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 VI, Ray and Goldman Sachs analyst Peter Marchetti cover Ray’s invention of the wafer stepper and the next surge in semi tech.
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.
Ray Zinn: Hello everyone. This is Ray Zinn. I’m the author of Tough Things First and also Silicon Valley’s longest serving CEO and another advantage I have of course is I’ve had probably one of the most experienced lifestyles of any of the people in Silicon Valley, having started with semiconductors in Silicon Valley in 1963. So, we’re here talking about our history of Silicon Valley and this next series we’ll cover on a time period in the ’70’s again, because that was the real revolution that took place. It was in that ’70’s time period. And with me today, I have my good friend and buddy Pete Marchetti. Pete, welcome back.
Peter Marchetti: Thanks again for having me Ray, looking forward to moving in to discussions that talk a little bit about your own career and personal time in the Valley.
Ray Zinn: Well, thanks, Pete. Yeah, I’m excited about this series. I think this is a good series that we can have. It’s again, I don’t have perfect memory of everything. I had probably one of the longest serving tenures in semiconductors. And so, what we’ll be talking about today is just kind of a little bit more of my memory and history of semiconductors. Again, it’s not perfect. It’s just my recollection of things as according to me and my memory.
Peter Marchetti: Shame on you for not being perfect Ray, but I think we’ll give you a pass.
Ray Zinn: Oh, okay. Well, thanks Pete. Well, again, as you get older, you begin to forget about things. So, if I say things wrong or if things aren’t perfect, please correct me and we welcome any questions you have that’ll help jog my memory. So, as you listen to these podcasts, feel free to email us at toughthingsfirst.com or LinkedIn and we’ll respond. So, you can find us on Twitter and Facebook, LinkedIn, or on my website, Tough Things First. So, if you do have questions and I’m sure you will, feel free to ask and we’ll see what we can do to answer them. So today, what I thought we’d talk about is a little bit of my experience. So, back in the early ’70’s, I joined a company called Nortel Electronics. As again, is a semiconductor company, we were right next to door to National Semiconductor.
And as I mentioned in our previous earlier podcasts that we had developed the Winship calculator. So then, I left and ultimately joined an equipment company called Electromask. And we made photomask equipment for the semiconductor industry. A photomask equipment is a tool that is used to image the circuitry onto the Silicon wafer. And so, while I was there at Electromask, which was located down in Woodland Hills, California, I came up with the idea, after working with Texas Instruments in Dallas, I came up with this idea of using photo lithographic technology to image the circuitry on the wafer directly without going through an intermediate step, which was referred to as a mask, M-A-S-K.
So previously, we’re using masks to image the circuitry onto the wafer. And of course it was limiting because of the defects and the size of the geometries didn’t allow us to really get real, real tiny or couldn’t do small, small, tight devices. So, I came up with this idea of using photo lithographic imaging directly onto the wafer. And so, we developed a piece of equipment we called the wafer stepper. And the wafer stepper was allowing the user to image directly from some CAD tapes and computer design methods to image directly onto the wafer itself, without having to go through all the intermediate processes.
Peter Marchetti: Were these any type of wafers, Ray? I mean were they specific…
Ray Zinn: Well, they were Silicon wafer… Well, you could do any, it didn’t matter what the wafer material was, but it was mainly Silicon that the purpose of this equipment was to image. And so that began…
Peter Marchetti: But, these wafers could be used towards anything. Right? They could go into any type of product, I guess is…
Ray Zinn: Right. Well, again, the purpose of the wafer stepper was to allow us to do larger wafers, to do smaller geometries. And that’s what really revolutionized, I think, the semiconductor technology was the advent of the wafer stepper, which I was part of that design and development of that product. So anyway, as we developed it, it took a while because that’s a real revolution or groundbreaking technology, was using wafer steppers was that my company was a very small company that I worked for. And so my boss one day, because I was having difficulty developing this product, in fact, that just a real quick back story on it. IBM wanted us to develop a E-beam technology, which is another form of imaging. And so, when my boss told IBM that we’re also developing the wafer stepper, IBM, their vice president of research wrote back and said, the wafer stepper is the dumbest idea ever foisted on the semiconductor industry.
And of course that caused me a problem because I’m the innovator of that. And so my boss came to me and said, “You know, you don’t need to belong in a big company or in a company. You need to go off and work for yourself.” And that really shocked me. I happened to be down at Woodland Hills at the time in California. And so my boss suggested I really go off on my own. And so, I went home that night, flew home, walked upstairs, told my wife, I was never going to work for anybody ever again. And from that moment on, I tried to figure out what was I going to do? How was I going to now earn a living for my family? And so, because again, I was going to start my own company. And that day, that was in July 1976, I had to think about what was I going to do? How was I going to go on from here?
Peter Marchetti: You had… At the time you had how many children?
Ray Zinn: I had a four.
Peter Marchetti: Four. So, this was not a light decision to move away from, even though it’s a small company, you got a secure paycheck and you got four young kids at home. And commitment…
Ray Zinn: Well, that’s right. Exactly. I was in my late 30’s. So, I was pretty young, but I was convinced I could do it. And so…
Peter Marchetti: Were you scared? Was there apprehension?
Ray Zinn: Absolutely. Sure. I mean, when you decide not to draw a paycheck anymore. So, I’ve not drawn a paycheck from anyone since July 1976, other than what I created for myself. So, you can just do the math on that. That’s quite a while ago that I went on my own and I tried different things. I tried consumer electronics, selling Atari Pong devices and digital watches, in fact, I designed my own digital watch called the Microcell Racer. And I tried a number of different things. And then finally, kind of early 1978, I came up with the idea of maybe starting my own semiconductor company, because before I was basically doing consumer electronic distributing and just trying to do a company that would sell consumer electronics to the retail market, but then my heart was still back in semiconductors.
