–PAGE_BREAK–Stanford University
The story of the Silicon Valley starts with Stanford University in Palo Alto, which has been of fundamental importance in the rise of the electronics industry in Santa Clara County.
In the 19th century, Spanish settlers, who have been the first white visitors to California, founded civilian communities and gave them Spanish names such as San Francisco, Santa Clara or San Jose. They liked the Mediterranean climate in the Santa Clara Valley, which was very hospitable. This area came to be used by farmers and ranchers cultivating orchards, for it provided «some of the world’s finest farming soil.»)
In 1887, Leland Stanford, a wealthy railroad magnate who owned a large part of the Pacific Railroad, decided to dedicate a university to his son’s memory who had died due to a severe disease shortly before he intended to go to a university.
Leland Stanford and his wife built Leland Stanford Jr. University on 8,800 acres of farmland in Palo Alto and also donated 20 million dollars to it. The university opened in 1891 and «would in time become one of the world’s great academic institutions.»)
In 1912, Lee De Forest, who had invented the first vacuum tube, the three-electrode audion, discovered the amplifying effect of his audion while working in a Federal Telegraph laboratory in Palo Alto. This was the beginning of the Electronics Age, and «amateur radio became an obsession») at Stanford University.
Frederick Terman, who was the progenitor of the initial Silicon Valley boom, changed the state of this university fundamentally. Today he is also known as the «godfather of Silicon Valley.») Terman was born in 1900, and as the son of a Stanford professor (who developed the Stanford-Binet IQ tests) he had grown up on the campus. After his graduation from Stanford University he decided to go East to the Massachusetts Institute of Technology (MIT), which was the leading university in technology then. He studied under Vannevar Bush, who was one of America’s leading scientists, and was offered a teaching position at MIT after receiving his doctorate in 1924.
He returned to Palo Alto to visit his family before he intended to start at MIT, but he was caught by a severe case of tuberculosis, which forced him to spend one year in bed. This made him finally to decide to stay in Palo Alto and teach at Stanford University because of the better climate in California.)
Terman became head of the department of engineering by 1937 and established a stronger cooperation between Stanford and the surrounding electronics industry to stop the brain drain caused by many students who went to the East after graduation, as they did not find a job in California then.)
The Varian brothers are an example of such cooperation between university and industry. After graduation they founded a company upon a product they had developed at the Stanford laboratories. Their company, Varian Associates, was settled 25 miles from the university and specialized on radar technology.
After World War II, the Stanford Research Institute (SRI) was founded. Its aim was to provide the industry with more skilled students and to increase the number of companies in Santa Clara County.
Terman wanted companies to settle next to the university. In 1951, he founded the first high-technology industrial park, the Stanford Research Park, «where business, academic and government interests could come together in a synergistic vision of the future.») Portions of this land would be leased to companies, because the «original Stanford family land gift forbade the sale of any of its 8,800 acres.») These companies were offered close contacts to the SRI and could lease land for 99 years at a fixed price, which they had to pay in advance. The first firm to settle in this park was Varian Associates leasing land for $4,000 an acre, which was a good deal as there was no inflation clause in the agreement making this site today worth several hundred thousand dollars.
More and more firms — among them Hewlett-Packard as one of the first residents — settled their Research and Development (R&D) departments in this park, and they were to become the «core of the early explosive growth of Silicon Valley.») Today, there are m ore than 90 firms employing over 25,000 people.
During the Korean War the US government placed Stanford with a great deal of their projects, which made more, and more electronics companies (among them IBM and Lockheed) open R&D departments in Santa Clara County.
Due to his prepaid leasing program Terman received more than $18 million and, moreover, many companies endowed the university with gifts, which Terman used to hire qualified professors from all over the USA. Thus, he had created a mechanism which increased the settlement of the electronics industry.
The successful Stanford Research Park has served as a worldwide model for a lot of other high-technology parks.)
Hewlett Packard — the garage myth
Hewlett-Packard was one of the first companies to be founded in the Silicon Valley and has today become the largest one to be seated there. Its story is typical for this Valley and has had a great impact on many firms founded later on.
HP: Foundation and first years
Bill Hewlett and David Packard met at Stanford University in 1934. Bill Hewlett was the «son of the dean of the Stanford Medical School, while Dave Packard had come to Stanford from Pueblo, Colorado,») and was an enthusiastic radio ham.
They both were very interested in electronic engineering and spent a lot of their free time experimenting in Terman’s lab who supported them. After graduation in 1934, Packard went to Schenectady, New York, where he worked for General Electric (GE), while Hewlett went on studying at the MIT. In 1938, Terman called them back to Stanford where they would earn electrical engineering degrees after their fifth year of study.
During this year they decided to work on a project professor Terman had suggested to them in his course at university: In the garage next to their rented apartment in Palo Alto they developed a variable frequency oscillator, which was much better than existing products but cost only a «fraction of the existing price ($55 instead of $500).») Terman was very convinced by this product, so he encouraged them to try to sell it. He himself loaned them $538 for the production and arranged an additional loan from a bank in Palo Alto.
The new firm Hewlett-Packard (HP) was founded in 1939, and its first big sale were eight audio oscillators to Walt Disney Studios, which used them for the soundtrack of «Fantasia.»)
From now on, they concentrated on highly qualified products and innovative electronic instruments for engineers and scientists. This main product line has been kept till today.
By 1942, five years after its foundation, HP already had 60 employees and reached annual sales of about $1 million. So it became necessary to construct the first HP-owned building in Palo Alto. The two Stanford graduates had successfully built up their own company which had been founded upon an idea during their studies and was to rise from a «garage-headquartered firm») to a leading company in the world. This phenomenon was typical for Silicon Valley and would be imitated by many following companies such as Apple.
