The history of Silicon Valley
 
  • Definition

  • How it all started at Stanford

  • The formation of the biology and chemistry business

  • How the silicon came into the valley

  • From specialized High-Tech to mass-production

  • The PC revolution

  • From Silicon Valley towards Internet Valley ?

  • Notes

  • Bibliography



  • Definition

    It was in 1971 that the name Silicon Valley was used for the first time. Journalist Don Hoefler used that term in a couple of articles in Electronic News, a weekly industry tabloid, about the semiconductor-industry around Palo Alto. Ralph Vaerst, then president of Ion Equipment suggested the term to Hoefler.

    Originally the term was used only to describe Santa Clara County but later on the area, as Carolyn E. Tajnaj (1985) described it, "located on the San Francisco, California, peninsula, radiates outward from Stanford University. It is contained by the San Francisco Bay on the east, the Santa Cruz Mountains on the west, and the Coast Range to the southeast."

    Until the middle of this century, this agriculturally rich region of Northern California was better know for its apricots and walnuts than for its Apples (Rogers and Larsen, 1984). It was then known as the Valley of Heart’s Delight.

    In fact the basis of Silicon Valley started at Stanford University.
     

    How it all started at Stanford

    In order to understand what happened some knowledge of the history of Stanford is needed.

    Stanford University was founded in 1891 by Governor Leland Stanford at his domain nearby 'El Palo Alto' (the high tree) in the memory of  his son  Leland Stanford Junior. During its’ hundred years of existence Stanford has become one of the best American Universities.

    It was especially Prof. Frederick Terman, who was a Stanford graduate himself, whose role was crucial for the development of the local high-tech industry after and before World War II. In the twenties, administrators at Stanford sought to improve the prestige of their institution by hiring highly respected faculty members from East Coast universities. One of the most important recruits those days turned out to be Professor of electrical engineering Frederick Terman from the Massachusetts Institute of Technology (MIT) who is now called "Father of Silicon Valley" by a lot of researchers. He was concerned about the fact that a lot of his graduates went to the East Coast because the lack of jobs in the Valley. To solve that problem he started to encourage some of his students to start companies near the university. Among these students were William Hewlett and David Packard.

    The graduate student Hewlett had designed and built an audio oscillator (1). Because Terman was convinced of the market potential he persuaded Packard, who had moved to the East Coast to work for General Electric, to return to Palo Alto and join Hewlett. Terman then stimulated them to commercially produce their audio-oscillator. It was in 1937 that a small company started in the famous garage in Palo Alto. Their audio-oscillator, designed with Terman’s help, became the basis for a later deal with Walt Disney Studios in 1939, for the film "Fantasia". That was the start of an endless growth. In 1998 Hewlett Packard is a multinational, producing computers, electronic measuring devices and equipment, with annual revenue in 1997 of $42.9 billion and with 121,900 employees worldwide.

    In the mean time some other students founded small companies who where going to be the center of a local electronics-industry. During 1937, William Hansen, Professor of Physics, teamed with Sigurd and Russell Varian to develop the klystron tube, an electron tube in which bunching of electrons is produced by electric fields and which is used for the generation and amplification of ultra-high frequencies.

    During the Second World War the brothers Sigurd and Russel Varian worked rent free in a Stanford lab on their Klysttron tube. Later on radar and Varian Associates (1948) inventions involving microwave radiation, evolved. Stanford gave them, besides rent free lab use, $100 for supplies. In return, Stanford was to share in any profits. The investment of Stanford was one of the best ever because it brought in several millions dollar as royalties.

    During World War II Prof. Terman made good contacts within Washington. After his return to Stanford he succeeded in getting a lot of governmental contracts for Stanford and local companies.

    During the fifties a lot of, for that time revolutionary, new ways of working as a University was introduced by Stanford. E.g.:

    The first two will be more deeply discussed in the coming chapters.

    During the fifties money was needed in order to finance the rapid postwar growth. These days the industrial park idea came up; Stanford was might be poor financially seen but rich concerning the possession of land; about over 3240 hectares of land was free. Then they faced one problem; the Founding Grant by Leland Stanford prohibited the sale of his land. It didn’t take them long to figure out there was nothing to prevent it from being leased. And when that construction was investigated it turned out that long-term leases were just as attractive to industry as out right ownership. The Stanford Industrial Park, which was meant to be a "center of high technology close to a cooperative university" as Tajnaj describes it (1985), was than quickly founded (1951). Varian Associates was the first one to sign a lease contract and soon after companies such as General Electric, Eastman Kodak and many others followed.

