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Technology and Entrepreneurship in Silicon Valley

by Christophe Lécuyer
3 December 2001

Silicon Valley firms have developed and commercialized some of the most important electronics and biomedical technologies in the second half of the twentieth century. In so doing, they transformed a predominantly agricultural region on the southern part of the San Francisco Peninsula into a major high technology complex at the center of the information and biotechnology revolutions. In 2000, high tech firms in Silicon Valley employed more than half a million engineers, scientists, managers, and operators in industries ranging from electronic components to computers. This contrasts sharply with the Valley's humble beginnings in the 1930s, when radio firms on the San Francisco Peninsula employed a few hundred engineers and workers and operated in the shadow of large East Coast firms such as RCA, General Electric, and Westinghouse. The rise of Silicon Valley from the 1930s to the 1990s was a complex and contingent process. It was shaped by successive waves of innovation and entrepreneurship, the emergence of new forms of financing such as venture capital, and the evolving military and commercial demand for electronic and biomedical products.

integrated circuit
The first planar integrated circuit, 1960. Designed and built by Lionel Kattner and Isy Haas under the direction of Jay Last at Fairchild Semiconductor.
Photo: Courtesy of Lionel Kattner

Growth of Tubes and Semiconductors

At first, Silicon Valley emerged as an industrial district specializing in electronic components, especially power grid tubes, microwave tubes, and semiconductors. Its electronic system sector, with firms such as Hewlett-Packard, remained comparatively small until the late 1960s. The power grid tube industry was established by electronics hobbyists during the Great Depression. Partly because of its strong maritime orientation, starting in the 1900s and 1910s, the San Francisco Bay Area was one of the largest centers for amateur radio in the United States. The Peninsula's vibrant hobbyist community produced power grid tube technologists and entrepreneurs such as Charles Litton, William Eitel, and Jack McCullough. These men established Eitel-McCullough (Eimac) and Litton Engineering Laboratories in the early and mid-1930s. While Litton Engineering produced tube-making equipment, Eimac specialized in the manufacture of transmitting tubes for radio amateurs. During World War II, Eimac and other local tube corporations supplied these tubes in mass quantities to the US military where they powered high frequency radar sets and radio communication transmitters.

Graph on employment in electronic component manufacturing in Silicon Valley in the period 1934-1972: power grid tubes, microwave tubes and silicon components.

Following World War II, another technical and entrepreneurial group built a closely related electronic component industry, microwave tube manufacturing, on the San Francisco Peninsula. This group of men had often studied physics or electrical engineering and done electronic research at Stanford University in the 1930s and 1940s. Key among them were Russell and Sigurd Varian, William Hansen, and Edward Ginzton who together at Stanford in the late 1930s had developed the klystron, the first tube which could generate electromagnetic waves at microwave frequencies. After a stint at Sperry Gyroscope on the East Coast, these men returned to the Peninsula and set up Varian Associates in 1948. Other firms followed. Firms such as Huggins Laboratories (1948), Stewart Engineering (1952), Watkins-Johnson (1957), and MEC (1959). Through continuous innovations in tube design and processing, these corporations established themselves as the preeminent US producers of klystrons, carcinotrons, and travelling wave tubes. During the Cold War, these tubes were used in a variety of military systems such as radar and electronic countermeasure equipment. Microwave and power grid tube companies contributed to the building of a solid industrial infrastructure on the San Francisco Peninsula. They trained thousands of skilled technicians and operators, attracted vendors of specialized materials, and generated high precision machine shops. As a result, they facilitated the growth of yet another component industry, semiconductors, in the late 1950s and 1960s.

founders of Fairchild Semiconductor
The founders of Fairchild Semiconductor.
Photo: Courtesy of Eugene Kleiner

William Shockley brought silicon electronics to the San Francisco Peninsula. Shockley, a Palo Alto native, had invented the transistor with John Bardeen and Walter Brattain at the Bell Telephone Laboratories in New Jersey, an accomplishment for which the group later received the Nobel Prize in physics. Shockley returned to the Peninsula to establish Shockley Semiconductor Laboratory in 1955. In turn, Shockley recruited a group of talented physicists and engineers to work with him – Robert Noyce, Gordon Moore, Jay Last, Eugene Kleiner, and Jean Hoerni, among others. Rebelling against Shockley's heavy-handed management style, these men left to start their own company, Fairchild Semiconductor, with financing from Fairchild Camera and Instruments in 1957. In a few years, Fairchild Semiconductor revolutionized the semiconductor industry. Using a new process recently developed at the Bell Telephone Laboratories, Fairchild was the first commercial firm to introduce high frequency silicon transistors to the market. Its research and engineering staff later made major process and design innovations to meet the strict performance and reliability requirements of the US military.