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–PAGE_BREAK–The rise of HP up to the present
During World War II the demand for electronic products brought HP many orders, and the company could grow constantly in the subsequent years. HP continued to invent new devices such as the high-speed frequency counter in 1951, which greatly reduced the time required (from 10 minutes to one or two seconds only) to accurately measure high frequencies. Radio stations used it, for example.
The net revenue went up to $5.5 million in 1951 and the HP workforce was at 215 employees. So, in 1957, the stocks were offered to the public for the first time. The additional capital due to the stock offering was invested to acquire other companies and t o expand globally such as into the European market. As a consequence, in 1959, the first manufacturing plant outside Palo Alto was built in Böblingen, West Germany.
HP entered the Fortune magazine’s list of the top 500 U.S. companies in 1962, and established the HP Laboratories in 1966, which were the «company’s central research facility») and became one of the world’s leading electronic research centers.
In the 1970s, the company’s product line was shifted from «electronic instruments to include computers»), and the world’s first scientific hand-held calculator (HP-35) was developed in 1972, making the «engineer’s slide rule obsolete.»)
In the 1980s, HP introduced its LaserJet printer (1985), which became the company’s successful single product ever, and moved into the top 50 on Fortune 500 listing with net revenues of more than $10 billion (1988).)
Today, HP has total orders of $16.7 billion and employs more than 92,000 people in the whole world.) Annually, The company spends over 10 percent of its net revenues in R&D. These investments are fundamental to keep up with the «state-of-the-art» technology, which uses the most modern inventions. New products have always played a key role in HP’s growth, therefore more than half of 1992’s orders were for products introduced in the past two years.) HP’s more than 18,000 products include «computers and peripheral products, test and measurement instruments and computerized test systems, networking products, electronic components, hand-held calculators, medical electronic equipment, and instruments and systems for chemical analysis.»)
Bill Hewlett and Dave Packard today rank with America’s richest men ($1.7 and $0.85 billion) and are widely respected, especially in Silicon Valley where they are viewed as the two «most successful entrepreneurs in America.») They have spent millions of t heir profits for social welfare and have established the Hewlett-Foundation.)
Hewlett and Packard have set a pattern of an outstanding company against which every new high-technology firm «must be measured.»)
The HP Way — an example of corporate culture for a whole industry
From the beginning the two founders have developed a management style, which had never occurred in a large company before. They coined a new type of corporate culture, which was to be called «the HP way.»
HP always renounced the «hire and fire» mentality, which meant to employ many workers for a single big order and to dismiss them afterwards. Instead, the company offered its employees «almost perfect job security.») Even in 1974, when the U.S. economy was in a profound crisis and many people were unemployed, HP avoided layoffs by a four-day workweek, which was a unique measure in corporate America.
The two founders trusted in the «individual’s own motivation to work») and treated their employees as family members; hence the custom to call each other by the first name — even the two chiefs were only known as Bill and Dave.
The HP workers were participated in the company with stock options and were even paid additional premiums when HP was successful — today known as profit sharing. These measures served to identify the employees with their work and to encourage them.
Moreover, the HP way included extensive employment benefits such as scholarships for the employee’s children.
At the end of the 1950s Bill and Dave decided to write down the company’s objectives, which were to serve as guidelines for «all decision-making by HP people,») since the company had grown ever larger. With some changes, those objectives are still valid today. They cover as follows: «Profit, Customers, Fields of Interest, Growth, Our People, Management, and Citizenship.») And these objectives are to be achieved through teamwork.
HP’s strategies nowadays comprise mainly the «Management by Objectives», «Management by Wandering around» meaning informal communication within the company, and «Total Quality Control» which aims at producing highly qualified products.)
The HP way is seen as model for corporate culture in many countries.
The roots of many subsequent companies are located in HP, e.g. Steve Wozniak, who worked at HP and later co-founded Apple. This has led to the establishment of a new corporate culture in Silicon Valley and many firms have tried to imitate the HP way and ad opted measures such as stock options, innovative work rules, teamwork, and profit sharing.
HP today.
Business Summary PALO ALTO, Calif., Nov. 13, 2000 — Hewlett-Packard Company (NYSE: HWP) today reported 17% revenue growth (20% excluding currency effects) in its fourth fiscal quarter ended Oct. 31, 2000. Excluding extraordinary other income and restructuring expenses, diluted earnings per share (EPS) was up 14% from the year-ago quarter.
During the quarter, HP completed its previously announced 2-for-1 split of its common stock in the form of a stock dividend. Share and per-share amounts have been adjusted to reflect this split.
Net revenue was $13.3 billion, compared with $11.4 billion in last year’s fourth quarter. EPS for the quarter was 41 cents on a diluted basis,(1) excluding investment and divestiture gains and losses, the effects of stock appreciation rights and balance sheet translation, and restructuring expenses. Including these items, diluted EPS on a reported basis was 45 cents per share on approximately 2.05 billion shares of common stock and equivalents outstanding. This compares with diluted EPS of 36 cents in the same period last year(2).
«We are pleased that revenue growth is accelerating, but very disappointed that we missed our EPS growth target this quarter due to the confluence of a number of issues that we now understand and are urgently addressing. I accept full responsibility for the shortfall,» said Carly Fiorina, HP chairman, president and chief executive officer.
«Issues that reduced profitability included margin pressures, adverse currency effects, higher-than-expected expenses, and business mix. The good news is that our business is healthy, demand is strong, and we are making good progress against our strategic objectives as we continue the hard work of reinventing hp. We are determined to succeed and are not backing away from our growth targets,» Fiorina said.
HP also announced it has terminated discussions with PricewaterhouseCoopers (PwC) regarding the potential acquisition of its consulting business.
