Watching Where the Chips Fall

No, Laura Cunningham sighed--again. The downturn had not, repeat not, made tables at the French Laundry suddenly easy to get.

All she’d said was that cancellations at the five-star restaurant were up slightly. Thus, those who hadn’t reserved two months in advance had a better shot on the same-day waiting list, maybe. But in Silicon Valley, no sign, not even an offhand remark from a wine country restaurant manager, is too arcane now to be turned into an economic index. “Cool economy cuts crowds at hot restaurants,” heralded the San Jose headline that ricocheted this month through the Bay Area, touching off waves of false hope among foodies.

“I should have mentioned our wine sales, which are up 20%,” Cunningham joked, between wannabe walk-ins. “Maybe it means that people are drinking their sorrows away.”

The economy has been unsettling from coast to coast all year now. But--in standard America-only-more-so mode--the recession watch in Silicon Valley has gathered its own, characteristically inordinate sort of steam.

Here as elsewhere, indicators are hopelessly muddled, but the mix has yielded a more-stubborn-than-usual refusal to settle for anything less than definitive answers. If data on homes, jobs, profits and venture funding won’t say for sure whether this slowdown is a blip or a disaster, the thinking seems to go, then maybe there’s a clue on the black-tie circuit. Or the Gulfstream market. Or the progress of construction on Larry Ellison’s Japanese mansion.

In recent weeks, local news outlets have attempted to measure the situation in gloating have-nots, psychiatric hospital admissions and techies in attendance at a speech by the Dalai Lama. Cocktail conversation in Silicon Valley has fixated on whether rush-hour traffic has suddenly thinned out, and if so, whether it’s due to dot-com layoffs. A San Mateo BMW mechanic confided last week that he has taken to counting the number of clients who no longer give him stock tips. This month’s open question on the Bay Area society scene has been whether new tech money will again make the Napa Valley Wine Auction the blowout it was last year.

“Yeah, it used to be Lexus dealers,” chuckled Stephen Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto, recalling the alternative indices in California’s last economic downturn. “Problem was, no matter what happened, the Lexus dealers kept telling people that sales were up.”

At issue is the abstract nature of the usual economic measures and the extent to which even the best ones can be spun. Job growth is declining but at rates much less severe than in the 1990-91 recession. Housing prices are falling, but mostly at the multimillion-dollar high end. The cost of living in the Bay Area is rising more slowly, but the 5.8% annual growth rate in the local Consumer Price Index is still higher than the national 3.3% average. A survey last month of chief information officers at major corporations found that spending on information technology would rise again next year but at less than half of last summer’s predicted increase of 18.4%.

“In Silicon Valley,” Levy noted, “jobs went down by about 2,000 in April, but they’re still about 30,000 ahead of last year, which, incidentally, was the highest job growth rate in Silicon Valley history. Venture capital funding was down in the first quarter, but it’s still 15 times what it was 10 years ago. The unemployment rate has doubled, but it’s still only 2.6%, and this is still one of the five tightest labor markets in the state.”

“No one knows what to make of things,” explained Jamis MacNiven, whose Buck’s Restaurant in Woodside, for a time, was synonymous with power breakfasting in Silicon Valley. Even now, the rustic shopping district in which it is situated bustles with shoppers toting grocery bags full of pate and fresh peppered ahi and hundred-dollar bottles of wine.

“It seems OK, but then the news comes out so bad every day that we’re all just wondering what’ll happen,” said MacNiven. For some, the only recourse, he joked, is anecdotal information. His suggested statistics--call them the Buck’s Factor--range from the luxury car count in his parking lot to the wait inside between 7 a.m. and 9 a.m. on Thursdays. (Despite the tourists who now come to see the table where he claims Hotmail was founded, Thursdays still are big days at Buck’s for business breakfasts.) Last Thursday, the wait for an $8.75 Filoli Garden Nearly Non-Fat Omelette was about five minutes, down substantially, MacNiven reports, only half-joking, from about 35 minutes at this time last year.

