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The Rise Of Intel And Silicon Valley

Intel

Intel faced a crisis in its history, with rivals surpassing it technologically. Bill Shockley, a physicist trained at Bell Labs, played a crucial role in early semiconductor research during World War II. He conducted secret research into radar techniques and influenced the decision to drop nuclear bombs on Hiroshima and Nagasaki. Shockley returned to Bell Labs and was at the heart of the most important invention in technology: the transistor.

In 1950, Shockley released a 558-page book called “Electrons and Hole in Semiconductors,” which became a bible for scientists working on developing new variants of the transistor and other devices based on semiconductors. He was generally considered the sole inventor of the transistor, but his tense relationship with colleagues led him to leave Bell Labs and work for the government in Washington, DC. In 1956, Shockley and Arnold Beckman announced their semiconductor lab was open for business in Southern California.

Shockley was awarded the Nobel Prize in physics for his work inventing the transistor, sharing it with his former colleagues Walter Bratton and John Bardeen. Meanwhile, thousands of normal people organized into militias to fight against the authorities in Budapest, leading to the Hungarian Revolution. The authorities killed over 2,500 protesters and extinguished the flame of the revolution, with many fleeing through holes in the Iron Curtain to Austria.

Andros East Von Grove (Andy Grove), a 20-year-old chemistry student from Hungary, became the most important person in the history of Intel in 1956. He moved to New York and studied chemical engineering at the City College of New York, where he graduated at the top of his class. After graduating, he moved to Berkeley and obtained a PhD in chemical engineering.

In 1957, eight of the lab’s best researchers decided to quit working with Bill Shockley, who was notorious for his tyrannical behavior and paranoia. Arthur Rock, an associate of Shockley, suggested that the group should start their own company to gain autonomy and capture a fair share of the value they created. The group agreed, but faced challenges in securing investors.

Sherman Fairchild, an inventor and wealthy student of science, approached the eight researchers and proposed a vision for the future of semiconductors: silicon substrates made from silicon rather than germanium. Fairchild agreed to loan the researchers 1.5 million dollars to start their company, which would eventually lead to the founding of Fairchild Semiconductor in 1957.

Robert Noyes, Gordon Moore, and Andy Grove were key figures in the Intel story, with Noyes inventing the modern integrated circuit and Moore inventing Moore’s Law. Moore hired Grove to oversee the lab’s research into embedding trans resistors on silicon wafers. This 30-year working relationship transformed the future of Silicon Valley and computing.

Bob Noyce, who believed the market for integrated circuits was about to explode, led Fairchild Semiconductor to announce a price of one dollar for their integrated circuit products in 1965. This low price allowed Fairchild to accelerate demand and make it the logical choice for companies just entering the market. Morris Chang, founder of Texas Instruments, implemented learning curve pricing, which improved yields by rapidly scaling production at low prices.

The founders, Bob Noyes and Gordon Moore, believed their talents were undervalued and believed they could marry silicon semiconductor technology with computer memory. They sought advice from Arthur Rock, who had experience founding Fairchild Semiconductor. Rock suggested they start a company and raise $2.5  million, with Rock being appointed the inaugural chairman.

In 1968, the company was founded in Mountain View and named Intel. Gordon Moore and Bob Noyes chose Andy Grove as their first employee, a young man who had survived a fascist dictatorship, German military occupation, and a brutal crackdown. Despite the adversity, Andy had faith in the founders’ vision and was eager to take the next step in the industry.

Gordon Moore and Bob Noyes founded Intel, a company that manufactures semiconductors, in 1971. They believed they could overtake their competitors by developing faster and more powerful memory products. They pursued three technologies simultaneously: bipolar memory, silicon gate metal oxide semiconductor memory, and multi-chip memory. The 3101, a static random access memory chip, was the first product, and it was twice as fast as the competition. Intel followed up with the 1101 in 1970, which was the first widely produced chip made using silicon gate metal oxide semiconductor technology. The 1103 was the first dynamic random access memory chip, making magnetic core memory obsolete. In October 1970, Intel took the company public at a market cap of 58 million dollars.

In 1971, Intel unveiled the world’s first widely available microprocessor, the 4004, which was as powerful as the IEC but smaller. The 4004 was as powerful as the IEC but smaller, measuring 1 8 by 1 6 inches. This miniaturization of the CPU made the personal computer possible. Intel released four transformational products within the first four years of its history, with fewer than 200 staff. The Selby, the first 8-bit microprocessor, ran on an 8008 microprocessor, and the Mark 8 followed in July, running on an 8080.