Fiorina said, «We are disappointed that we have not been able to reach a mutually acceptable agreement to acquire PwC’s consulting business. This is a high-quality operation, and we believe the strategic logic underlying this acquisition is compelling. However, given the current market environment, we are no longer confident that we can satisfy our value creation and employee retention objectives — and I am unwilling to subject the HP organization to the continuing distraction of pursuing this acquisition any further. We remain committed to aggressively growing our consulting capabilities, organically and possibly by acquisition, and are open to other business arrangements to achieve our goals.»
Business Summary
Net revenue in the United States was $6.0 billion, an increase of 13% from the year-ago quarter. Revenue from outside the U.S. rose 20% (26% in local currency) to $7.3 billion. In Europe, revenue was $4.5 billion, an increase of 15% (27% in local currency). In Asia Pacific, revenue was $1.9 billion, an increase of 36% (34% in local currency). In Latin America, revenue increased 11% to $0.6 billion.
Imaging and Printing Systems
The imaging and printing systems segment — laser and inkjet printing, and imaging devices and associated supplies — grew 6% in revenue year over year (9% in local currency) against a very strong quarter last year. Internet printing and a migration to color are driving strategy and growth. Strong sales of supplies, scanners, all-in-one (AiO) products, and consumer imaging devices, as well as overall strength in Europe and Asia, partially offset softness in the U.S. business printing market and continuing price erosion in inkjet printers.
Nearly 12 million printing and scanning devices were shipped during the quarter. HP’s color LaserJet market share continues to grow and new products began shipping in October. Imaging revenues grew 31% over the year-ago period, driven by strong performances in all product lines: AiOs up 31%, scanners up 12% and digital cameras and printers up 137%. AiO units were up 53% and PhotoSmart printer units were up 208%. Supplies revenues grew 15% against a strong quarter last year.
Operating margin was 13.4%, up from 13.2% last year.
Computing Systems
The computing systems segment — a broad range of Internet infrastructure systems and solutions for businesses and consumers, including workstations, desktops, notebooks, mobile devices, UNIX(R) and PC servers, storage and software solutions — grew 29% in revenue year over year (32% in local currency) with strong performances across all product categories.
UNIX server revenues rose 23% year over year, with orders up 43%, driven by excellent performance in low- and mid-range servers. Superdome, HP’s new high-end server introduced this quarter, is achieving stronger-than-expected market acceptance, and volume shipments remain on schedule for January. NetServer revenues were up 20%. Enterprise storage revenues were up 40% with the HP Surestore E Disk Array XP512, HP’s flagship enterprise storage product, up 90% in revenues with strong backlog. Software revenues (excluding VeriFone) were up 18%, but down sequentially with strong order backlog at the end of the quarter. OpenView revenues were up 29% with orders up 60%. PC revenues were up 40%, with home PC revenues up 62%, notebooks up 164%, workstations up 11%, and commercial desktops up 8%.
Operating margin was 3.7%, up from 3.2% last year, but down sequentially from 7.3% in the third quarter primarily due to margin pressures, higher expenses and mix changes.
IT Services
The IT services segment — hardware and software services, along with mission-critical, outsourcing, consulting and customer financing services — grew 15% in revenue year over year (18% in local currency). HP’s consulting business achieved in 46% revenue growth, with substantial new hires broadening and deepening the organization’s capabilities.
Operating margin was 7.4%, essentially flat with 7.5% last year.
Costs and Expenses
Cost of goods sold this quarter was 72.5% of net revenue, up from 71.3% in the year-ago period. Expenses grew 15%. After adjusting for currency, expense growth was 17%. Operating expenses, as reported, were 20.3% of net revenue. This compares with 20.7% in the comparable period last year.
Asset Management
Return on assets for the quarter was 10.5% compared with 9.8% in the comparable quarter last year. Inventory was 11.7% of revenue compared with 11.5% in last year’s fourth fiscal quarter. Trade receivables were 13.1% of revenue compared with 14.1% in the prior year period. Net property, plant and equipment was 9.2% of revenue compared with 10.2% in the year-ago quarter.
Full-year Review
Net revenue increased 15% to $48.8 billion. Net revenue in the United States rose 14% to $21.6 billion, while revenue from outside the United States increased 16% to $27.2 billion.
Net earnings from continuing operations were $3.6 billion, an increase of 15%, compared with $3.1 billion in fiscal 1999. Net earnings per share were $1.73 on a diluted basis, up 16% from $1.49 last year.
Outlook for FY 2001
For the 2001 fiscal year ending Oct. 31, 2001, HP expects to achieve revenue growth in the range of 15 to 17%, compared to 15% in FY 2000. Gross margin percentage in FY 2001 is expected to be in the range of 27.5 to 28.5%, compared to 28.5% in FY 2000, with improvements beginning in the 2nd quarter. Total operating expenses in FY 2001 are expected to be approximately 10 to 12% above FY 2000. Tax rate is expected to remain constant at approximately 23%.
The forward-looking statements in this Outlook are based on current expectations and are subject to risks, uncertainties and assumptions described under the sub-heading «Forward-Looking Statements.» Actual results may differ materially from the expectations expressed above. These statements do not include the potential impact of any mergers, acquisitions or other business combinations that may be completed after Oct. 31, 2000.
HP will be discussing its fourth quarter results and its 2001 outlook on a conference call today, beginning at 6 a.m. (PST). A live Webcast of the conference call will be available at www.hp.com/hpinfo/investor/quarters/2000/q4webcast.html. A replay of the Webcast will be available at the same Web site shortly after the call and will remain available through 4:30 p.m. PST on Nov. 22, 2000.
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–PAGE_BREAK–The rise of Silicon Valley
Hewlett-Packard was Silicon Valley’s first large firm and due to its success one of the area’s most admired electronics firms.
While HP was important for the initial growth of the area and at first was based on electronic devices, the actual Silicon Valley fever was launched in the mid-1950s with Shockley and Fairchild, and other semiconductor firms, and went on to the microelectronics revolution and the development of the first PCs in the mid-1970s, continuing till today.
Invention of the transistor
One major event was crucial for this whole development. It was the invention of the transistor that revolutionized the world of electronics.
By the 1940s, the switching units in computers were mechanical relays, which were then replaced by vacuum tubes. But these vacuum tubes soon turned out to have some critical disadvantages, which impeded the further progress in computing technology. In contrast, transistors were much better. They could perform everything the vacuum tubes did, but «required much less current, did not generate as much heat, and were much smaller») than vacuum tubes.
The use of vacuum tubes, which could not be made as small as transistors, had meant that the computers were very large and drew a lot of power. For example the famous American ENIAC, built in 1946 and consisting of more than 18,000 vacuum tubes, had a total weight of 30 tons, filled a whole room of 500 square meters and consumed 150 KW per hour. The breathtaking development in computers can be seen, when comparing the ENIAC with today’s laptops which are portable with about 5 kg, are battery driven and run some 100,000 times faster.)
This development was launched by the transistor (short for «transfer resistance») invention in 1947 by William Shockley and his colleagues John Bardeen and Walter Brattain. This «major invention of the century») was made at the Bell Labs in Murray Hill, New Jersey, which are the «R&D arm of the American Telephone and Telegraph Company (AT&T).») And in 1956, the three scientists received the Nobel Prize in Physics for their invention that had «more significance than the mere obsolescence of another bit of technology.»)
The transistor is a «switch — or, more precisely, an electronic „gate,“ opening and closing to allow the passage of current.») Transistors are solid-state and are based on semiconductors such as silicon. The crystals of these elements show properties, which are between those of conductors and insulators, so they are called semiconductors. The peculiarity of semiconductor crystals is that they can be made «to act as a conductor for electrical current passing through it in one direction») only, by adding impurities or «doping» them — for instance, «adding small amounts of boron of phosphorus.»)
Shockley Semiconductor
In 1955, William Shockley, co-inventor of the transistor, decided to start his own company, Shockley Semiconductor, to build transistors, after leaving the Bell Labs. The new firm was seated in Palo Alto in Santa Clara County, California, where he had grown up. Shockley man aged to hire eight of the best scientists from the East Coast, who were attracted by his scientific reputation. These talented young men — «the cream of electronics research» — represented the «greatest collection of electronics genius ever assembled». Their names were: Julius Blank, Victor Grinich, Eugene Kleiner, Jean Hoerni, Jay Last, Gordon Moore, Robert Noyce and Sheldon Roberts.)
But however brilliant Shockley was, who was called a «marvelous intuitive problem solver» and a «tremendous generator of ideas» by Robert Noyce, it soon turned out that he was «hard as hell to work with», as his style was «oppressive» and he «didn’t have trust and faith in other individuals.»)
When Shockley refused the suggestions of his eight engineers who wanted to concentrate on silicon transistors, while their boss pursued research on four-layer diodes, they decided to quit and start their own firm in 1957.
Within several months Shockley had to shut down his firm, since he had lost his engineers, whom he called traitors and they are now known as «the Traitorous Eight».
Although Shockley was not very successful with his firm in Palo Alto, he «deserves credit for starting the entrepreneurial chain-reaction that launched the semiconductor industry in Silicon Valley,») since he had brought together excellent scientists there like Robert Noyce without whom there might never have been a Silicon Valley on the San Francisco Peninsula at all. Or as M. Malone calls it, «Shockley put the last stone in place in the construction of Silicon Valley.»)
The father of one of those young men who left Shockley had contacts to a New York investment firm, which sent a young executive named Arthur Rock to secure financing for their new enterprise. Rock asked a lot of companies, if they were interested in backing this project, but has not been successful so far. The concept of investing money in new technology ventures was largely unknown then, and indeed the term «venture capital» itself wouldn’t be coined until 1965″) — by Arthur Rock, who should become Silicon Valley’s first and most famous venture capitalist later on.
Finally, due to Rock’s efforts, the «Traitorous Eight» managed to obtain financial support from industrialist Sherman Fairchild to start Fairchild Semiconductor in 1957.
Fairchild Semiconductor was developed by Shockley’s firm, and as the «still existing granddaddy of them all») has itself spawned scores of other companies in Silicon Valley: Most semiconductor firms’ roots can be traced back to Fairchild. The most famous ones of them are National Semiconductor, Intel, Advanced Micro Devices (AMD); and many well-known Valley leaders have worked at Fairchild, e.g. Charlie Sporck (National Semiconductor), Jerry Sanders (AMD’s founder), Jean Hoerni, and last but not least Robert Noyce, who is considered the «Mayor of Silicon Valley») due to his overwhelming success.
Robert Noyce was born in southwestern Iowa in 1927. His father was a preacher in the Congregational Church and thus was «perpetually on the move to new congregations, his family in tow.») When the Noyces decided to stay at the college town of Grinnell, Iowa, for a longer period of time after many years of moving, this place meant stability in young Bob’s life and thus would become his first and only real home, which he would later regard as important for his eventual success.
After high school, Robert studied at Grinnell College. His physics professor had been in contact with John Bardeen (one of the three inventors of the transistor) and obtained two of the first transistors in 1948, which he presented his students, including Bob Noyce. This aroused young Robert’s interest in semiconductors and transistors, which made him try to learn everything he could get about this fascinating field of solid-state physics.
