The forgotten history & roots of Silicon Valley
Gordon Moore with Robert Noyce at Intel in 1970
Why you should not miss to read this article
If you are a Silicon Valley (SV) engineer or if you are a Silicon Valley VC or if you are curious to know about the history of Silicon Valley or if you want to know why Silicon Valley VCs invests so boldly and successfully in startups or why employees leave their current company to work at a startup, why Silicon Valley love stocks or why companies sue each other over patents etc then this article is for you. Even if you have just heard the buzz world “Silicon Valley” or want to know why you see what you see today in Silicon Valley then this article will not disappoint you. This article will take from the very first episode in the history of Silicon Valley to how its subsequent events laid the foundation of the trends which we see till today. However I do want to start this article by giving due credit to PBS as most of the data of this post has been compiled from their documentary on Silicon Valley.
William Shockley & Shockley Semiconductor Laboratory
William Shockley was an Applied Physicist who after receiving his PhD from Massachusetts Institute of Technology, started his career at Bell Labs. In addition to many great things, he is mainly known for inventing Transistor and he even received the Nobel prize in Physics for his work on Transistor. By the end of this article you will realize that Silicon Valley perhaps would not have achieved so much success if William Shockley would have never invented Transistor. William Shockley soon decided to commercialize his transistor design and laid the founding stone of Silicon Valley by starting his company called Shockley Semiconductor Laboratory with some great engineers of Silicon Valley like Gordon Moore (the same legend who is known for the Moore’s law), Jay Last, Jean Hoerni, Victor Jones and of course Robert Noyce who had the ability to charm anybody and would later change the entire course and direction of Silicon Valley.
Robert Noyce & Fairchild Semiconductor
Robert Noyce once said that when Shockley approached him to work at Shockley Semiconductor Laboratory, it was like talking to God. He was referring to William Shockley. Although Shockley was considered as a God and the Guru of Electronics, he soon started gaining ego after having awarded the Nobel Prize. He would easily get angry on people who failed to meet his requirements or standards. He also started demanding change of focus from silicon transistor to a four layered diode and it was all chaos and total flux under his leadership. Founding members of Shockley Semiconductor Laboratory like Gordon, Jean, Julius Blank, Victor and few others decided to revolt against him by starting their own company called Fairchild Semiconductor (FS) under the leadership of Robert Noyce, the same Noyce would later start another company whose products are used till today at the core and heart of all the modern day gadgets from PCs to Apple. But what happened to Shockley Semiconductor Laboratory? Well within few years of formation of Fairchild Semiconductor, Shockley Semiconductor Laboratory was drowning and dead in the sea.
Sherman Fairchild & VCs of the Silicon Valley
Achievements and innovations of Silicon Valley would never have been possible without the courage and vision of Silicon Valley VCs (Venture Capitalists). The qualities of successful Silicon Valley VCs which sets them apart from other VCs are the trust, freedom and valuable advice they provide to the founders along with the much needed capital. It is the eagle eyed ability of the Silicon Valley VCs to spot the talent and grab the opportunity with both hands that has led to one successful startup after another in Silicon Valley. Another most astonishing quality of Silicon Valley VCs is to never take rest and to never retire. The have always liked to continue investing on the next big thing and continue betting on more and more adventurous and risky ideas. And one of the first such Silicon Valley VC was the owner of Fairchild Camera — Sherman Fairchild. He was the single largest stock holder in IBM, a company which was founded by his father. Yet, when Robert Noyce and his founding friends were struggling to find investors, it was he who agreed to put $1.3M to get them started. Fairchild Semiconductor would have never got formed if they didn’t receive the investment from Sherman Fairchild and perhaps Silicon Valley would have remained deprived of the priceless and professional VC culture.
Innovation & Stocks
Silicon Valley engineers start or want to work at a startup mostly for 2 reasons. A. To innovate. B. To get lot of stock options. Being able to constantly innovate has led to comeback and exponential rise of Apple. And it is the same innovation which led to downfall of companies likes HP, Oracle and Microsoft for not being able to innovate consistently. When Fairchild Semiconductor was being questioned for their reliability they invented a planar process that created a new semiconductor using silicon dioxide. Fairchild Semiconductor patented this technology. As the orders began to pour in and as Fairchild Semiconductor rose to fame, Fairchild Camera & Instrument decided to buy its subsidiary Fairchild Semiconductor. And with that each of the 8 original founders received stock options worth $300K which is equivalent to roughly $2M today.
Now the limitation of transistor was that it did only one thing and if you needed it to do 10K things then you would need around 10K transistors involving high complex circuit connections thereby increasing the risk of circuit failure. And it became an uphill battle to continue design and development of new products using transistors. To solve this problem, it was time for Texas Instrument to step up with innovation and they soon patented a technology invented by one of its bright engineer Jack Kilby to device an entire circuit on a single chip using the same planar process which was invented Fairchild Semiconductor. And now all of a sudden you didn’t need million of transistors to perform a complex task as all that circuit was etched on a thumb sized chip. Invention of integrated circuit is considered as a giant leap forward in the history of electronics and Silicon Valley. This invention by Texas Instruments jolted Fairchild Semiconductor and forced them to action and innovation. And then they came up with their own design and version of Integrated Circuit but based and inspired from Texas Instruments integrated circuit and it was this step by Fairchild Semiconductor that triggered the war of patents which is fought till date between different companies.