In 1959, Hoerni developed the planar process, a revolutionary innovation which made possible the manufacture of highly reliable silicon components. Capitalizing on this process, Noyce invented a planar integrated circuit (Jack Kilby had earlier developed a mesa integrated circuit at Texas Instruments). The integrated circuit idea was put into silicon and developed as a product in the next two years by a group directed by Last. Fairchild Semiconductor introduced its first family of digital integrated circuits to the market in 1961.

production facility
The production facility at Fairchild Semiconductor, mid-1960s.
Copyright © National Semiconductor

Responding to a decline in the military demand for electronic components in the early 1960s, Fairchild Semiconductor created new markets for its transistors and integrated circuits in the commercial sector. To meet the price and volume requirements of commercial users, Fairchild's engineers introduced mass production techniques adapted from the electrical and automotive industries and set up plants in low labor cost areas such as Hong Kong and South Korea. The firm's application laboratory also developed novel systems such as an all-solid state television set and gave these designs at no cost to its customers, thereby seeding a market for its products. To further convince commercial users of the potential of integrated circuits, Moore published his famous «Moore's law» in 1965. Moore predicted that the number of transistors that could be crammed on a silicon circuit would double every year – from 50 individual components in 1965 to 65,000 ten years later. Using these marketing techniques, Fairchild developed a large market for its devices in the consumer electronics and commercial computer industries by mid-1960s. By 1966, Fairchild had established itself as a mass producer of integrated circuits and controlled 55% of the market for such devices in the United States.

Moore's Law
Graph on Moore's Law.
Copyright © Intel Corporation

Entry of Venture Capital

Fairchild Semiconductor also reshaped the Peninsula's electronics manufacturing complex. It brought venture capital and venture capitalists to the area. Financiers and engineers involved in the establishment of Fairchild Semiconductor set up a series of venture capital partnerships such as Davis and Rock, and Kleiner Perkins. Fairchild's success led also to an extraordinary entrepreneurial expansion on the Peninsula in the 1960s and early 1970s. Sixty semiconductor companies were established in the area from 1961 to 1972. They were almost all founded by former Fairchild engineers and managers. For example, Noyce and Moore incorporated Intel in 1968. Other Fairchild employees set up Amelco, Signetics, Intersil, National Semiconductor, and Advanced Micro Devices (AMD). These corporations exploited the revolutionary technologies developed by Fairchild Semiconductor and further enlarged the commercial markets for integrated circuits. Intel used a new MOS process developed at Fairchild to manufacture high performance computer memories. A group of Intel engineers around Ted Hoff, Federico Faggin, and Stan Mazor, also designed the microprocessor, a computer-on-a-chip, in 1971. As a result of these and other innovations, the Peninsula's semiconductor industry grew enormously in the late 1960s and the first half of the 1970s. The total semiconductor employment on the Peninsula grew from 6,000 workers in 1966 to 27,000 in 1977. This rapid expansion deeply reshaped the region's electronics manufacturing complex. It transformed an industrial district dominated by tube manufacturing into the "Valley of Silicon," as the area became increasingly referred to in the early and mid-1970s.

Graph on employment in the Valley in 1959, 1975, and 1990.

Electronic component businesses and the venture capital industry that emerged from them provided the foundation for Silicon Valley's explosive growth around new system industries such as computing, instrumentation, and telecommunication in the 1970s and 1980s. Fortunes made in components were reinvested in computing, telecommunication, and instrumentation ventures. More importantly, ever more powerful and cheaper integrated circuits made possible the design of totally new systems. Start-ups and established firms exploited these new technological and commercial opportunities. Hewlett-Packard, which until then had concentrated on electronic measurement instruments, expanded their business into calculators, minicomputers, and inkjet printers. New ventures concentrated on fail safe computers (Tandem), video games (Atari), and telecommunication equipment (Rolm). But it was the personal computer industry which established Silicon Valley as a major center in electronic system manufacturing. This industry, not unlike power grid tube manufacturing forty years earlier, was started by a group of electronics hobbyists. These enthusiasts congregated around an informal club, the Homebrew Computer Club. The club spawned more than ten personal computer ventures such as Processor Technology, Apple Computer, and Osborne Computer in the mid-1970s. Funded by the Peninsula's venture capital community and employing experienced managers from Fairchild and Intel, Apple rapidly emerged as the dominant personal computer maker in Silicon Valley. It introduced a series of innovative machines, including the Macintosh in 1984. In turn, Apple's rapid growth fueled the expansion of the software and disk drive industries on the San Francisco Peninsula.

Emergence of Biotechnology

Stanford University further added to the Valley's technological and entrepreneurial efflorescence in the early and mid-1980s. Groups of Stanford engineers conducted innovative research and development programs in computer architecture and networking with funding from the VLSI Program of the Defense Advanced Research Projects Agency (DARPA). A team under John Hennessy helped develop RISC (Reduced Instruction Set Computer) microprocessors. With DARPA funding, Jim Clark developed the geometry engine to process three-dimensional graphics. Efforts to build a complex computer network at Stanford led to the design of a powerful computer workstation by Andreas Bechtolsheim in 1981. William Yeager, another Stanford engineer, developed a network router the following year. These new technologies (as well as related ones developed at the University of California, Berkeley) were commercialized by start-ups such as Cisco Systems, Sun Microsystems, Silicon Graphics, and MIPS Computer Systems. In the 1980s and much of the 1990s, these firms established themselves as key suppliers of advanced workstations, routers, and other internet devices.