    During the fifties the defense programs in the field of air, space and electronics strongly stimulated growth in Silicon Valley. Semiconductor procurements by the defense agencies amounted to approximately two-fifths of total production. Lockheed Aerospace Co. located itself in 1956 in "Stanford Industrial park" and a year later in Sunnyvale. Lockheed is a good example of how Stanford succeeded in developing good relationships with companies. Lockheed helped starting up a space and air department at the university and Stanford gave scientific advises and training for their employees in return. Soon after the arrival of Lockheed other research departments went to the region like IBM (1952), NASA (1958), Xerox (1970).
     

    The formation of the biology and chemistry business

    After Terman became vice president of Stanford in 1958 he recruited Carl Djerassi, a University of Wisconsin graduate, who had become vice president for research at Mexico-based Syntex Corporation. This set in motion a whole new chain of company formation in biology and medicine. The University’s Chemistry Department became one of the best in the USA.

    Djerassi managed to get Syntex to establish a US subsidiary and research branch in

    the Stanford Industrial Park. Besides that he even got Syntex's executive vice president, Alejandro Zaffaroni, transferred to the new location. Syntex became an international company with headquarters in the Stanford Research Park.

    Together Djerassi and Zaffaroni were the men behind the formation of three new companies, respectively Synvar, Zoecon, and ALZA.

    In 1963 Synvar Associates was founded. It was started as a joint venture of Varian Associates and Syntex.

    Syntex decided in 1968 to put all of their patents, know-how, and key research personnel from their insect research into a separate company, in which Syntex would retain 49 percent ownership. The remaining 51 percent would be spun off to Syntex stockholders as stock-rights offering. That way Zoecon was founded as the first company dedicated solely to the development of new approaches to insect control.

    That same year, Zaffaroni left Syntex to form his own company, ALZA. This company developed new methods of drug delivery.

    These companies were at the start of Silicon Valley a home for the biology and chemistry business, although it’s a minority when compared to the other businesses.

     

    How the silicon came into the valley

    In 1955 Stanford graduate student Dr.William Shockley founded Shockley Transistor, together with some talented young scholars from the East Coast. He had developed a transistor at the Bell Laboratory based on the principle of amplifying an electrical current using a solid semiconducting material. The concept was based on the fact that it is possible to selectively control the flow of electricity through silicon, designating some areas as current conductors and adjacent areas as insulators. This principle gives

    meaning to, the term "semiconductor". A suitable alternative for the commercially unreliable vacuum tube (2). Tubes carried out the essential task of voice amplification,

    electromechanical circuit switching and other functions involving the regulated conduction of electrical current. The resultant discoveries combined to form the basic

    concept behind the transistor, the compact electrical "transfer resistor" that was to power the coming High Tech Revolution.

    An internal dispute arose over the choice between the two semiconducting materials silicon and germanium. Shockley had a strong preference for germanium. But engineers Gordon Moore, C. Sheldon Roberts, Eugene Kleiner, Victor Grinich, Julius Blank, Jean Hoerni and Jay Last, chose silicon as the more appropriate semiconducting material, which in turn, led them to leave Shockley in 1957.

    Robert Noyce, who had worked for a short time for Shockley as well, joined the seven engineers, and in 1958 they founded Fairchild Semiconductor in Mountain View with backing from Fairchild Camera and instrument in Long Island, NY.

    Fairchild became the first company to successfully mass manufacture a micro-sized device capable of integrating large numbers of electrical "on-off" switching functions, stored in simple memory cells, all etched onto a silicon chip. Nowadays better known as the integrated circuit. This company was the first one to manufacture exclusively in silicon and rapidly developed into one of the largest firms in the California electronics industry.

    Besides that the company was on the basis for a lot of spin-offs and startups such as Intel, Signetics (now Philips Semiconductors), National Semiconductors and AMD. These companies were on the basis of the semiconductor-industry what led later to the name Silicon Valley.

    Shockley Transistor Corporation never recovered from the blow of the Fairchild spin-off (Rogers & Larsen) and was sold to Clevite in 1960, to ITT in 1965, then closed for good in 1968, (Lowood).

     
    From specialized High-Tech to mass-production

    In the sixties the focus was on small series of customized chips but the disadvantage were of course the high costs. Therefore a new business area was developed in the seventies based on standardization and economies of scale with especially memory (DRAM) chips.

    Gordon Moore and Robert Noyce left Fairchild after 10 years and with the help of the venture capitalist, Arthur Rock, started a company they named Intel ( contraction of "integrated electronics"). Early on, the company focussed on a quest to continually maximize the amount of circuits that could be put on a piece of silicon. It was in 1970 that Intel introduced the 1 k DRAM chip on the market, in 1974 the 4 K DRAMs. In 1979 sixteen companies (of whom five were Japanese) were competing to produce the 16 k DRAMS as cheap as possible. The integrated circuit semiconductor "chips" of Intel soon became the standard for the industry.

    In the seventies the microprocessor industry also changed when Intel introduced the standard CPU (computer processing unit or microprocessor) 8088 in 1973. Unique about these CPU’s was that they could perform the millions, then billions, of humble "on-off" switches that together form the basis of a computer's operation. From that moment on the random access memory chip density has doubled every two years. This invention was on the basis of a lot of important inventions that shaped the late 20th Century.

    But in 1975 there were a lot of other companies producing the same chip much cheaper. The price of an 8088 chip went from $110 in 1975 to $20 in 1977 and $8 in 1980. This was because of standardization and economies of scale (the more one produces the cheaper it becomes).

    The change to a system of mass production was being seen by the semiconductor industry in Silicon Valley as a logic phase in the maturity process of their industry. They didn’t recognize the unique advantages of Silicon Valley and used the traditional, autarkic organisationmodels for mass production. They didn’t care a lot about customers and separated design and development departments of the production. The consequences in the market for memorychips were dramatic: in 1986 it was dominated by Japanese companies, which were able, thanks to continuing improvements in the productionprocess and good relations with suppliers and customers, to produce cheaper. The semiconductor industry seemed to be heading the same way as the car- and steel industry. Especially production facilities were transferred to cheap-labor countries.

     

    The PC revolution

    Meanwhile in March 1975 some students studying technology related subjects (techies) formed the Homebrew Computer Club in Menlo Park to experiment with building home computers.

    One of the founding members was Steve Wozniak. Fully convinced of the fact that he could do better than the others he build his first homecomputer with a cheap microprocessor bought at a computer show and built a machine around it himself. At the meetings of the Homebrew Computer Club he showed it to the other members and handed out copies of his design.

    After his friend Steve Jobs joined him they started Apple Computer together in 1976 in Jobs’ garage in Cupertino. On April 1, 1976, they released the Apple I. In order to establish growth they needed some support. That support came in the person of Mike Markkula who was an Intel marketeer. Impressed by the Apple, Markula persuaded them to make a business plan, arranged financing, invested his own money and stayed with the new company. Apple did not begin to take off until 1977. That year they introduced the Apple II at a local computer trade show. That was the beginning of a successful multinational.

    But in 1982 International Business Corporation (IBM) entered the personal computer market. With the power of "Big Blue" the PC quickly began to dominate the playing field. The IBM PC had a disk operating system (DOS developed by Microsoft) that became an industry standard. Hewlett Packard had launched its first PC in 1980. Steadily improving microprocessors triggered a related explosion of other peripherals: printers, modems, disk drives, interlinked networks, equipment for building chips, video games, computer-assisted design. The early eighties were that way dominated by microcomputer expansions.

     

    From Silicon Valley towards Internet Valley ?

    As I described in paragraph 1.5 American firms had controlled the semiconductor memory market throughout the 1970’s though 1984 brought a startling reversal as Japanese producers moved into an early lead and went on to capture all of the 256K DRAM market, thus dominating the latest development. Besides that, at the end of the eighties and the beginning of the nineties Silicon Valley suffered a crisis because of the first effects of competition of other states such as Texas (Austin). Besides that big high-tech companies started to restructure and the expenses of the US government were drastically lowered.

    In 1981 a company was founded that would later be one of the leaders of a new industry that would help Silicon Valley to overcome the problems experienced in the semiconductor market.

    In 1981 Stanford graduate student Andreas got tired of the fact that he had to go to the campus computer center whenever he needed a powerful system. Bechtolsheim was inspired by what he had seen at Xerox’s fabled Palo Alto Research Center. In that center they had worked out the concept of easy-to-use, networked desktop computers. Based upon that inspiration he envisioned an "open" system that would run on the operating system UNIX. UNIX is a popular operating system among engineers and scientists and was designed at AT&T’s Bell Labs. While he was building prototypes of his own money Stanford graduate Vinod Khosla was attracted by the strong demand for the system. He convinced Bechtolsheim to join him in building a company. Together they recruited Scott McNealy, also a Stanford graduate, to take care of manufacturing. Bill Joy, principal architect and designer for UC Berkeley’s version of UNIX, joined them for the company’s software efforts. They called the company Sun, which is an acronym for Stanford University Network (Sunet), the communications project for which Bechtolsheim designed his workstation. Three months after its foundation the first products were shipped.

    Sun was (almost) the only player in the market to champion open systems, designing and licensing NFS file sharing software that soon became the industry standard.

    In 1984 another company was founded that would also become a major player in the open systems market. The couple Leonard Bosack and Sandra Lerner then founded Cisco Systems. Bosack was Director of Computer Facilities for Stanford’s Department of Computer Science and Lerner was Director of Computer Facilities for Stanford’s Graduate School of Business. On the basis of the company was the technology that was developed at Stanford in the late seventies to support the campus-wide network Sunet and to integrate a multiplicity of local networks into a single integrated whole (3). The first products were shipped by Cisco in March 1986.

    In the middle of the eighties, the market had begun to embrace the open systems concept. While competitors hedged and hawed, Sun and Cisco continued to make rapid gains in important technical market segments. That way they were ahead of most of their competitors when the Internet set the standard for open networks and the market started "booming".

    Although the Internet became "hot" in the beginning of the nineties thanks to the development of the browser, the basis of the Internet is in 1964. That year RAND (an acronym for research and development), a governmental research and development institute started as a Cold War think-tank, found a solution to cope with the strategic problem of how the US authorities should successfully communicate after a nuclear war. RAND staffer Paul Baran made a proposal for a network that would have no central authority and it would be designed in such a way that it could operate while in tatters.

    RAND started, together with the Massachusetts Institute of Technology and the University of California at Los Angeles, to work on this revolutionary concept of a decentralized, blastproof, packet-switching network based on UNIX. During the years more and more institutions came involved. In 1969 the first node was installed in UCLA. By the end of December 1969 there were four nodes on the infant network that was named ARPANET after its Pentagon sponsor (Advanced Research Projects Agency). Then it started to grow rapidly. By 1972 ARPANET had thirty-seven nodes and throughout the seventies it kept growing.

    The original standard for communication was known as Network Control Protocol (NCP) but was later on superceded by a higher-level, more sophisticated standard known as TCP/IP (4). Since the TCP/ IP protocol was public domain other networks started to use it and linked to ARPANET. Because of its decentralized structure expansion was easy. That way the number of linked networks that became part of the network, which came to be known as the "Internet" (acronym of International network), increased rapidly.

    Nowadays most people think of the World Wide Web when they think of the Internet. But the World Wide Web is actually one of the most recent developments. The ideas behind the World Wide Web (WWW) were formulated at Centre Europeenne pour la Recherche Nucleair (CERN), Switzerland.In November 1990 a propoasal was submitted by Tim Berners-Lee and Robert Cailliau for a truly visionary idea; a "universal hypertext system" (5).

    The World Wide Web extends the well established concept of hypertext by making it possible for the destination document to be located on a completely different computer from the source document, either one located anywhere on the network. This is made possible by the so-called client-server architecture. A user who wants to access information runs a World Wide Web client (browser) on their local computer. The client fetches documents from remote network nodes by connecting to a server on that node and requesting the document to be retrieved. A document typically can be requested and fetched in less than a second, not depending on the distance between the requester and location.

    The first browsers were available to a limited number of users because they could only be used on specific platforms. Then CERN developed a linemode browser which could run on many platforms but which displayed its output only on character-based terminals. These early browsers were followed by the first browsers designed for X-Windows.

