`90s breed of wildcatter

Texas past: the Oilpatch, where roughnecks and the rig count ruled. Texas present: the Silicon Prairie, where venture capitalists and software engineers roam.

A state still identified with commodities -- petroleum most of all -- has learned how to make a living from semiconductors and software. Over the last two years, technology has taken the place of energy as the state's largest employer. Texas payrolls in computers, electronics and related fields are rising twice as fast as for America as a whole. The state is home to two of the world's three largest personal computer makers -- Compaq and Dell -- and, here in Austin, to the country's highest concentration of chip plants outside Silicon Valley.

The transformation stands as the most dramatic example of how computers and electronics are remaking the nation's economy. By tying its fortunes to these accelerating industries, the Texas economy, ravaged by low oil prices and a real estate crash into the early 1990s, is far outperforming the nation's. Austin, which has grown more rapidly in this decade than any major city but Las Vegas, is being California-ized, as venture capital firms, software start-ups and natural food groceries proliferate. Dallas, home to about half the state's technology jobs, is being Austin-ized, with even starchy old-line technology companies like Electronic Data Systems trying to mimic Austin's fleet firms. And Houston has deployed computer power to restore the energy industry's profitability, even as oil prices stagnate. How Texans earn their fortunes is no mere parochial matter. Texas and its oil industry have produced two of the last six presidents. Lyndon B. Johnson gained national power in part because of his ability to tap the industry's donations; George Bush founded an oil company himself. Now Gov. George W. Bush, son of the former president, is considering his own presidential bid -- certain to feature a pledge to bring the nation the same sort of high technology growth that Texas has had. Compared with the high times of the early 1980s, this latest burst of prosperity can seem downright somber. The last Texas boom was about "Let the Yankees freeze in the dark" bumper stickers and savings and loan chiefs plowing federally insured deposits into Ferraris and their friends' condo and office deals. The latest is more about contracts to hedge petroleum price risks, and software developers laboring into the night, guzzling Jolt colas, to hasten projects that might perk up their stock options, too. With new jobs and wealth come a new way of life. The old Texas rich, whether ranchers or oilmen, lived off the land, preserving a kinship to the cowboy. The mythology of American business has few characters as monumental as the Texas wildcatter -- like H.L. Hunt or Jett Rink in the movie "Giant" -- who bets everything on a well that comes in big. Texans never tire of playing up this history: To celebrate its 90th anniversary this fall, Neiman Marcus adorned the ground floor of its flagship Dallas store with oil rigs that reached to the ceiling and spouted black confetti; a live Texas longhorn corralled at the entrance greeted guests. Silicon wafers and software packages, though less evocative, might be the most apt emblems for the store's newest generation of shoppers. The New Texas Rich, some hardly out of college, parlay computer and financial smarts into businesses that, once sold or taken public, shower down as many millions -- or billions -- as the last generation's gushers. Michael Dell -- now the richest Texan, with wealth estimated at more than $4 billion -- is only the most recognizable of a group that includes the software wizards Sanjiv Sidhu of i2 Technologies in Dallas and Joe Liemandt of Trilogy Development Group in Austin, with holdings of about $750 million, as well as Michael and Selim Zilkha, who sold their technology-laden Zilkha Energy in Houston for more than $1 billion just a week ago. "Technology is the fuel of the new economy," Sidhu said, pointing out that his software even helped companies cut corporate energy bills. "That is what's happening in Texas." At first glance, Dell and the like appear far less distinctive than the old Texas oilmen, let alone the ranchers. Many, emigres from Silicon Valley, transplant their casual but round-the-clock working habits, their inflated housing budgets and their coastal tastes. When Christina Jones, president of an Internet computer marketer called pcorder.com, arrived in Austin in 1992 shortly after graduating from Stanford University, "there were no brewpubs, no bagel shops" she said, adding, "Austin is definitely growing up." But as Molly Ivins, the syndicated Texas columnist, has said, "Texas is just like the rest of the country, only more so." Today, "more so" includes a knack for exploiting the latest hot industries and the traditional Texan appetite for risk. Once technology became a business of entrepreneurs, Texans were bound to cash in. Texans, that is, no matter where they were born. Asked after a broadcast of Wall Street Week in Dallas whether he had changed Texas more than the state had changed him, Eckhard Pfeiffer, the German- born chief executive of Compaq, thought just long enough to respond, "I would say I've affected Texas more. "But his friend, Carolyn Farb, renowned for tapping the Houston rich -- old and new -- for charity, thought his very answer hinted that he was mistaken. "Such modesty," she said. "Spoken like a Texan." The New Texas Rich are also like the Old Rich in their maleness and whiteness; the Texans on the Forbes 400 list of richest Americans include no blacks or Hispanics, and no self-made women. For the first time, however, women like Jones or Rebecca Mark, chief of the Enron international energy operations, are loudly knocking at the club doors. Not to mention Darla Moore, who as hatchet woman (and wife) for Richard Rainwater, oversees a real estate, hospital and energy empire concentrated in this state. Blacks and Hispanics, together about 40 percent of the state's population, are only beginning to reach the higher corporate ranks. Still, in Houston, not known for being in the social vanguard, voters decided earlier this month to preserve affirmative action in public contracts. The technology boom, in fact, leaves many of the state's citizens with nothing to download. Incomes and education levels lag behind national averages. Several counties along the border remain among the nation's poorest, and El Paso is the poorest city of its size. Low- wage jobs, especially in apparel, are moving to Mexico and Asia. And the technology expansion has created more assembly line workers than software millionaires. Diversification has at least allowed Texas to smooth Big Oil's violent cycles, though at the cost of exposure to technology's own rattles and shakes. "Do I think Texas is more recession-proof than in the early 80's?" asked Harvey Rosenblum, research chief at the Federal Reserve Bank of Dallas. "Yes, I do. But I don't think we're a lot more recession-proof." Among the tremors: A chip glut caused layoffs at Motorola, Austin's largest employer, and Intel has postponed plans for a new plant in Fort Worth. For years, it was unclear whether the state's bet on technology would ever pay off. "Maybe the whole business of high tech and computers is a good deal more dicey than its proselytizers in Texas like to admit -- as dicey, in fact, as oil," said a 1984 Texas Monthly account of Texas Instruments' failure in the home computer market. But as technology companies expanding in the 1990s saw their costs in California and the Northeast soar, they discovered a haven of low wages, taxes and real estate prices in Texas. Samsung has just opened a new chip plant in Austin, the city's 15th, while in the Dallas suburb of Richardson, Northern Telecom has almost 7,000 employees, nearly 2,000 more than at its Canadian headquarters. Even Houston, headquarters of the world's energy industry, is home to one of the nation's largest software companies, BMC Software, with $600 million in annual revenues. The company was founded in 1980 by a former Shell Oil computer specialist, John Moores, whose software made Shell's computers more efficient. Shell set him free to commercialize his work. In deference to the locale, the elevators at BMC's 20-story headquarters are lined with the hairy hides of Texas cattle. Having parlayed its oil wealth into technology wealth, Texas is using information technology to build fresh oil wealth. New on the Houston scene is the "virtual" energy company, where workers mine data on their work stations and contract out the drilling and production. Thus the largest leaseholder on the United States continental shelf in the Gulf of Mexico is not Chevron or Shell, which are second and third, but the Zilkha Energy. Zilkha? In a downtown Houston office tower, a staff of only about 60 has assembled enough data to fill about 2,000 standard one- gigabyte hard disks, all of it accessible on their desktops. Two- thirds of the holes that result from their number-crunching strike oil or gas, explaining the company's sale a week ago to Sonat Inc., an oil and gas producer based in Birmingham, Ala. "In any new technology, the first mover has the greatest advantage," said Jeffrey K. Skilling, the president of Enron, whose own sophisticated hedging and financing strategies helped Zilkha to grow. "They were the first movers." Successes like BMC's and Zilkha's have inspired the big oil companies, too. Shell has used proprietary software for interpreting seismic data to set record after record for production depth in the Gulf of Mexico. Computerization of many office tasks has, over the last decade, helped Shell cut its work force from 33,000 to 20,000. Now, the company is growing again -- but through the expansion of Shell Services, a unit that provides technology help to Shell and, the company hopes, other energy concerns. The unit has added more than 500 workers, for a total of 2,200 over the last year and a half. Philip Carroll, Shell's chief executive, has also begun buying stakes in small computing companies like Prism Technologies, a Houston software concern. And to make sure no one like John Moores ever again gets smothered or ignored by the Shell bureaucracy, Carroll has set up an in-house firm called Shell Technology Ventures. If Moores came to him today, Carroll said, he would tell him: "John, here's some seed money. Why don't you go out and see if you can develop this commercially? We'll set up a little company and you can be president." Carroll paused. "And Shell would own BMC." If Houston is just emerging as a technopolis in its own right, Austin has gone from start-up to maturity. With 2.9 percent unemployment, compared with 4.7 percent nationally, Austin's growth has slowed this year. A strong national economy means that fewer migrants come here from the coasts, and Austin has sucked its own labor pool dry. Long popular among companies based elsewhere as a site for research laboratories or chip plants, the state capital has, over the last two years, created a strong support network for start-ups. Banks, law firms and venture capital partnerships based in Silicon Valley have opened offices here, competing with home-grown counterparts. "Technology has changed the economy here completely," said Joseph C. Aragona, a partner in Austin Ventures, the oldest venture capital firm in town. "In 1987, we had the highest office vacancy rate in the nation -- 48 percent. You could have bought buildings for what you now have to pay for rent." Reinvestment of the state's oil wealth helped turn things around. In 1983, the University of Texas -- whose petroleum holdings have helped its endowment grow into the nation's second-largest, behind Harvard's -- pledged buildings, laboratories and 32 endowed chairs at $1 million each to lure the Microelectronics and Computer Technology Corp., or MCC, an industry consortium. Five years later, the university led another successful campaign to capture the headquarters of Sematech, a consortium of American semiconductor manufacturers. Among the results: Austin is home to 800 software companies and 5 chip makers with 15 plants. The makeover is both economic and cultural. Bible Belt politicians fought with companies like Apple Computer over the granting of health benefits to same-sex partners. Environmentalists who cherish the area's hilly terrain and residents who saw Austin as an oasis of affordability gripe about young newcomers able to pay Palo Alto prices for housing and office space. Consider the advent of Joe Liemandt. When Liemandt left Stanford University in his senior year, back in 1990, to write software that could streamline corporate sales operations, his father, a high-tech executive in Dallas, called him "a moron." Venture capitalists were equally put off, so Liemandt and three co-founders financed their Silicon Valley start-up with credit cards. By 1991, Liemandt, far enough along to expand, came to Austin, where a real estate agent showed him the city's priciest spot on the edge of the Texas Hill Country, with a panoramic view of Lake Austin and the city's skyline glowing in the distance. "How much?" Liemandt asked. The agent rambled evasively before saying, "It'll be $12 or $13 a square foot." At the time, Liemandt was paying $44 a foot for spartan California quarters with views of other boxy buildings. "I'll take it," he said. The move to Austin paid off in other ways. Liemandt hired a top programmer away from MCC, giving Trilogy the credibility to clinch its first sales to corporate customers. With Trilogy's revenues already more than $100 million, Liemandt, a majority shareholder, probably is not far off when he values his private company at more than $1.5 billion. At 29, Liemandt might be the youngest self-made member of the Forbes 400 -- and the only one who lives in a rental apartment. Meanwhile, Dell, at 32, is building Austin's first technopalace. In Houston or Dallas, half the town would be angling for invitations. In Austin, however, jeans-and-boots populists are rooting for the tax assessor to prevail in appraising the house at $22 million, four times the area's previous high and $16 million more than Dell says it's worth. Popular culture is just catching up with the alienated Austin of the 1980s, in movies like Slackers and Reality Bites, and the new Austin Stories sitcom on MTV. The Austin of the 1990s had its defining moment at the Four Seasons hotel this summer. Dell shareholders left their Lamborghinis with the valet long enough to see Dell begin the annual meeting by flashing a three-year chart showing his company's stock far outgaining even Microsoft. He interrupted the ovation just long enough to say, "That will conclude our presentation." If Austin is setting the pace for the state's surge, Dallas still has the most technology jobs. After World War II, local military electronics companies had some of the nation's few telecommunications experts outside the Bell system, along with several computing pioneers. From these origins came Texas Instruments, for a time the world's largest chip maker; the Sevin Rosen venture capital firm, which has backed Compaq and other fast-growing technology firms, and the telecom corridor, whose 70,000 jobs include more than 2,000 each at Northern Telecom, AT&T, Ericsson, Alcatel and Fujitsu. Meanwhile, Dallas's old-line technology firms are having to reinvent themselves. Texas Instruments has sold its military electronics and laptop computer businesses and reduced its dependence on memory chips to concentrate on specialized processors for cellular telephones and modems. EDS, slipping behind IBM in sales of computer services, has tried to shuck the rigid style of its founder, Ross Perot, for an Austin approach. It has moved 200 young technical whizzes out of its Dallas headquarters and freed them from the buttoned-down dress code. But only after an internal brawl was it decided to let them visit the main office without dressing up. Dallas, however, has begun spawning technology start-ups that could care less what their workers wear. Sidhu left Texas Instruments in 1988 to start i2 Technologies and figure out how artificial intelligence could help companies cut inventories. Since going public in April 1996, his company has doubled its value to about $1.4 billion. If Texas, as an unofficial member of OPEC, once had its own cycles, companies like i2, with global customers, are tying Texas more closely to the nation and the world. What is more, the collapse of its own financial institutions nearly a decade ago means that credit must ultimately come from the national securities markets or distant money center banks. Its department stores are mostly ruled from out of state; even Neiman Marcus answers to a corporate parent in Chestnut Hill, Mass. A place so intently distinctive that its citizens still expect beer and pickup truck advertisers to pander to their Texan-ness is only starting to reckon with its own maturity. The last transformation, a generation ago, propelled Houston, Dallas and San Antonio into the ranks of the nation's 10 largest cities. If writers like Larry McMurtry, most of all, described the resulting dislocation and reinterpreted the state's past, only a few cyberpunk authors in Austin have begun imagining the future. For his part, McMurtry said at an Austin literary festival in November that he has quit writing novels. In Lone Star, still the classic account of the state's past, T.R. Fehrenbach, a San Antonio scholar, predicted decades ago that the state's singular history would draw to an end as its people left the land. Since then, he has found that Texans remain Texans, even in the cities. And so they are sure to keep on being Texans now that their livelihoods depend less on their natural resources than on their brains. Allen R. Myerson prepared this article for the N.Y. Times News Service.

Copyright 1997
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