This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Silicon Valley Loses the Keystone of a Golden Age

They're chopping down the money tree.

In the late 20th century, it produced a bumper crop of wealth, a low-hanging fruit known as stock options. In California's Silicon Valley, these options were renowned for giving not just top executives but also rank-and-file workers rights to buy company shares at a set low price, and sell them later at an almost-guaranteed higher price.

As tech stocks soared in the '90s, one company alone, Microsoft (MSFT - Get Report), turned an estimated 10,000 option holders into millionaires. (For some stories of options boom and bust in Silicon Valley, click here .)

Fledgling technology companies, many without profits, could hand out options by the bushel, because, quite simply, they didn't actually have to pay for their generosity -- until now.

In one of the most dramatic disruptions in Silicon Valley history -- perhaps rivaled only by the Nasdaq Stock Market collapse of a few years ago -- the options giveaway is almost over.

On March 31, the agency that sets accounting rules proposed that all U.S. companies be required to show the cost of stock options on their quarterly income statements, instead of relegating it to little-noticed footnotes. This so-called "options expensing" is all but certain to become a standard and conspicuous cost of doing business starting in 2005.

Most tech companies -- with the notable exception of Microsoft and Amazon.com (AMZN - Get Report) -- continue to mount a vigorous defense of stock options. The typical technology concern grants options to more than half its employees, and they've filed reams of testimony with the Financial Accounting Standards Board opposing any change to the status quo. Technology profits -- and employees -- will suffer from options expensing, according to the industry line.

Keith Brister, a Cisco (CSCO - Get Report) employee with stock options, said he's counting on the money to put his two boys through college and fund his retirement. "Please, please, please don't pass this proposal," he implored in a letter to the FASB.

1 of 7

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,428.06 +40.85 0.23%
S&P 500 2,032.32 +2.77 0.14%
NASDAQ 4,706.6630 +25.1660 0.54%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs