Ray Zinn, the longest serving CEO in Silicon Valley, discusses the history of silicon as only he can, having watched it from Shockley to Facebook.

In Part III, Ray and Goldman Sachs analyst Peter Marchetti cover the further transition into computing along with the change and growth in silicon markets.

Peter Marchetti has spent the past 20 years as an advisor to some of the most significant families and foundations in the country. He joined the Goldman Sachs team  in 2000 after receiving his MBA from the Haas School of Business at the University of California, Berkeley.

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Ray Zinn: Hello, everyone. This is Ray Zinn. I’m the author of Tough Things First and the host for this podcast series that we’re going to do on the history of Silicon Valley. And I’m just delighted to have my pal and good friend, Peter Marchetti as my guest today. Hello Peter, how you doing?

Peter Marchetti: I’m doing great, Ray. Thanks again for having me. Looking forward to another podcast.

Ray Zinn: Yeah, so Pete’s an enthusiast of Silicon Valley and its history and what’s happening in the valley and the changes that are taking place. Pete’s an investment counselor, advisor, a banker. And so he’s very interested in how Silicon Valley happened and where is it going? So I’m glad to have Pete with me today. He’s a MBA graduate from UC Berkeley. No offense on that one, Peter. Hi, hi. So…

Peter Marchetti: None taken.

Ray Zinn: … anyway again, welcome Pete. Thank you for joining us. So today what we’re going to cover is that period basically from the time that Bob Noyce and company left Fairchild to form Intel because a whole bunch of things just surrounds that time period. We’re going to try to cover up to 1980. So that’s the thinking for today.

So with that in mind, Pete, to where we left off is Bob Noyce and Gordon Moore and company leaving Fairchild and going to Intel. The purpose of that, of course, is they were trying to form more of a computer-related company. And so Fairchild had a lot of discretes such as diodes and transistors and things like that. And so Intel was not going to go there. They were going to focus more on very complex microcircuits, as you would.

And at about the same timeframe, a number of other folks began to enter the picture and a great surge and in semiconductor manufacturing or at least in startups began to happen at about this same time period. Many of the ones that left the Shockley and start off in different directions, forming companies like Raytheon Semiconductor, IMACO, Teledyne Semiconductor, Advanced Microcircuits, AMIX, and then Advanced Microdevices and National Semiconductor. So a whole bunch of companies started forming in about this same timeframe.

So what happened was, Fairchild was kind of the darling kind of the golden boy of the sixties. And most of the products that were being built in semiconductors were for military, because the military could afford the price associated with these very high-priced semiconductors. For example, a plane transistor back in the sixties would sell for hundreds of dollars, maybe even thousands of dollars. And so they were making all kinds of really complex hybrid-type circuits. And those were basically circuits that made on a ceramic substrate and then they put these little transistors around in an array like a PC board. And so they were very expensive. And so the military was a primary driver for the products and they could afford very high prices. And so good margins.

And, really, we had to thank the military, the defense department for the US for really paving the way for the advancement of semiconductor technology and for the advancement of Silicon Valley. And so it’s really the US Defense Department that really paved the way. And then a lot of other companies started springing up, mainly, again to do military-type products. But Intel, when they formed, that really began the era of the computer technology or the computer industry, at least from the standpoint of power, computing power.

Just jumping back a little bit here, at the time that Gordon Moore and Bob Noyce left Intel, there was another group of guys. You had a Charlie Sporck, and he was a manufacturing guru. He was a real tyrant and keeping costs down. And he was a good manufacturing guy. He was the ops general manager for Fairchild back in the sixties. And so he left and took a bunch of manufacturing-type guys with him. And they formed a company Called National Semiconductor. Again, it was a company, National was already a company that existed, but not in semi-conductors. But that the host company, as you would, was National.

And so then they formed National Semiconductor out of that group of guys left Fairchild, again, back in the late sixties. And they went to a facility over in [inaudible 00:06:55] and in Sunnyvale, California. And at about that same time, a guy named Jerry Sanders, who was a sales guy for Fairchild- you can see how this is really interesting, yet you had the Gordon Moore and Bob Noyce, which are more highly technical, the process gurus. And then Charlie Sporck being a manufacturing guy, and now you have a marketing guy or a sales guy, Jerry Sanders, leaving and forming Advanced Micro Devices. And that’s interesting because these guys weren’t as technical. They were going to pretty much just kind of copy what Intel was doing.

And so that began a long legal battle between Intel and Advanced Microdevices over patents and proprietary information and so forth. And it was probably the longest and most complex legal battle and the semiconductor industry that’s ever happened.

Peter Marchetti: How about as it relates to Fairchild on that? You talk about the litigation between AMD and Intel, but what was Fairchild’s response to all this talent packing up and leaving and starting competitors and it’s almost like the birth of the Silicon Valley culture, where people kind of start with big companies and then take off and start up their own companies.

Ray Zinn: Yeah. The erosion was happening so fast that Fairchild began a major transformation. They hired a guy named Wilf Corrigan from Motorola to come in and run, Motorola Semiconductor and run Fairchild. And so you had the talent pool, as you would, was basically off that Shockley group. And then with all those folks leaving and going to their different companies, that left Fairchild kind of up in the air. So a major transformation took place at Fairchild becoming more like a Motorola-type company. And that was interesting because of the culture of the valley was was more centered around the Shockley guys, as you would. And then when the Motorola folks took over and then it looked more like the people down in Arizona where Motorola was.

So, the interesting thing, there was just very few semiconductor companies prior to 1970. But in that 1970 era, there may, again, there’d be a real growth than you would in the Silicon Valley for semiconductor companies. There was so many. Nortech Electronics, there was Sprague had kind of moved a group into the Silicon Valley. There was a bunch of guys out of Westinghouse. They were all kind of trying to jump in, but rather than stay where they were in their respective locations, they moved to Silicon Valley. And I thought that was interesting.

Peter Marchetti: Well, in fact, I think we talked about it in our last podcast. It was, what, 1972 or so that Silicon Valley actually gained its name, right? Like from all these upstarts, all these spring offs from Fairchild.

Ray Zinn: Exactly. So the Silicon Valley explosion really began in the early seventies. There were very few semiconductor companies prior to that, which is obvious. Anytime an industry starts up, there’s not very many in it. So the other interesting note is that the customer, mainly the military, became less important as we moved in through the 1970s that a lot more consumer applications sprang up. National began producing calculators. TI started producing calculators. Hewlett Packard started producing calculators. In fact, in the early 1970s, I was involved in designing the first one chip support function calculator, but it was a little thing about eight inches square and about two inches thick. And it had a power cord.

And I thought it was really neat. You could carry around this calculator in your briefcase, whereas before we had these big Marshant mechanical calculators that went clankety clankety clankety clankety. And that’s how that we did our computing was on those mechanical calculators. So when we did the one chip four function calculator, that was a big deal. And so there began to be a real explosion of consumer electronics. As I said, digital watches, calculators, the whole form of consumer electronic-type devices.

The Pong, Atari Pong, the first video game, as you would, those all began to come into being in the 1970s. And so the 1970s was really the revolution and really the takeoff of semiconductors. That’s when it all began to happen. Because we went from basically just a handful of companies in the sixties close to a hundred in the 1970s. So you can see it was like an explosion. The industry grew 10 times or more, 20 times.

And so that’s why Silicon Valley began to really, really prosper was because of that dynamic growth that took place in the seventies. And almost every company started producing their own semiconductors, like Hewlett Packard, compu, I forgot the name of that company, but. Varian, so many companies started doing, IBM of course started producing their own semiconductors and AT&T. So you just had an explosion of semiconductor technology, products. Or even Japan started getting into manufacturing semiconductors. And Europe, Siemens, SGS-Thomson, we had a number of European companies started producing semiconductors. And so it was in the…

Peter Marchetti: I was going to ask you, Ray, sorry to interrupt. I was going to ask you, with all this amazing growth that’s happening here in the valley and then elsewhere as it relates to semis, where was most of the talent coming from? Because with all these companies starting up and you need a lot of engineers to make it work, how were people being found and here were they coming from to fill all those positions that were needed?

Speaker 2: Well, there was a lot of excitement Silicon Valley. So people just started flooding in there. I mean, people from all over the world, almost every country in the worlds even started pouring into India, Indonesia, Japan, China, Korea, Taiwan, France, Germany, Italy, Norway. All of them started. We had just a tremendous number of foreign countries that were pouring people in the valley. And that also started causing problems because all that intellectual property now is being spread around the world. Because these people would leave and they’d go off and form other companies or they’d go back and work for Siemens or somebody, NAC in Japan. So a lot of that technology started just leaving. Toshiba started getting involved in semiconductors back in the early seventies.

And they actually formed a semiconductor company right across from my company, Micrel, back in the early seventies. Maybe that’s a good place to break, Pete, in this segment and then go on to our next segment and the next time. So, again, thanks for joining us today. We’re going to do a whole series on Silicon Valley. Hopefully, you’ll all enjoy it as we talk about Silicon Valley and its formation and its transformation. Again, we’re going to have to rely a lot on my memory. And so I apologize in advance for any incorrections, things that I say and do that are not exactly perfect, as you would, because we’re talking about 60 years of history here that we’re going to cover. And, again, [crosstalk 00:16:41].

Peter Marchetti: So I would say all in all, Ray, all in all your memory, it may not capture everything to the fact, but it’s been pretty amazing that you can recall as much as you do considering how long ago it was that a lot of this stuff took place and the details that are involved. So you’re doing a good job.

Ray Zinn: Well, thanks, Pete. And, again, join us for our next in this series of Silicon Valley history podcast. And we’ll look forward to talking to you again. Again, this is Ray Zinn, your host for today. You can follow us on Twitter, LinkedIn, Facebook and also our website, toughthingsfirst.com. Pick up my book, Tough Things First. Also my new book, Zen of Zen which you will find in all your favorite bookstores, Amazon and so forth.

Okay. Thank you. And we’ll talk to you next time.