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 VII, Ray and Goldman Sachs analyst Peter Marchetti cover the adoption of PCs and the Silicon Valley shift to computers and software.

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. Welcome to another in a series of podcasts on the history of Silicon Valley. I’m your host Ray Zinn, author of Tough Things First and also Silicon Valley’s longest serving CEO. With me today, I have my friend Peter Marchetti. Peter is a investment advisor and banker and he’s just has a lot of interest in the history of Silicon Valley. He’s the one that prompted me to do this series. Welcome, Pete.

Peter Marchetti: Hey Ray, thanks again for having me as usual. Of course, looking forward to learning a little bit more.

Ray Zinn: [inaudible 00:01:26] go ahead. You had some questions you wanted to ask me or some ideas about what really prompted Silicon Valley to really grow so rapidly.

Peter Marchetti: Yeah. A couple of podcasts ago, you talked about the transformation of the valley from one where the businesses were generating a lot of the revenue from the government for military or for NASA. And then there were a shift and consumer electronics started to come up and it created the need for more companies and more chips. And now we got to the late seventies, early eighties, and another revolution started coming out in terms of products and that was the computer, the personal computer. I’d love to hear what your memories are about that time period and basically what companies were starting up and how everything was changing again in Silicon Valley during that time.

Ray Zinn: There was a real explosion in interest in a consumer area other than in military. Again, the military had kind of slowed down a little bit on its demand. They weren’t an infinite consumer of electronics. So in order for the industry to grow, it had to look for other ways to grow its revenues. And there were so many companies now that were growing in the consumer space.

What I thought we’d talk about today is really what was happening in computing, because that’s kind of what drove the history of Silicon Valley, is really the computing industry and the big guru in computing was IBM. IBM, of course, made mainly big mainframe computers for the banking and the large companies needing computing power. But there was a group of guys down in Boca Raton, Florida that worked for IBM, that had this idea about making a personal computer. That was back in the late seventies, ’79, ’80 timeframe. Of course, IBM corporate, their main business was software and big computers, and they weren’t interested at all in doing these personal computers.

And as I mentioned in our previous podcast, Micrel, my company that I started in 1978, we were doing testing services. We got involved with IBM Boca Raton in the late seventies, early eighties, and them trying to build a personal computer without really the support of main corporate IBM. They were taking parts out of the mainframe computer and trying to use them in the PC. Of course they needed to have them retested because they were parts that were pulled out of PC boards. So our company, Micrel, was involved with them and doing the testing and validation of these parts.

And so it was interesting that the personal computer really began in the late sixties, early seventies with these hobbyists that were making these little computers themselves, home computers using Intel’s Z80 or 8080, not Z80, 8080 microprocessor really started these hobbyists, these amateur, these computer guys building their own computers. And their base of it, other than the 8080 microprocessor, was the S100 bus. The S100 bus was kind of the hobbyist interface system, or for the hobbyist, a PC.

Peter Marchetti: When you say hobbyist, Ray, these are people that are literally just getting parts, getting chips and whatever else is needed, and building their own computers at home or in their garage, wherever.

Ray Zinn: Exactly. And that was the S100 bus, they called it. Using the 8080 and the S100. Heathkit came out with actually Heathkit computer. So IBM Boca Raton decided to use that Heathkit type design, that S100 bus, along with the 8080 microprocessor to build a personal computer, and all they did was change the BIOS, the BIOS of the computer. They were able to, very easily, by taking that hobbyist S100 bus and that 8080 microprocessor along with their BIOS, were able to create their own PC, and that was called the PC Jr., Personal computer Jr., back in the early eighties. Then they’re trying to decide on the kind of software they wanted to run on it. So IBM Boca Raton preferred CPM, which is a software company, I mean a software technology developed by a company called Digital Research that was in the Bay Area. That, by the way, was a real interesting piece of information, because there was a company called Altos Computer that used that CPM software. It was a good software system for a personal computer.

It just so happened that IBM Boca Raton had been in our office doing some testing and they were going to go up to Sausalito to visit the president CEO of Digital Research, just to acquire rights to the CPM software. As it turned out, the CEO of Digital Research had decided to fly to Aspen, Colorado, to be with his wife and children up on a ski trip. So when the IBM guys got to their offices in Sausalito, they were upset that this president CEO had thought it was more important to go skiing with his family than to be there for the IBM guys.

So the IBM guys called my secretary and said, “Book us a trip, a flight from San Francisco to Bellevue, Washington.” And I kind of overheard them and what’s that all about? And as it turns out, that group in Bellevue, Washington was a group of guys, Bill Gates primarily, had this company called DOS, Digital Operating System, or excuse me, Disc Operating System, D-O-S. My secretary actually was one that, that booked that flight for those guys to fly up to Bellevue. So the guys from Boca Raton IBM actually signed an agreement with Bill Gates that very week, and that’s really what became really the foundation of Microsoft. I can say that my company, Micrel, was intimately involved in actually the development of the PC and also the advent of IBM entering the personal computing market.

Peter Marchetti: So if your secretary had been out on a bathroom break, Bill Gates would probably own a coffee shop right now in Seattle [crosstalk 00:00:10:20].

Ray Zinn: Exactly. Yeah, that’s funny. That’s a good point. Anyway, that’s exactly what happened, and then of course-

Peter Marchetti: What year was that again, Ray, sorry? That was-

Ray Zinn: 1980, ’81, somewhere in either 1980 or ’81. I don’t know the exact day, but it’s somewhere in that year. It was just interesting that Bill Gates became, Microsoft came out of that. And Intel, because of that, became a very powerful company, because with IBM’s horsepower behind the PC, Intel just skyrocketed. That was a primary customer for Intel, was IBM on the 8080, or an 8087, 8086, all those different microprocessors. That’s really what launched Intel was the PC.

What’s interesting, the largest consumer of semiconductors back in that timeframe was a company called Atari, A-T-A-R-I. Atari made the pong games. They purchased more semiconductors than anyone on earth. That was kind of interesting because Atari is gone now, but they were the largest consumer up until the PC began to really take off. This whole thing with IBM really began, I think, the juggernaut of the development of what Silicon Valley has ultimately become, is all because of what happened with IBM and the PC back in the early eighties.

Peter Marchetti: What’s interesting there, Ray, is you’re talking about two companies that actually weren’t even in Silicon Valley. You’re talking about Microsoft in Washington and then IBM in whether it’s Boca Raton or, I guess, New York, the fact that it all kind of ended up resulting in Silicon Valley. All these companies being really headquartered here and operating here. It’s kind of interesting how that all ended up unfolding.

Ray Zinn: Probably because of the semiconductor content. Intel became a juggernaut. I mean, they just began to grow extremely fast because of the PC. Then of course, everybody and their brother was jumping on the PC. You had the Osborne, you had the …

Peter Marchetti: You had Tandem, was another big one.

Ray Zinn: Uh-huh (affirmative), Tandem. Anyway, there’s-

Peter Marchetti: On that note, Apple right around this time, obviously they had started a year or two before that, but it was still a really small enterprise. Can you talk a little bit about Apple and their role? Because that is a Silicon Valley company and they [crosstalk 00:13:34].

Ray Zinn: It’s a real story on that one. Rather than take up this podcast on that, because that’s a little longer one, we’ll talk about that one in a subsequent podcast post. We’re hardly out of the eighties yet, we haven’t even got into the 2000s. This is going to be a heck of a series of podcasts, so stay tuned, guys. You’re going to get a chance to hear a little bit about Apple and how they got started and their early days. That’s another very interesting story. There were so many companies that were beginning to grow and automotive became more interested in semiconductors in about that timeframe, so you have another industry that’s supporting semiconductors out of automotive. The semiconductors really are the heart of almost every electronic device that’s made today. We apologize if this is sounding like a little disjointed series of podcasts, ’cause we were talking about the history and we keep getting onto these little side stories that are happening.

Peter Marchetti: It’s kind of hard to stay right on a strict timeline when there’s so much involvement from companies working with other companies and whatnot. It seems natural that it’s going to jump around a little bit, Ray, but it’s-

Ray Zinn: I hope that our listeners really enjoy listening to this, and if they do, please give us a thumbs up if you like what we’re doing, ask us questions, help jog my memory, and please get involved. We’d appreciate if you have some history of Silicon Valley you’d like to share, please let us know. We’d like to incorporate it in this series of a podcast.

We thought this was going to be just like four or five segments of Silicon Valley, going from the early seventies or, excuse me, early sixties, to the 2020. But here we are, we’re up to seven of them and we’re hardly out of the eighties yet. So hope you guys enjoy it. Please let us know if you like what we’re doing or what you’d like to hear about Silicon Valley. We’d be happy to share that with you. Again, thanks Pete, for being with me today. I appreciate the time you’re spending on this.

Peter Marchetti: Of course, Ray. It’s my pleasure. I’m learning a lot. I don’t really do much. I just sit here and listen to you to talk about the history of Silicon Valley and I just take notes and enjoy it, so thanks for [crosstalk 00:16:14].

Ray Zinn: I love it, love it. Well, thanks again, Pete, for being with us and you can tune in again for our next in a series of we don’t know how many podcasts this is going to consist of now. We thought it was going to be five or six, and we’re already up to seven. We’re not even out of the eighties. This could go on for quite a while. I can see this thing being a huge series of history of Silicon Valley. And we’d like to hear from our audience, what you like, what you don’t like, what you want to hear, what you don’t want to hear, and look forward to having this ongoing series.

Please look up my book, Tough Things First, at Amazon or your favorite retailer, or my new book, Zen of Zinn, which is a philosophical book out on how to run your life and lead your life.