Having graduated from Grinnell College he continued his studies at «the premier school of science on the East Coast, MIT,») where he met famous scientists like Shockley. He received his doctorate, and decided to work at Philco until 1955, when he was invited by William Shockley to join a new firm named «Shockley Semiconductor» in Santa Clara County — together with seven other splendid scientists.
When the so-called «Shockley Eight» started a new venture with Fairchild Semiconductor, Robert Noyce began «his own transformation from engineer to business manager:») He was chosen to lead the new company as he seemed the best to do this job.
Fairchild Semiconductor focused on building a marketable silicon transistor applying a new manufacturing process called «mesa». Despite being the smallest company in electronics business then, it attracted public attention, particularly in 1958, when «Big Blue» — as dominant IBM is nicknamed — ordered the «first-ever mesa silicon transistors») for memory drivers in its computers.
This order contributed to the early success of Fairchild Semiconductor, and indicated the beginning of a long relationship between IBM and Silicon Valley.
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–PAGE_BREAK–Importance of military funding
Before switching over to the events at Intel, the aspect of military funding is to be dealt with, since it has played an important role in the early days of Silicon Valley.
During World War II, after the Japanese attack at Pearl Harbor in 1942, a great deal of the U.S. military forces and of the military production was moved to California. Within a few years, California — formerly an agricultural state — became a booming industrial state and the military center of the USA.)
After the war, in the time of the Cold War and the arms race, the Korean conflict, the «missile gap» and the space program, the Pentagon kept ordering high-technology products from the armament factories in California. Many companies established R&D departments and production facilities in Santa Clara County near Stanford University, which provided them with bright engineers and scientists, and were largely supported by the Pentagon’s demand for electronic high-tech products.
Examples for such firms are FMC, GTE, Varian Associates, Westinghouse, and finally Lockheed, which opened its R&D department in the Stanford Research Park in 1956, and started Lockheed Missiles and Space Company (LMSC) in Sunnyvale. Lockheed’s move to Northern California was crucial for the developments in Santa Clara County; today the company is Silicon Valley’s largest employer with more than 24,000 people.)
Military funding for high-tech products was responsible for the early growth of Silicon Valley in the 1950s and 1960s. The U.S. Department of Defense was the biggest buyer of these products, e.g. its purchases represented about 70 percent of the total production of ICs in 1965.)
While this share in chip demands has dropped to 8 percent today, the Pentagon remains the biggest supporter of new technologies and accounts for most of the purchases of the latest developments.
Intel Corp.
After the transistor and the integrated circuit, the invention of the microprocessor in the early 1970s represents the next step towards the modern way of computing, providing the basis for the subsequent personal computer revolution.
It was at Intel where the first microprocessor was designed — representing the key to modern personal computers. With its logic and memory chips, the company provides the basic components for microcomputers. Intel is regarded as Silicon Valley’s flagship and its most successful semiconductor company, owing its worldwide leading role to a perpetually high spending on research and development (R&D).
Foundation in 1968
It all started in 1968, when Bob Noyce resigned as head of Fairchild Semiconductor taking along Gordon Moore and Andy Grove, to embark on a new venture. They had decided to leave the company, because they wanted «to regain the satisfaction of research and development in a small, growing company,») since Fairchild had become big with lots of bureaucracy work to be done. Gordon Moore had belonged to the famous Shockley Eight and was in charge of the R&D team at Fairchild. Andy Grove, a young Hungarian émigré, who had earned a doctorate in chemical engineering at U.C. Berkeley, had joined Fairchild in the early 1960s.
Intel (short for Integrated Electronics), a typical Fairchild spin-off, was financially backed by venture capital from Arthur Rock, who had been in contact with Noyce since 1957. The company was founded upon the idea of integrating many transistors on a chip of silicon, after Noyce had developed a new photochemical process. The three engineers initially focused on building the first semiconductor chips used for computer memory, which should replace the dominant memory storage technology at the time, called «magnetic core». Intel’s task was to drive down the cost per bit by increasing the capacity of memory chips dramatically.
First products — Moore’s Law
Within a year, Intel developed its first product — the 3101 Schottky bipolar 64-bit static random access memory (SRAM), which was followed soon after by the 1101. This chip (1101) was a 256-bit SRAM and had been developed on Intel’s new «silicon gate metal -oxide semiconductor (MOS) process,» which should become the «industry’s process technology of choice.») With the first two products, the young company started with 12 employees and net revenues of $2,672 in 1968, had already gained the technological lead in the field of memory chips.
Intel’s first really successful product was the 1103 dynamic random access memory (DRAM), which was manufactured in the MOS process. Introduced in 1970, this chip was the «first merchant market LSI (large-scale integrated) DRAM,» and received broad acceptance because it was superior to magnetic core memories. So, by the end of 1971, the 1103 became «the world’s largest-selling semiconductor device» and provided the capital for Intel’s early growth.)
Until today, semiconductors have «adhered to Moore’s Law,» which has been framed by the «cofounder of Fairchild and Intel» when the first commercial DRAMs appeared in the early 1970s. This law predicts that the price per bit (the smallest unit of memory) drops by 30 percent every year. It implies that you will receive 30 percent more power (speed/capacity) at the same price, or that the «price of a certain power is 30 percent less.»)
Moore’s Law applies to both memory chips and microprocessors, and shows the unprecedented rapid progress in microelectronics. This «astonishing ratio» has never occurred in «the history of manufacturing» before. Applied to automobiles, it means that «a Cadillac would have a top speed of 500 miles per hour, get two hundred miles to a gallon of gas and cost less than a dollar» — almost incredible.)
1971 was a crucial year at Intel. The company’s revenues surpassed operating expenses for the first time, and the company went public, raising $6.8 million.
