes only Californians
could dream up.
Across the custom-designed kidney-shaped pool, the San
Francisco Cabletones -- a bass, accordion and clarinet trio --
played ragtime and soft 1930s jazz. The guests came from
four continents and the talk was all technology: LANs,
WANs, gigabytes per second and the future of integrated
voice-data networks.
Newly minted electrical engineers and computer scientists
may dream of being the next Andy Grove or Bill Gates. But
from the looks of this party, being Doug Spreng ain't too
shabby either.
Doug Spreng?
Spreng is a senior vice president at 3Com (COMS:Nasdaq),
and last week he hosted the semiannual dinner for media
and analysts at his four-bedroom, three-bath,
3,007-square-foot Palo Alto house.
The Valley's creme, like elite everywhere, love a lavish party.
And why not? They're sitting, stock options in hand, atop
one of the biggest industrial dynamos in history, at the heart
of the information-technology revolution. Ostentation and
tobacco, however, are frowned upon -- and everyone's on a
first-name basis, from the chairman on down. When these
techies party amongst themselves, they prefer open-collar,
low-starch affairs.
Of course, plush festivities are hardly justified by 3Com's
pathetic share price. The Santa Clara-based maker of
computer networking equipment got a bad case of corporate
indigestion last year after acquiring the No. 1 modem maker,
U.S. Robotics. Bloated inventories trashed earnings, which
caused 3Com's stock to make like a bottom-feeding catfish.
The shares have lost two-thirds of their value since the
merger was announced in February 1997 and have been
stuck in the 25 to 35 range for nine months.
And yet Spreng, who oversees the production and sales of
3Com modems and other client-end gear, was neither
apologetic nor defiant about the stock's performance.
"Yeah, well, Wall Street is a lagging indicator," Spreng said
with a chuckle. "Mergers are tough. [Investors] are in a
'show me' mood, and they should be. We just have to show
solid earnings from quarter to quarter and after a while, they
will realize that we're back. And we will be back."
Spreng can afford to wait. According to Baseline, Spreng
sold 46% of his 3Com holdings in mid-January 1997, when
the stock still traded around 75 -- netting him a cool $3.3
million.
The day before the soiree, Michael Murphy, editor of the
California Technology Stock Letter, was holding forth on the
prospects of a 3Com turnaround. 3Com's strategy of
focusing on the "edge" of computer networks -- making
remote access devices and modems -- while ceding the
high-margin "center" of the network to rival Cisco Systems
(CSCO:Nasdaq) may not be feasible.
"You can tell by the stock price there's not a lot of belief this
will be a fast turn. But you don't see people beating up on
the management and saying, 'We have to get something
done,'" said Murphy. "They're willing to wait. We're all
waiting for the same thing."
According to Murphy, that would be an acquisition of 3Com,
possibly by telecom equipment giant Lucent Technologies
(LU:NYSE), possibly in October when the AT&T (T:NYSE)
progeny is able to structure a deal as a pooling of interests
and avoid a huge write-off.
Standing next to the pool, Spreng was explaining why 3Com
isn't interested in a merger, deriding Northern Telecom's
(NT:NYSE) recent buyout of Bay Networks (BAY:NYSE) as
"like a nonfat decaf latte -- why bother?"
"We've thought about that a lot," he said. "We're focused on
remaining an independent company. We don't think a
merger will benefit shareholders in the long run."
But before Spreng could elaborate, a worried-looking 3Com
public relations guy broke in and asked a reporter to put
away his notebook and tape recorder. "This is a social
event," he said. "Let's keep it that way. We don't want
people to start whipping out their cell phones."
With business discussions suddenly taboo, it was off to the
buffet line.
Dinner, like the appetizers, was very California. Lots of
skewered, roasted vegetables, raw Thai-style spring rolls
and delicate crab cakes. Palo Alto caterer Victoria Emmons
(whose business card boasts, "We catered for Queen
Elizabeth") included prime rib at the end of the table as a
concession to unreformed carnivores and others recently
arrived from the East Coast. But mostly it was light fare
intended to keep arteries clear and minds alert through
lengthy post-dinner discussions of the future of
communications networks.
The event took place al fresco in the Sprengs' back yard.
Barbara and Doug moved into the recently constructed, red
stucco house about a year and a half ago. "Not long enough
to get bored with it," Barbara said with a slightly
embarrassed smile.
Casa Spreng sits on about an acre of land on a tree-lined
street in one of Palo Alto's more posh neighborhoods. The
grounds are immaculately manicured and feature a sculpted
goldfish pond. According to DataQuick Information
Systems, Spreng bought the 10-room house on Aug. 1,
1995, for $1,506,200, but a call to a Coldwell Banker realtor
says it could easily go for $2 million to $3 million today --
almost as good a deal as selling COMS in January 1997.
But before you think that the Sprengs represent the Valley's
spoiled technocrats, realize that a million-dollar house can
no longer be considered excessive in this town -- birthplace
to Hewlett-Packard (HWP:NYSE), Cisco, Yahoo!
(YHOO:Nasdaq) and Excite (XCIT:Nasdaq), just to name a
few. Put stock options in the hands of successive
generations of geeks and real estate values can get out of
hand.
In a stark reminder of what localized inflation really means,
consider that the average Palo Alto home costs over
$500,000 now, according to Coldwell Banker realtor Patrick
Ferris. Or ask Jack, one of the bartenders and a transplant
from New Jersey. He'll tell you the Sprengs' place is modest
for a successful Silicon Valley senior executive. "I've seen
bigger," said Jack, who has worked enough of these parties
to know.
The cruel fact is, the Sprengs are merely average. From
1994 to 1996, the 50-mile-long strip between San Francisco
and San Jose produced 45,000 millionaires, according to
Payment Systems. And that's ultimately the rub. For in
spite of their newfound wealth (in fact because of it), the
sheer cost of living in the Valley has priced even
multimillionaires into the low end of the market.
Sure, the gossip columnists will focus on the mansions of
Larry Ellison, the billionaire chief executive of Oracle
(ORCL:Nasdaq), who will soon inhabit a $40 million replica
of a Japanese palace on 23 wooded acres in the lofty hills
above the Valley. But the daily existence for the average
technology company executive, while no doubt comfortable,
is pretty down-to-earth. Or at least down in the flats, where
Doug Spreng lives.
For more info on institutional holders of these stocks, as
well as financial statements and earnings estimates, please
see the Thomson Company Reports.
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