Suing companies for patent infringement
Two years after Fairchild semiconductor was founded, it came with its own version of integrated circuit called MicroLogic priced at $120. Robert Noyce is believed to have played a major role in its design. It took no time for Fairchild Semiconductor to make progress and profit through this device and this sparked Texas Instruments to sue Fairchild Semiconductor for patent infringement. Technologists believe that Kilby’s design was not a practical one and it was Noyce’s design that finally worked. It can also be treated as the case of two simultaneous inventions. After suit dragged for years, Texas Instruments and Fairchild Semiconductor decided to share the licensing of integrated circuit design. So the latest stories of one silicon valley company suing another for patent infringement (like Apple vs Samsung) should not surprise you as it got its roots and culture right when Silicon Valley was getting incepted.
Starting your own startup
Silicon valley has always seen an increasing trend of employees leaving their employer to work at a startup or start something of their own. Be it PayPal mafia or FaceBook mafia, bright engineers leaving their brightest jobs to work on their own idea is not something new. And this trend of leaving the company that gave you the break and starting something of your own can be considered to have started when Robert Noyce and his friends decided to part ways from Shockley and founded Fairchild Semiconductor. However starting your own company was heavily criticized earlier as people back then still believed in working with your first company till you retire. And the thing that led to development of Fairchild Semiconductor also led to its destruction. When Fairchild Semiconductor was at the peak of its success, it was able to attract the best and brightest engineers. But at one point so much talent got stuffed at one place that it led to a chain reaction process which eventually triggered employees to move out of Fairchild Semiconductor to work on something new but related to their previous work. Fairchild Semiconductor is believed to have spin off more than 100 different startups and companies like Rheem, Signetics, Amelco, Molectro, General Microelectronics, Advanced Micro Devices (AMD), National Semiconductor etc and they began to be called as “Fairchildren”. And the term “Gold Rush” was once again used when Fairchild Semiconductor engineers started planting their own silicon by starting their own chip company.
Mass production & Multi generation products
Be it Sony Walkman, iPod, Xbox, iPhone, Cloud or Tesla, we all know first generation products are always expensive. It is only when demand rises, you are able to bring the prices down. And this business model of production meeting demand to slash the prices down, goes to back to the early years of Silicon valley when there was an exponential increase in demand of Transistors. Because of which Fairchild Semiconductor was able to slash the price of one Transistor from $120 to less than a dollar making electronics within reach of a common man.
The role of NASA
Today NASA may have lost its mojo but it will be very unfair and harsh to not mention the incredible role NASA has played behind the phenomenal success of Silicon Valley. After Soviet Union put the first step on Space by launching Sputnik, NASA was founded and began its operations in 1957. By next 2 years its budget crossed $400M and by mid 1960s it was consuming 60% of the transistors produced by Fairchild Semiconductor. So 12 years after Russia launched its space mission and 8 years after John F. Kennedy conceived Apollo program and passed the bill for Space budget, NASA finally landed on the Moon in 1969. And this journey to Moon was made possible by Fairchild Semiconductor’s integrated circuit design. And if there was no demand for integrated circuits then Fairchild Semiconductor would not have thrived and Silicon Valley would not have survived. And the nice thing about NASA is that it still continues to help Silicon Valley startups like SpaceX and perhaps many more to come.
Baffling benefits, Beer Bashes & Social Networking
Today it is impossible to understand how can companies like Google, FaceBook or Dropbox manage to provide one of the best and lavishing employee perks like best medical benefits, best gadgets and setup to increase the productivity, health training, free gym memberships, tuition reimbursement, free massage, free shuttles, free booze and not to forget free food & desserts. It is all done to retain employees. And this again got started at Fairchild Semiconductor when they saw lot of attrition rate. And to keep employees happy, Fairchild Semiconductor started to organize parties at a bar called Wagon Wheel where not only employees from Fairchild Semiconductor but engineers from other chip firms came to hangout and do the networking. Today we have LinkedIN & Twitter but during those days it was parties of this kind, where you came to know who is working on what and who left the company to work at a startup. These parties soon became a hanky-panky interactions and divorce rate climbed an all time high of 150% as the second marriages were also not successful.
Fall of Fairchild Semiconductor
Soon after Fairchild Semiconductor came to glory, it started to lose sight of its goals. There was miscommunication and sometimes no communication between different groups of the company. Although the stock price of Fairchild Semiconductor’s parent subsidiary Fairchild Camera was going an arm and a leg, all because of the profits gained through Fairchild Semiconductor’s products but still the company didn’t pay stock options to all of its employees and this lead to discontent between the employees of Fairchild Semiconductor. Robert Noyce was not happy too as he felt that he was being treated like a leader with no power and stakes left. He was also not happy with the subtle differences which internal groups within Fairchild Semiconductor had with each other. After a point when things got really frustrating, he decided to leave the company and started a new company with his friend Gordon Moore with whom he had already struck a chord twice before.
Birth of Intel & start of Silicon Valley
This new company formed by Robert Noyce and Gordon Moore was called Intel and this time they didn’t face any problem in raising the capital because of their established reputation and proven ability to deliver. In fact they managed to raise $2.5M in less than 2 days. They started the business with a plan to produce memory devices using the same integrated circuit design which was devised by Robert Noyce and his earlier Fairchild Semiconductor team. They gave themselves a 2 year time frame to start the production of memory chips. Had something gone wrong, it would have been a game over for Intel and perhaps end of Silicon Valley. But not only were they able to deliver their promised product but to meet the changing market demands and to simplify the complexity of circuits, they invented the first Microprocessor 4004 and rest is history. Ever since then Intel has become an industry mogul in business of microprocessors by releasing many generations of successful Microprocessors and all this would never have been possible without William Shockley and his team. So this so called Silicon Valley was born and started when Shockley and other founders signed the Silicon Valley’s declaration of Independence on a Dollar bill while founding Shockley Semiconductor Laboratory.
You can also find me on Twitter: @paragkalra
All the images are used under Creative-Commons license
Originally published at www.linkedin.com on August 10, 2014.