Moreover, the company introduced a new memory chip — the first erasable, programmable read only memory (EPROM). Invented by Intel’s Dov Frohman, the new memory could store data permanently like already existing ROMs, but besides could be erased simply by a beam of ultraviolet light and be used again. The EPROM was initially viewed as a «prototyping device» for R&D. The invention of the microprocessor in the same year, however, showed the real significance of the EPROM, which could be used by original equipment manufacturer (OEM) customers (they build the end-products) to store microprocessor programs in a «flexible and low-cost way.» The «unexpected synergy» between the EPROM and the microprocessor resulted in a growing market for both chips and contributed a great deal to Intel’s early success.)
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–PAGE_BREAK–«Ted» Hoff’s first microprocessor
The invention of the microprocessor marked a turning point in Intel’s history. This development «changed not only the future of the company, but much of the industrial world.»)
The story to this technological breakthrough began in 1969, when a Japanese calculator manufacturer called Busicomp asked Intel to design a set of chips for a family of programmable calculators. Marcian «Ted» Hoff, a young and «very bright ex-Stanford research associate») who had joined Intel as employee number 12, was charged with this project. However, he did not like the Japanese design calling for 12 custom chips — each of them was assigned a distinct task. Hoff thought designing so many different chip s would make the calculators as expensive as minicomputers such as DEC’s PDP-8, although they could merely be used for calculation. His idea was to develop a four-chip set with a general-purpose logic device as its center, which could be programmed by inst ructions stored on a semiconductor memory chip. This was the theory behind the first microprocessor.
With the help of new employee Stan Mazor, Hoff perfected the design of what would be the 4004 arithmetic chip. After Busicomp had accepted Hoff’s chip set, Frederico Faggin, one of the best chip design experts, who had been hired recently, began transforming the design into silicon. The 4004 microprocessor, a 4-bit chip (processes 4 bits — a string of four ones or zeroes — of information at a time), contained 2300 MOS transistors, and was as powerful as the legendary first electronic computer, ENIAC.
Soon after the first 4004s had been delivered to Busicomp, Intel realized the market potential of the chip, and successfully renegotiated with the Japanese to regain the exclusive rights, which had been sold to Busicomp.
In November 1971, Intel introduced the 4004 to the public in an Electronic News ad. It announced not just a new product, but «a new era of integrated electronics […], a micro programmable computer on a chip.») The microprocessor is — as Gordon Moore call s it — «one of the most revolutionary products in the history of mankind,») and ranks as one of 12 milestones of American technology in a survey of U.S. News and World Report in 1982. This chip is the actual computer itself: It is the central processing u nit (CPU) — the computer’s brains. The microprocessor made possible the microcomputer, which is «as big as it is only to accommodate us.» For «we’d have a hard time getting information into or out of a microprocessor without a keyboard, a printer and a terminal,» as Th.Mahon puts it.)
However significant Hoff’s invention, nevertheless, it was hardly noticed in the public until early 1973. The microprocessor had its own instruction set and was to be programmed in order to execute specific tasks. So Ted Hoff had to inform the public and t he engineers about the capabilities of the new device and how to program it.
Cooperation with IBM in the 1980s
Intel’s measures in the late 1970s as a reaction to increasing competition from other chip manufacturers paid off greatly and resulted in a remarkable technological lead against its competitors. The most significant consequence, which was a landmark in the company’s development, was IBM’s decision to rely on the Intel 8088 microprocessor for its PCs in 1980.
IBM (short for International Business Machines) has been the world’s leading company in the big mainframe computers since the 1950s. Due to its dominance, it was often compared with a giant and referred to as «Big Blue.» Surprisingly, it was not before 198 1 (the PC revolution had already been on for a few years) that IBM introduced its own Personal Computer.
Because of IBM’s dominance and worldwide reputation, its PCs soon became industry standard and penetrated the office market: other established computer companies followed and introduced their own PCs — the so-called «clones» — which were compatible to IBM’ s models. To maintain compatibility, all these manufacturers were forced to rely on Intel’s microprocessors, which thus were bootstrapped to industry standard, too.
As well as for Intel, the CPU manufacturer, IBM’s decision has been crucial for a company in the software field: Microsoft’s (Redmond, Washington) MS-DOS was chosen as the IBM PC’s operating system and became industry standard. It is essential to every IBM compatible PC. Microsoft, a small company in 1980, grew explosively, and is today’s superior software giant.
At the beginning of the 1980s, IBM was concerned about Intel’s ability to keep investing in R&D and therefore decided to support Intel by buying $250 million (=12%) of the company’s stock. This endorsed Intel’s position, and, in 1987, IBM sold the last of its shares in a strong Intel.
Intel today
Annual report 2000
Today, Intel supplies the computing and communications industries with chips, boards and systems building blocks that are the «ingredients» of computers, servers, and networking and communications products. Industry members to create advanced computing and communications systems use these products. Intel’s mission is to be the preeminent building block supplier to the worldwide Internet economy.
Intel® Architecture platform productsMicroprocessors, also called central processing units (CPUs) or chips, are frequently described as the «brains» of a computer, because they control the central processing of data in personal computers (PCs), servers, workstations and other computers. Intel offers microprocessors optimized for each segment of the computing market:
Intel® Pentium® III Xeon™ processorsfor mid-range to high-end servers and workstations
Intel® Pentium® 4and Pentium® III processorsfor entry-level servers and workstations and performance desktop PCs
Intel® Celeron™ processorsfor value PC systems
Mobile Pentium® III processorsfor performance in mobile PC systems
Chipsetsperform essential logic functions surrounding the CPU in computers, and support and extend the graphics, video and other capabilities of many Intel processor-based systems.
Motherboardscombine Intel microprocessors and chipsets to form the basic subsystem of a PC or server.
e-Business solutionsenable services and channel programs to accelerate integration and deployment of Intel Architecture-based systems and products.
/>Wireless communications and computing productsThese productsare component-level hardware and software focusing on digital cellular communications and other applications needing both low-power processing and high performance. These products are used in mobile phones, handheld devices, two-way pagers and many other products. For these markets, Intel offers Intel® Flash memory, application processors based on the Intel® StrongARM processor core, and base band chipsets for cellular phones and other wireless devices.
Networking and communications productsCommunications building blocksfor next-generation networks and Internet data centers are offered at various levels of integration. These products are used in communications servers, network appliances and computer telephony integration equipment.
Component-level building blocks include communications silicon such as network processors and other board-level components, software and embedded control chips. These products are integrated in communications hardware such as hubs, routers, switches and servers for local and wide area networking applications. Embedded control chips are also used in laser printers, imaging, automotive systems and other applications.
New business productsThese products and services include e-Commerce data center services as well as connected peripherals.
Intel’s major customers include:
Original equipment manufacturers(OEMs) of computer systems, cellular phone and handheld computing devices, telecommunications and networking communications equipment, and peripherals.
Users of PC and network communications productsincluding individuals, large and small businesses, and Internet service providers—who buy Intel’s PC enhancements, business communications products and networking products through reseller, retail, e-Business and OEM channels.
Other manufacturersincluding makers of a wide range of industrial and communications equipment.
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–PAGE_BREAK–The emergence of the PC industry
Until the early 1970s, computers were huge machines — from the largest ones, the supercomputers, to mainframes and minicomputers — and were mainly used for scientific research in universities and in military institutions, and for business calculations in major companies. Surprisingly, when the first microprocessors appeared, none of the established companies such as IBM, DEC or HP had the idea to build small, personal computers. They just did not see any market for them and could not imagine what those machines should be needed for. None of these large companies anticipated the possibilities of PCs, which are today used in almost every office, in the home, in the school, on airplanes, etc. and can act as typewriters, calculators, accounting systems, telecommunications instruments, libraries, tutors, toys and many the like.
So, it was the hobbyists, single electronics wizards who liked tinkering with electronic devices that constructed their own computers as the first PCs. These «computer nuts» ignited the «fire in the valley;») they launched the personal computer revolution in Silicon Valley «out of their own fascination with the technology. The personal computer arose from a spirit of sharing „hard-won technical information“ with other computer freaks who developed their devices for the fun of tinkering around in this fascinating field of electronics. Some of these frequently young hobbyists found themselves almost overnight as millionaires, after they had sold their devices in a newly founded firm.
Before dealing with the story of Apple, which is typical of Silicon Valley and responsible for the breakthrough of the personal computer, some information about the first PC and the emergence of the PC industry shall be given.
Altair — the first PC
Altair is often regarded as the first personal computer, although it was one of those switches and lights computers — programming is done by arranging a set of switches in a special order, and the results appear as different combinations of lights. In other words, such a machine is a genuine computer, but absolutely useless, as Steve Wozniak, one of the PC pioneers, put it.)
After the first microprocessors had come onto the market, Ed Roberts, an engineer at MITS, a small calculator company in Texas, decided to build a kit computer, which he intended to sell to hobbyists. He chose Intel’s 8080 as the CPU for his computer, since this chip was the most advanced and powerful at the time. As Roberts wanted to sell his computer for less than $500 and the official price for the 8080 was already at $360, he contacted Intel and could finally receive the chip for only $75 apiece.
By the end of 1974, Roberts finished his computer, which was named Altair. When the Altair was introduced on the cover of the January 1975 issue of Popular Electronics as the first personal computer, which would go for $397 only, the market response was in credible. The low price was the actual sensation, because it was largely known that the price for the Intel 8080 CPU powering the Altair was already at $360. So many hobbyists, engineers and programmers who had keenly waited for their own personal computer, which they could experiment on at home, welcomed the new product and ordered „their“ Altair on the spot.
Roberts had never expected such a great response and his small firm was flooded by those immediate orders (more than 4000). He boosted up the production, but still could not meet the huge demand. The Altair was a success at first, and Roberts sold many of them.
However, he had increased production at the expense of quality and further refinement of his computer, so the Altair brought along a lot of trouble and was finally supplanted by other computers, which were superior.
Nevertheless, the Altair as the first successful microcomputer, contributed a lot to the PC revolution, since it encouraged other people to build personal computers (e.g. IMSAI, Apple).
The first computer shops
During this time, the mid-1970s, the first computer shops came into existence. Pioneering in this field was Paul Terrell who came to the idea of running such a shop, after the Altair had been put onto the market. His first Byte Shop opened in Mountain View (located in the heart of Silicon Valley) by the end of 1975.
Initially, Terrell sold the Altair and accessory products such as additional memory boards and other devices, which came onto the market. With the arising microcomputer industry, he could offer his customers — mainly hobbyists and engineers — more and more products, and his shop became a success. Other Byte Shops were opened and Terrell’s computer shop chain expanded beyond the Silicon Valley. The computer shops provided its customers with a variety of devices around the computer and also with service and help.
The Altair was shipped as a kit computer and was to be assembled first, and then it was still not difficult to work with it. The hobbyists helped each other with advice. It was this spirit of sharing solutions and the common interest in microcomputers that led to the foundation of the first computer club.
Homebrew Computer Club
The legendary Homebrew Computer Club was the first of its kind, and provided an early impetus for the development of the microcomputer industry in Silicon Valley. Its first meeting in March 1975 was held in one of its members’ garage in Menlo Park in Santa Clara County. The Homebrew members were engineers and computer enthusiasts who discussed about the Altair and other technical topics. The club attracted many hobbyists and was attended by nearly 750 people one year after its foundation. The Homebrew Computer Club had its own philosophy. People meet, because they were interested in computers and liked tinkering with them, but not for commercial reasons — at least in its early times. Its members „exchanged information about all aspects of micro computing technology“) and talked about devices they had designed. From its ranks came the founders of many microcomputer companies — for example Bob Marsh, Adam Osborne, or Steve Jobs and Steven Wozniak — the famous Apple founders.
The Homebrew Computer Club is the place where the roots of many Silicon Valley microcomputer companies are located. It has „spawned a revolution in micro processing“) and represents an „important step in the development of a multi-billion dollar industry.
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–PAGE_BREAK–The Apple Story
Apple provides one of Silicon Valley’s most famous stories. It shows features that are typical for most start-up firms in the valley, however, it is unique and its early success and its contribution to the personal computer are unmatched.
«Woz» and Jobs — the two «Steves»
Apple’s history starts with the story of two young and exceptional people who began building a computer in their garage and «launched the microcomputer revolution,») changing our daily life in many respects.
The Apple story is the story of the two «Steves». Stephen G. Wozniak was a typical Silicon Valley child. Born in 1950, he had grown up with the electronics industry in Silicon Valley, and had been intrigued by electronics from the start, since his father w as an electronics engineer. Wozniak, known to his friends as «Woz», was bright and was an electronics genius. At the age of 13, he won the highest award at a local science fair for his addition-subtraction machine. His electronics teacher at Homestead High School recognized Woz’s outstanding talent and arranged a job for him at a local company, where Steve could work with computers once a week. It was there that Wozniak saw the capabilities of a computer (it was the DEC PDP-8 minicomputer) and studying the manual, it became his dream to have a computer of his own one-day. He designed computers on paper. Many other students who grew up in Silicon Valley shared this dream.
In 1971, Wozniak built his first computer with his high-school friend Bill Fernandez. This computer (they called it Cream Soda Computer) was developed in his friend’s garage and had «switches and lights just as the Altair would have more than three years later.»)
Bill introduced Woz to a friend of his named Steven P. Jobs. Jobs was born in 1955, and his foster parents were — unlike most other people in Silicon Valley — blue-collar workers. However, growing up in an environment full of electronics, Steve came in con tact with this fascinating technology and was caught by it.
Jobs was a loner and his character can be described as brash, very ambitious and unshakably self-confident. With his directness and his persistency he persuaded most people. He had the ability to convey his notions and vision to other people quite well. An d he was not afraid to talk to famous people and did never stop talking to them until they gave in and did what he wanted. His traits could already be observed in his adolescence, for instance when he — at the age of thirteen — called famous Bill Hewlett, president of HP, and asked him for spare parts he needed for his frequency counter.
Although Steve Jobs was five years younger than Wozniak, «the two got along at once.» Apart from their common fascination with electronics, they «shared a certain intensity.» Whereas Woz was intense in digging «deeper into an intellectual problem than anyone else,» Jobs’s intensity was in ambition. Moreover, both were genuine pranksters, and often they fooled others with their technical knowledge.)
When they heard of «phone-phreaking» — making free long-distance telephone calls with a device called «blue box» — the two started their first business venture, building those blue boxes.
In 1972, Steve Jobs went to Reed College in Oregon; however, there he became more interested in Eastern religions, dropped out a year later and returned to Silicon Valley, where he took a job with Atari (a young video game company) until he had saved enough money to go on a trip to India for some months. Then he went back to California and to his work at Atari.
After attending three different colleges, Wozniak had begun work for Hewlett-Packard in summer 1973. When Atari planned to develop a new game called «Breakout,» Jobs boasted he could design it in only four days — quicker and better than anyone else. Jobs t old his friend Woz about it, and the two designed the game in record time, working four nights and days, and were paid the promised $700 for it. This experience showed them that they could work together on a tough project and succeed.
The first Apple
When the Homebrew Computer Club came into existence, Wozniak began attending its meetings. As he later would recall, Homebrew was a revelation for him and changed his life. He met people who «shared his love for computers») and learned from them as well a s he encouraged them with his technical expertise. Others brought along their Altairs, which Wozniak was interested in but could not afford. He realized this computer resembled the Cream Soda Computer he had built some time ago.
Soon after, Chuck Peddle at MOS Tech released his new 6502 microprocessor chip for only $20, which was a sensation compared to the usual price of $400 for those chips then. Suddenly, Woz saw his chance and decided to write the first BASIC for it, which was the most spread programming language. After finishing with the BASIC, he made a computer for it to run on. The other hobbyists at Homebrew were impressed by Wozniak’s kit, which actually was a board with chips and interfaces for a keyboard and a video monitor.
Steve Jobs saw the opportunity of this machine, which they named Apple, and finally persuaded Wozniak to start a company in April 1976. The two raised the money for the prototype model with a printed circuit board by selling Jobs’ VW microbus and Wozniak’s HP calculators. With the Apple I, Steve Wozniak had designed a «technological wonder») and made his dream of owning a computer come true. His friend Steve Jobs played the role of a salesman and his ambitious promotion made the Apple I «a star in the tight world of computer freaks.»)
The breakthrough for the two Steves came in July, when Paul Terrell ordered 50 Apples for his Byte Shop, however on condition the computers were fully assembled in a case and equipped with a cassette interface to enable external data storage.
Jobs could «obtain net 30 days credit») for the parts they needed for their computer. Working hard in Jobs parents’ garage, they managed to construct the 50 Apples within those 30 days.
The Apple I was continuously refined by Wozniak, and its sales made the young company known, partly because the company’s name appeared on top of computer lists, which were published by electronics magazines in alphabetical order.
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