Hard times for high-tech
The $1.6-million red Bugatti crouches in the showroom, flanked by Lamborghinis, Bentleys and a Rolls-Royce all polished to a shimmer. The nearby potted plants, however, are dusty and wilting. With super-luxury car sales here just half of what they used to be, they had to cut something.
“We wash our own windows now, take care of the plants ourselves,” said Ryan Dohogne, general manager of Silicon Valley Auto Group. Although they haven’t laid anyone off yet, Dohogne said they were saving everywhere they could.
Five miles away, former indoor plant specialist Michael A. Jones is having what he calls “a humbling experience” at a nonprofit food pantry, choosing dented cans of corn and tuna, a crunched box of Rice Krispies and some soon-to-expire milk to supplement his food stamps.
Jones used to gross $12,000 a month as an indoor horticulturist for high-tech companies, restaurants and car dealerships, although not Silicon Valley Auto Group. Then “everyone cut back all at once and we had to shut down,” he said. “It happened fast.”
Very fast. In fact, nowhere in the country has the bust arrived more abruptly.
The Associated Press Economic Stress Index, a month-by-month analysis of foreclosure, bankruptcy and unemployment rates in more than 3,000 U.S. counties, shows that last year, as the national economy tanked, high-tech economic centers from Silicon Valley to North Carolina’s Research Triangle were apparently “recession-proof” with increasing jobs and stable housing prices.
Last fall, everything changed. When previously invested funds petered out, there was no new capital. Bankruptcies, foreclosures and unemployment in high-tech regions increased, and are now at some of the highest levels in the country.
For example:
* Santa Clara County, home to Silicon Valley, saw bankruptcies soar 59% in the last 12 months, and projections are that they’re still climbing.
* North Carolina’s unemployment has doubled since early 2008 to a record 10.7%, with close to 200,000 jobs lost in the state, 20% of those in the Research Triangle, a high-tech hot spot near Durham, Raleigh and Chapel Hill.
* Foreclosures in once-booming tech neighborhoods around Boston are on track to reach a record high this year after tripling since last summer.
Simply put, these regions “are seeing their strength strangled as investors hold on to whatever funds they have left,” said digital economy expert Ed Malecki, an Ohio State University professor. “Everyone’s portfolio is smaller than a year or two ago, and venture capital -- and even more, pre-venture angel financing -- lives off of private wealth,” Malecki said. “There is simply less private wealth around right now.”
High-tech regions, which throughout most of 2008 were far more economically secure than the rest of the country, are now seeing unemployment, foreclosure and bankruptcy rates on par with national averages, and in some cases even higher.
Even the most optimistic high-tech community leaders have had to face facts.
“We had hoped we might stay insulated from the global economic crisis, and for a long time we were,” said Silicon Valley Network President Russell Hancock. “But then it caught up with us and now everyone is laying off.”
Everyone?
“There isn’t anybody who isn’t laying off,” he said, then draws a long breath before reciting this list: “Microsoft, Intel, Hewlett-Packard, Sun, Yahoo, Apple, Google.” He pauses a moment to consider that. “Google. When Google is laying off you know something is going very wrong.”
Social workers and volunteers trying to house, feed and clothe the area’s newly devastated residents recognize that the economic disaster has arrived.
“It’s alarming us to no end,” said David Ujita, a director at the nonprofit service center West Valley Community Services Inc. in Cupertino. He said they had seen a 27% increase in first-time food pantry visitors since the fall.
“Folks believe that because we’re in the Silicon Valley with million-dollar homes and billion-dollar businesses, hunger and homelessness don’t exist. But in fact it’s getting much worse, and it’s just really frightening,” he said.
The agency helps a hidden population: educated, motivated homeowners whose steep mortgages quickly overtook their savings accounts when they were laid off. They live in some of the most expensive communities in the country, places like Cupertino, home to Apple, and neighboring Saratoga, where the average home costs more than $1 million.
This month, Ujita said they had arranged with a church to open a new food pantry in Los Gatos, where the median income is $175,000.
“This doesn’t look like the stereotypical inner-city plight, but it’s just as devastating,” Ujita said. Behind him three out-of-work men -- all with master’s degrees on their resumes -- searched online job postings from the agency’s computers.
A few miles away, almost every seat in a bankruptcy courtroom is full.
Joel Gonzalez, 42, who used to make $100,000 a year installing hardwood floors, earned “about 400 bucks” in March doing odd jobs. His life began falling apart in the fall when his boss, distraught about his failing business, committed suicide. Suddenly out of work, Gonzalez saw the adjustable payments on his $360,000 home loan increase from $2,400 to $3,200. Two months later his savings ran out and he found himself talking to a bankruptcy lawyer.
“This is culture shock for me,” he said outside the federal courthouse. “I’m trying to keep it in perspective. I have a money problem, and I’ll get through it.”
Bankruptcy lawyer Sam Taherian, juggling an armload of files, said his caseload was steadily increasing, but he was sure -- based on how many people were coming in for initial free consultations -- that they were nowhere near the peak.
“It usually takes someone a month or two after meeting with us to make their decision,” he said. “And we’re having a lot of meetings.”
Foreclosures have kept pace with bankruptcy filings in the region, but they’re far less obvious. In a new town-house complex a few miles from Intel’s Santa Clara headquarters, close to 10% of the units are on the market as foreclosure sales. But wander down the dreamy streets -- Inspiration Place, Meditation Place, Fascination Place -- and you would never know.
“They don’t hang out signs because they want to be discreet,” said Robert Lei, who has a master’s degree in semiconductor device physics but now works as a specialist in foreclosure sales. “They don’t want so many people to see so many ‘for sale’ signs and get scared away, like there’s something wrong here.”
Resident Jeff Nelson, 27, a firefighter, said he and his wife, a teacher, would like to move their growing family into one of the many low-priced single-family homes on the market, but they were stuck in this complex.
The numbers just don’t add up: They bought their unit three years ago for $527,000. They owe $500,000, and their foreclosed neighbors are selling their places for less than $450,000.
“We thought owning our own place would get us somewhere,” he said. “But now we’ve got to stay. It’s either stay, foreclose or short-sell.”
There are a few businesses thriving on the downturn.
In January, Pinkberry Inc., the tart and trendy South Korean frozen yogurt chain, opened its first Northern California store in downtown San Jose, a move considered something of a snub to San Franciscans.
It was a prescient decision, said store manager Farid Biglari, smiling at customers who line up before the store opens. “People around here don’t have a lot of money, but they still want to have a good time,” he said.
College student Jarmine Kaur and her mother stopped by for a treat after visiting Macy’s to pay down a credit card.
“We looked at bags and we looked at dresses, but we don’t buy anything anymore,” said Kaur, pointing her spoon at a cup of the sweet stuff. “So here’s our luxury.”