In parallel with the explosion of the information technology industries, the Valley saw the emergence of a new sector, biotechnology, in the second half of the 1970s and in the 1980s.

Silicon Valley provided a fertile ground for the formation of this new industry. The University of California, San Francisco (UCSF), Stanford, and the University of California, Berkeley had strong molecular biology programs – which acted as a breeding ground for scientists as well as the source of key innovations. For example, Stanley Cohen and Herbert Boyer (respectively at Stanford and UCSF) developed recombinant DNA techniques in the early 1970s. Also, the Valley's venture capital industry heavily funded biotechnology businesses and in some cases played a critical role in the formation of biotech corporations. For example, Robert Swanson of Kleiner Perkins convinced Boyer to establish Genentech in 1976. Many biologists at local universities followed suit. For example, Paul Berg and Arthur Kornberg, two Nobel laureates on the Stanford faculty, established DNAX a few years later. By 1984, 22 biotech firms were operating in the Bay Area. This made of Silicon Valley one of the largest centers for biotechnology in the United States.

microprocessor microprocessor
The 4004, Intel's first microprocessor and a die image.
Copyright © Intel Corporation

The region's strength in biotechnology and information technologies gave birth to hybrid technologies and industries. For example, IntelliGenetics (1981) exploited the field of bioinformatics, or computational molecular biology. It administered BIONET, a national computer resource for molecular biology which offered large molecular biology databases as well as computational tools and sophisticated software for sequence searching, matching, and manipulation. Also emblematic of the recombination of semiconductor, software, and molecular biology techniques is the GeneChip. This device, developed and marketed by Affymetrix, is made with many of the same techniques used in the manufacture of integrated circuits. The chip acts as a miniaturized DNA diagnostic system capable of monitoring several hundred millions of gene expression profiles.

Thus a few radio amateurs tinkering with transmitting tubes in the late 1920s and early 1930s gave birth to a remarkably rich and dynamic high tech complex. Not surprisingly, Silicon Valley has become a model for high technology-based industrial and regional development. Many national and regional governments in Europe, Asia, and North America have tried to replicate Silicon Valley, with various degrees of success. These attempts have ranged from Sophia-Antipolis on the French Riviera to the Hsinchu industrial park near Taipei in Taiwan.

Shockley Brattain Bardeen
William Shockley, Walter Brattain, and John Bardeen invented the transistor at the Bell Telephone Laboratories. They received the Nobel Prize in Physics, 1956.

1932 Charles Litton establishes Litton Engineering Laboratories, a manufacturer of tube-making equipment and provider of tube engineering services.
1934 William Eitel and Jack McCullough form Eitel-McCullough (Eimac), a firm specializing in the manufacture of power grid tubes.
1937 Russell Varian, Sigurd Varian, and William Hansen invent the klystron tube at Stanford.
1939 David Packard and William Hewlett establish Hewlett-Packard.
WW II Expansion of Eimac, Litton Engineering, and Hewlett-Packard.
1946 Charles Litton incorporates Litton Industries, a maker of magnetrons.
1947 William Shockley, Walter Brattain, and John Bardeen invent the transistor at the Bell Telephone Laboratories.
1948 The Varian brothers, Edward Ginzton, and Myrl Stearns establish Varian Associates.
1950-1953 The Korean War fuels the growth of the Peninsula's tube and system industries.
1955 William Shockley establishes Shockley Semiconductor Laboratories.
1957 Formation of Fairchild Semiconductor.
1959 Invention of the planar process by Jean Hoerni at Fairchild Semiconductor. Entry in Noyce's patent notebook on the integrated circuit.
1960-1961 A research and development team under Jay Last develops the integrated circuit idea into a product.
1961 Formation of Amelco and Signetics.
Early 1960s Robert McNamara's reform of military procurement led Silicon Valley firms to move into commercial markets.
1965 Varian merges with Eimac.

Moore proposes his «Moore's law» in Electronics.
1966 Charles Sporck of Fairchild Semiconductor takes over National Semiconductor, an East Coast semiconductor firm, and transforms it into a major Silicon Valley-based integrated circuit manufacturer.
1968 Noyce and Moore incorporate Intel.
1971 Ted Hoff, Federico Faggin, and Stan Mazor develop the microprocessor at Intel.
1973 Stanley Cohen of Stanford and Herbert Boyer of UCSF develop a DNA splicing and cloning procedure.
1975 Formation of the Homebrew Computer Club.
1976 Herbert Boyer and Robert Swanson form Genentech.

Steve Wozniak and Steve Jobs establish Apple Computer.
1981 Formation of IntelliGenetics.

Andreas Bechtolsheim designs the SUN work station.
1982 William Yeager develops a router for the Stanford University Network.

Formation of Sun Microsystems.
1984 Apple Computer introduces the Macintosh.

John Hennessy establishes MIPS Computer Systems to commercialize RISC technology.

Formation of Cisco Systems.
1993 Incorporation of Affymetrix to commercialize the GeneChip.


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