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The parking lot outside the shingled eatery featured, at 8:30 a.m., six BMWs, three Porsches, five Jaguars, seven Mercedes-Benzes and (with apologies to Stephen Levy) one Lexus. The vehicles did not include that of MacNiven’s dot-com refugee son. The 22-year-old, MacNiven said, is selling his BMW to pay the taxes on now-worthless stock options as soon as he returns from the Netherlands, where he has spent the last few months at his girlfriend’s family’s tulip farm.

Then, the restaurateur adjusted his wire-rimmed glasses and gestured around the packed diner. At the supposed Hotmail table, a Pakistani in horn-rimmed glasses was diagraming something on a legal pad for two white-haired Americans in golf shirts. Four venture capitalists sat in a booth, murmuring intently. A big circular table filled with men in business attire, he said, was actually a neighborhood Bible-study club that branched out a few years ago into stock-picking. At the cash register, a book called “Dot-Com Success” was displayed as an impulse purchase. Customers averted their eyes, as if MacNiven had put rotten eggs on sale.

Periodically, a snippet of conversation pierced through the din of cutlery and cell phones: “Well, at my board meeting yesterday” . . . “corporate and limited partnerships” . . . “security” . . . “privacy” . . . “to the bone” . . . “the frustrating part is how many good ideas” . . . “my experience is that if people are not performing, they’re relieved to be let go.”

What did it add up to? It was hard to say exactly whether the glass, economically speaking, was half empty or half full. But the Buck’s Factor is by no means the only measure--or nonmeasure--of this slowdown. Other tallies making the rounds include:

The Black-Tie Quotient. In April, the Silicon Valley Charity Ball--the tech cradle’s biggest social soiree--saw a 30% drop in ticket sales and only made its fund-raising goal because of a last-minute bailout from a foundation based in real estate. The same month, the Palo Alto Black and White Ball was canceled for lack of corporate sponsors.

“April was horrible,” Silicon Valley event planner Rick Herns said, “but we did eight parties just in the first four days of May. And they were big.”

Still, even some Old Money events miles away in San Francisco are pinched. “It’s not as generous,” conceded Yurie Pascarella, chairman for the June 2 San Francisco Black and White Ball, benefiting the city’s symphony. “Corporate sponsorships are quite healthy, but there have been some cutbacks in sponsorship levels. For example, we had approached some high-tech companies, but they couldn’t do it because they were laying people off this year.”

Imbiber Confidence. Lois Lehrman, publisher of San Francisco’s society-chronicling Nob Hill Gazette, is watching next month’s annual Napa Valley Wine Auction, a $2,500-a-couple benefit for wine country nonprofits. Last year’s raised a record $9.5 million for local charities. A retired Cisco Systems Inc. executive dropped $500,000 for a single 6-liter bottle of 1992 Screaming Eagle. Three of the top five bidders were high-tech guys.

Theoretically, interest should be lagging, what with more people purportedly feeling poorer. But the event is already sold out--passes were gone within three business days, another record--and the price was $500 a couple more than last year. In fact, tickets sold so fast that even Patricia Sprincin, a fixture in Bay Area society and a past president of the San Francisco Opera Guild, said she was aced out.

Not so Chuck McMinn. He is the founder of the high-speed Internet provider Covad Communications, whose stock is down 99% to just over $1 from its record high of $66.66 last spring. No matter. “We are indeed going back this year and planning on having a great time,” said McMinn, who last year paid $230,000 for a glasswork by the artist Dale Chihuly and 20 bottles of Pine Ridge cabernet.

Mansion Starts. Architect Bill Maston, whose Mountain View office specializes in Silicon Valley home remodels, believes “architects are great indicators, because we always know six to eight months in advance” whether a construction project will be canceled for lack of funds. But so far, he said, “I haven’t seen any slowdown.” He still has 25 projects underway in various phases, ranging from $1.5 million to $6 million in construction costs, he said, and most of them are tear-downs ranging upward from 4,000 square feet.