Intel, a computer on a chip, was the first to release a personal computer in 1975, the Altair 8800. It was the world’s first mini computer kit to rival commercial models and was priced at $400. Harvard freshmen Paul Allen and Bill Gates, who later established Microsoft, developed a version of Basic to run on the Altair. Steve Wozniak, inspired by the Altair, built a microprocessor into his video terminal to develop a complete computer, which became the Apple.

In 1978, Intel introduced the 8086, signaling the beginning of the famous x86 architecture. The company’s founders implemented a program that emphasized openness and delegating decision-making to the lowest levels, trusting staff to solve problems and prove they were all in it together. Intel rose to the top of the industry and stayed there because it maintained focus on the micro and macro aspects.

In 1981, IBM unveiled the Model 5150, setting the standard for personal computers. The company initially forecasted that it would sell 250,000 units within five years but could sometimes ship as many as a single month. IBM created a vast ecosystem of software and peripherals, and in December 1982, IBM paid $250 million for a 12 share of Intel.

Intel’s first attempt at a 32-bit processor system, the iAPX 432, was a disaster, running 5 to 10 times slower than competitors. However, Gordon, Andy, and Bob knew that occasional failures were just the cost of creating a culture that reliably produced transformational products.

Intel faced manufacturing issues, economic slowdowns, and vulnerabilities in its market position. To address these issues, Intel partnered with up-and-coming Japanese firms, such as Toshiba, NEC, Hitachi, Mitsubishi Electronics, and Fujitsu. This partnership allowed Japanese companies to learn how Intel designed memory chips and access superior capital, leading to higher production yields than leading U.S. companies at its peak.

Intel’s memory industry was once dominant, accounting for over 90% of its revenues. However, in 1974, it lost 83% of the market to rivals, and by 1985, it controlled only 1.3%. Intel’s founders, Gordon Moore and Andy Grove, faced the realization that their memory chip business model was no longer viable. They vowed to leave the memory business and rehire themselves as leaders of a company that would become the world leader in microprocessors. Although microprocessors were not an attractive revenue source, personal computers were becoming a focus as a business opportunity. Intel’s internal resistance was stiff, as employees and executives were emotionally attached to the memory business, and the sales team believed they needed a full product line to succeed. This change marked a significant shift in Intel’s business model and the company’s ability to adapt to a rapidly changing world.

Andy Grove, the CEO of Intel, faced a significant challenge in turning around the company that had lost market share in memory chips. The company had lost $107 million from 1986 until 2022, and was facing bankruptcy. Intel’s founders and engineers had done more than any other company to create the technology underpinning personal computers. The speed at which Intel had lost market share in memory surprised Andy, but he knew the 386 had the potential to be Intel’s life raft.

In 1982, the company had been quietly working on a new microprocessor called the 3386, which was the first 32-bit microprocessor technologically. This led to Intel’s rivals overtaking it and turning its main product line into a commodity that almost anyone could manufacture. Andy decided to make Intel the sole gatekeeper and made the call that Intel would not license the design of the 386 to any other manufacturers.

This decision was crucial to successfully turning around Intel, as it defied IBM, its biggest customer and major shareholder, and standard industry practice. By working closely with Intel and Microsoft, Compaq developed early prototypes of the computer, which had a 12 megahertz clock speed. By the time the computer was ready for release, manufacturing yields of the improved 16 megahertz 386 had reached acceptable numbers, resulting in a 25 speed boost.

In September 1986, Compaq unveiled the Desk Pro 386, the most advanced high performance personal computer in the world. Andy Grove’s decision to pivot away from the memory business model that made Intel successful was a pivotal moment in his career.

In 1992, Intel offered IBM half of the manufacturer’s marketing costs for their new computer if they prominently advertised the Intel processor inside the machine. This led to an astronomical annual net income of $1 billion and nearly $6 billion in revenue. Intel’s partnership with Microsoft, known as Wintel, helped increase revenues by over 50% to over $8 billion. Intel’s revenues broke $20 billion in 1996, with over $5 billion of that being profit. In 1998, Andy Grove stepped down as CEO, driving Intel’s transformation from a memory chip manufacturer to the world’s dominant producer of PC microprocessors, servers, and general purpose computing. Intel’s market cap grew from $4 billion to 197 billion, and revenues grew more than 10x. However, by 2016, Intel had lost its status as the world’s preeminent semiconductor manufacturer due to competition.

 

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