And so, I came up with this idea to maybe to start my own company. And I had a hard time finding people to want to finance me, because I wasn’t a well-known character at that time in the industry, I’d kind of gotten out of semiconductors and went over making equipment for semiconductors. And so, I had a difficult time. And so, I finally decided to kind of fund it myself, because all the VCs wanted was huge amounts of ownership. They wanted at least 51% of the company. And that was just more than I wanted to give up. I went to the bank and then it’s all written in my book, so we won’t spend a lot of time talking about it on this podcast. You can find a little bit more of the history in my book, Tough Things First, but I went to the bank and then asked them if they’d be willing to fund me.
And of course the bank said, “Well, we don’t do startups.” And I asked the bank, “What it would take, would the bank require for me to be funded by the bank.” And so, after much agonizing and wrangling with them, they finally wrote up a list of requirements for them to fund a startup. And of course they were very onerous, very, very, very large. They had requirements that nobody could even, you couldn’t do it. But one thing, you had to be profitable from day one. And so, as a startup, it’s difficult to be profitable from day one, but I wanted to be… Own the company and I wanted to have bank financing.
So, I told the bank, “Okay.” I would agree to all those conditions, including being profitable from day one, but I had to change my business plan, because my business plan had me developing products and I couldn’t be profitable for at least three years after, if I’m going to develop products. So, I had to come up with a different strategy, I had to pivot, as they say, and I pivoted in being a service company, actually selling semiconductor services. So, we were selling testing and reliability testing and that sort of… I had a background in that anyway. And so, that’s how we actually started Micrel, my company that I founded in November of ’78.
Peter Marchetti: But, that was not your initial intention. That was only because you couldn’t get financing. And so therefore you decided to go that… So on the fly, you just shifted it.
Ray Zinn: You had to pivot. Well, I couldn’t be profitable if I was going to develop product. So, what I then pivoted to was becoming a service company, because you can bill on a monthly basis, it’s like a consultant, you can bill on a monthly basis and I could be profitable. So, I was profitable from day one by being a service company. And then by 1985, we had been profitable enough that at that point, then I could start developing my own products, because we had developed enough cashflow to do that. So, that’s what we did is that in 1985, then I had acquired a fab, by the way, it was old beat up, terribly conditioned fab, 1981. We bought this old beat up fab from Siemens that was one exit company my brother had actually started back in the early ’70’s called Advance LSI was his company. And so, I had then purchased that fab for next to nothing and started making my own products.
And so, that really began launching Micrel into really a company that could grow rapidly, because now I could, when designing and developing my own products, we could become more multi-national. And so, that’s really what gave us really the ability to grow and hiring all these good designers. And I hired a bunch of good designers out of National and we started developing analog semiconductor products. But again, this is not the history of Silicon Valley as is kind of a little of a background on what prompted me to start my own semiconductor company back in 1978, because prior to that, most of the semiconductor companies, in fact all of them, were venture funded and had a lot more money. A typical venture company, venture funded company, would have North of $20 to $50 million invested by venture capitalists, like Maxim Integrated Circuits, Linear Technology, and other similar type companies were founded with $20 million plus dollars, $50 million even. And of course my company, we only raised $300,000 from the bank. So, here I was a $300,000 bank company against a $20 million semiconductor venture backed company. It was…
Peter Marchetti: Well, I remember reading something and talked about the mid ’70’s up until the later part of the ’70’s, that venture capital in general, even though it was a rapidly developing kind of industry or means for financing, there were a lot more VCs and money raised that, and it kind of really trailed off, because capital gains taxes had gotten so high.
Ray Zinn: Right.
Peter Marchetti: And also there was some legislation that was passed regarding prudent investor rules and made it really difficult for pensions and endowments who had been funding some of these VCs to put money into them. And so, it’d really gotten really difficult. And that’s right when you were trying to go out and raise capital, which made it, I’m sure even that much more difficult.
Ray Zinn: Exactly. And as you pointed out, it was the requirements to start a company were becoming much higher and most of the, at this point, all the semiconductor companies that we were talking about had their own fabs, wafer fabs. And that’s what I did. That’s why I thought I had to have my own wafer fab, was to control my destiny, I had to have my own, my own wafer fab. And so, back in that time, there weren’t very many what we call Silicon foundries, like TSMC and SMIC, S-M-I-C, and people like that. All of the semiconductor companies had their own wafer fabrication capability. And it was very expensive. To start up a semiconductor company with your own fab, you are talking $100 million dollars.
And that was far more than I could raise, period or could even afford to raise. So, that’s another very interesting situation and that’s what caused, by the way, people like TSMC, which is the Taiwan Semiconductor Company, to be so successful, because they were offering these wafer fab services to companies that could not afford, or did not want to put in their own wafer fabrication facility. So again, this is, we’re kind of staggering here in kind of the early ’80’s as you would. And we haven’t gotten very far into the history or more into the later years of semiconductors. So with that, I think we’ll pause and we’ll carry on on our next series with kind of going back a little bit into the early ’80’s as to about IBM, about the PC, personal computer, about Atari, about Apple, and some of those, because that’s kind of when they began to really start up.
So, we’re going to talk a little bit more in our next series of podcasts about the growth of personal computers. And so, let’s end this one here and we’ll continue on next time. So, thanks Pete, for joining me today, I’ve enjoyed having you on this one.
Peter Marchetti: Of course, Ray.
Ray Zinn: And you find, yeah. And you can find my book, Tough Things First, on Amazon or your favorite retailer, book retailer, and my new book, Zen of Zen, which is a philosophical book and follow us on LinkedIn, Twitter, Facebook, and our website Tough Things First. So then, thanks again. Look forward to joining you next time.