In the upscale horse country of Los Altos Hills, planning director Carl Cahill confirmed Maston’s observation, saying “only two or three” renovations in his suburb had been delayed due to financial concerns. Indeed, he noted, two of the town’s most massive projects were going forward, including a 26,937-square-foot Mediterranean estate belonging to the chief executive of hard-hit LSI Logic Corp.

Woodside, meanwhile, is now dotted with mega-homes that are under construction, the most high-profile being that of Oracle founder Larry Ellison. The 23-acre, $100-million estate made the front pages in San Francisco last month just for going forward despite a drop in Oracle’s stock price. When completed, it will feature a Japanese-style imperial villa with 10 buildings constructed of hand-milled, hand-planed cedar, including a 1,500-square-foot enlarged replica of Japan’s Shokintei teahouse. The 7,841-square-foot main house will feature underground parking and three wings connected by walkways overlooking a 2.7-acre pond. A 60,000-pound boulder will be the centerpiece for the master bath.

Dealer/Wheelie Index. Real estate agent Jayne Williams is the organizer this year of the fifth annual Sand Hill Challenge, the now-notorious autumn soapbox derby for Silicon Valley venture capitalists. The benefit--half-wacky, half-cutthroat--is perhaps the valley’s most eccentric social event. Nobel laureates show up, and engineers and inventors; machines made out of titanium and carbon fiber vie with vehicles made of French bread. The costs of top sponsorships range from $10,000 to $50,000. Williams’ indicator: “This is the first year the fees haven’t gone up.”

Other variables include the much-repeated, though unproven, assertion that commutes in Silicon Valley have become lighter as dot-coms have folded. Some commuters swear their drive is a breeze now, but limousine drivers report that the trip to the San Francisco International Airport is as much of a crapshoot as ever and that construction has made the trip to San Jose’s airport even worse.

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Also subject to much speculation was this month’s annual Woodside School Foundation Grand Auction, at which parents in one of Silicon Valley’s wealthiest tech suburbs vie to support the neighborhood public elementary school. Though the event is closed to the press, locals said the take this year was almost as high as last year’s, despite a 10% drop in attendance. And a glance at the top-secret auction book indicated that the loot on the block was every bit as over-the-top as ever: a seven-day Mediterranean cruise for 12 on an 80-foot yacht donated by the chief executive of Peoplesoft, five nights at a Mustique resort where the regulars include Mick Jagger, a Mexican vacation courtesy of the founder of Intuit, a ride to Sun Valley on a Learjet.

Potrero Brewing Co., once surrounded by San Francisco dot-coms, has put a concoction of Southern Comfort, creme de cassis, orange juice and soda water on the menu and named it “The Dot-Goner,” a development that created a brief local media buzz this month. Meanwhile, San Jose Mercury News columnist Peter Delevett wondered why so few techies had come to see the Dalai Lama when he came to visit. (“Since he is a spiritual guide to reincarnation,” one valley financier opined to Delevett, “I think a lot of the dot-com CEOs should attend.”)

“It’s idle conversation,” laughed Paul Saffo of the Institute for the Future, a Menlo Park think tank. “It’s a game of guess-the-bottom--is this as bad as it’s going to get? Or will it get worse?”

But, Saffo added, “these downturns are as essential to the Silicon Valley economy as brush fires are to the Sierra Nevada. They stir intellectual capital and recombine it in ways that are more productive. This isn’t new. And don’t forget, a lot of people got very rich in the last 12 months.”

Yes, he said, more people are unemployed now, “but there’s also a lot of poor-mouthing by people who will only make $10 million instead of $20 million this year.” Still, he couldn’t resist repeating a joke that may or may not--he doesn’t track such matters--be making the rounds lately: “What is the new status symbol in Silicon Valley?

“A job.”