    Initially the growth of the World Wide Web was relatively slow. By the end of 1992 there were about 50 hypertext transfer protocol (HTTP) servers. At about the same time, Gopher, a somewhat similar information retrieval tool as WWW but based on menus and plain text documents rather than hypertext, was expanding rapidly with several hundred servers.

    In 1993 this situation was drastically changed by the development of the Mosaic client by a team of students at the National Center for Supercomputer Applications (NCSA) at the University of Illinois in Champaign-Urbana. The Mosaic client (6) for World Wide Web was originally developed for X-Windows under Unix, with subsequent versions released for both the Macintosh and PC platforms.

    Silicon Graphics founder and former Stanford Professor Jim Clark hired one of the main authors of Mosaic, Mark Andreesen, away from the NCSA. Whereas most people perceived the Internet as academic, noncommercial and impractical Clark believed strongly in the coming convergence of digital data, audio, and video on the Internet. Together with Andreesen they founded a company called Mosaic communications and soon after they changed the name to Netscape Communications Corporation.

    During 1993 the usage of WWW began to grow exponentially and up till now it is still doing so.

    For a lot of companies the Internet, especially the WWW changed the Information Communication Technology (ICT) world. For the software industry for example that meant a change from ‘client/server’ to ‘web applications’ whereas the content is dynamic built up from different place on the World Wide Web and depending on the user.

    As far as Silicon Valley was concerned it survived a new revolution and again important companies had emerged from the whole revolution; Sun, Cisco and Netscape. Nowadays more than 80 percent of Internet base technology comes from Cisco and about the half of the people surfing the WWW use Netscape’s browserprogram Navigator. SUN had an annual revenue of 8.5 billion in 1997 and thousands of employees worldwide.

     

    Notes

    1.  An electronic device that generates electrical signals in the frequency range of human hearing. It produces a clear tone when connected to a  loud  speaker.

    2.  The first electronic computing device was created in 1946 at the University of Pennsylvania. That year the Sperry-Rand Company developed an enormous calculating machine that was called the Electronic Numerical Integrator and Computer (ENIAC). This machine depended upon more than 18,000 vacuum tubes to perform the basic function of electromechanical switching ferrite memory cores. The principle behind this machine was that each core when switched to either the on or off position, represented a yes or no answer, one bit of information, to a computational question. Linking similarly posed yes or no questions, known today as "binary code" (0’s and 1’s), it was then possible to perform highly complex calculations. The problem was that even though this was a significant breakthrough, it was also tremendously impractical. The tubes, gave off an incredible amount of heat and were constantly subject to overload and burnout.

    3.  The most important part of their router is its operating software. Cisco’s software is called IOS (Internetwork Operating System). IOS software is scalable to best meet individual needs. In addition to choice router hardware (performance and interfaces) Cisco users, unlike users of other manufacturer’s products, can select from various software sets offering different performance features. This approach allows the user to select the most appropriate combination of protocols, thereby avoiding additional costs incurred by features not needed.

    4.   Transmission Control Protocol (TCP) converts messages into streams of packets at the source, then reassembles them back into messages at the destination. Internet Protocol handles the addressing, seeing to it that packets are routed across multiple nodes and even across multiple networks with multiple standards.

    5.    The WWW is designed around two key concepts: hypertext documents and network based information retrieval. Hypertext documents are simple documents in which words or phrases act as links to other documents. Typically hypertexts documents are presented to the user with text that can act ass a link highlighted in some way, and the user is able to access the linked documents by clicking with a mouse on highlighted areas.

    6.    The Mosaic client software added a few new key features to the World Wide Web: the ability to display embedded images within documents, enabling authors to greatly enhance the aesthetics of their documents; the ability to incorporate links to simple multimedia items such as short movie and sound clips; and the ability to display forms. Forms greatly enhanced the original search mechanism built into WWW by allowing documents to contain fields that the user could fill in, or select from a list of choices, before clicking on a link to request further information. The introduction of forms to the WWW opened a new arena of application in which the World Wide Web acts not only as way of viewing static documents, but also as a way of interacting with the information in a simple but flexible manner, enabling the design of web-based graphical interface to databases and similar applications.


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    Copyright Alexander Loudon 1998