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 VIII, Ray, Goldman Sachs analyst Peter Marchetti, and Silicon Valley vet Guy Smith cover the continuing shifts from hardware to software, from IT to personal tech that Silicon Valley created.
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. Welcome to another in our series regarding the history of Silicon Valley. We’re delighted to have you back. We’re now approaching what we say was the early ’90s in Silicon Valley, and what it was like. So with me today is Peter Marchetti, who’s a friend of mine. He’s a private wealth banker. And then Guy Smith, who is my director of marketing for Tough Things First. So welcome, you too.
Guy Smith: Great to be back.
Peter Marchetti: Likewise, Ray.
Ray Zinn: Well listen, let’s get going here. Talking about some of the things that you guys are interested in regarding the history of Silicon Valley, as we now approached the ’90s.
Peter Marchetti: Ray, I actually had a question coming out of the last podcast. We were going through this period of tremendous growth through the ’80s and into the ’90s. I’m wondering basically who were the folks that were in your mind pushing forward the leadership or pushing forward the change and really leading the whole industry into this massive period of growth. Who were the personalities and the people that were really making Silicon Valley what it was during that period?
Ray Zinn: Fairchild was kind of falling off the rails. They were not doing that well other than their being acquired by National Semiconductor and then later spun back out again. So National was doing okay and they were growing quite rapidly. And they did acquire at that point Fairchild Semiconductor. The ones that I really admired or thought were my peers, Jack Gates at Maxim Integrated Circuits, Bob Swanson at Linear Technology. They were my two closest rivals, as they say, but I admired both of them. They were both heading in a slightly different direction. Maxim started out basically leaving Intersil. Jack Gifford left Intersil, took a team of guys with him, analog type guys. And he was going to approach doing analog circuits using sea moss. And then Bob Swanson left National and took a real good team of guys with him, and they were going to do it with more traditional bipolar technology.
And it was interesting, just both of them are quite successful in the way they pulled out of their respective companies, Swanson leaving National and then Gifford leaving Intersil. This all took place in the early ’80s, so we’re kind of going back a little bit. But both of them raised about 20 million apiece from venture capital individuals, but they had both done very, very well. They ultimately went public. They bought at the same time I did in the early ’90s, which we’ll talk about. So I was interested in watching them and mirroring what they were doing from an analog point of view, because that was our expertise. So, I did admire both those individuals. Also, I thought Bob Noyce was doing quite well at Intel, and I admired him for what he was able to accomplish.
But the troika, as we referred to them, was really my company, Micrel, Maxim Integrated Circuits and Linear Technology. We were the high flyers. We were the ones that were doing quite well and were competing for good designers. So that was the landscape back in the ’80s, as you would. And from outside of the industry, I admired Jack Welch at GE. I thought he was a pretty good leader and had done a great job in guiding GE. Interestingly enough, GE had acquired Intersil, And so here we have Jack Gifford leaving Intersil and founding Maxim, which I thought was kind of … GE just let them go. They just really didn’t fight much to let them leave Intersil, where on the other hand, when Bob Swanson left National, I mean, that was a real dog bite.
I mean, I thought National was going to be able to bury Linear Technology because that lawsuit, it cost over $11 million at that point, again just fighting, as you would, the legal battle over confidential designs and so forth. So Gifford got to leave Intersil pretty unscathed, as you would, again, taking a good group of designers. And then Swanson leaving National, but National put up a heck of a fight, where GE just let Intersil go, or let Jack Gifford and his team of guys go. So hopefully that answers your question, Peter.
Peter Marchetti: Yeah, that’s great, Ray. I mean, it’s just good to know some of the background and the people that you knew and you felt were good competitors in the space.
Ray Zinn: Okay. So let’s move into where the industry was into the early ’90s. So I think Linear Technology and Maxim went public just before I did. I think they went public somewhere between 1992 and ’93. And so they preceded me, and both of them had done well. I mean, they were venture capital funded, whereas Micrel was not. We only had 300,000 original investment in Micrel compared to their 20 million.
Peter Marchetti: On that, Ray, if I could stop you for a second, why is that? Why were they venture backed and you weren’t?
Ray Zinn: Well, I mean, again, they started out, they didn’t have to make money. I decided to become bank funded using bank debt just to start my company. And I had to be profitable. That was a requirement from the bank, was if I was going to be funded by them that I had to be profitable. So I couldn’t just start out losing money, like Maxim and LTC could lose money. They lost a ton of money when they started the company. Again, they had $20 million they raised compared to my 300,000. I mean, just think about that for a minute. I mean, that’s a huge difference. So I had to go a little slower and do it a little differently, running the company profitably from day one, and they didn’t have to.
So another interesting thing, back in that timeframe to go public, you only had to be profitable. You had to be, excuse me not only, you had to be profitable for at least three straight quarters. And that was interesting, because nowadays you don’t have to be profitable to go public. But back in my time, back in the ’90s, you had to be profitable.
Peter Marchetti: Some people would say that being profitable nowadays going public might be a hindrance to you with some of the companies numbers.
Ray Zinn: Right. Yeah, they couldn’t go public. But back in the early ’90s, you had to be profitable for at least three quarters. I was profitable from day one. So we had no problem. In fact, I had a lot of pressure from my employees to take the company public going back as early as 1986. I mean, they were bugging me, oh, they wanted these, oh, we need to have liquidity. And it was really a lot of pressure on me to take the company public, which finally we did in 1994. At that point, LTC and Maxim had already gone public. And so here we are. We’re a little later. But as Orson Welles said, “No wine before its time.” And so I didn’t think we were ready to go public. I didn’t want that responsibility of being public, but from pressure from my employees and so forth, we decided to go ahead and take the company public.
Because you have to remember, I’m trying to hire designers. LTC and Maxim were able to go public and those guys had liquidity, whereas in my case in 1994, my people didn’t have liquidity. So it was a difficulty hiring good designers.
Peter Marchetti: How did you get people then when you’re matching up against other companies that can offer options and liquidity and something that’s maybe a little bit more tangible financially? How did you compete?
Ray Zinn: Well, we did offer stock options, they just weren’t public. They were privately held, but they didn’t get stock options. And they got good ones, too. They got better stock options in anticipation at some point we’d go public. So we were able to offer very good options, better than LTC and Maxim were offering. The difference is, is they had liquidity and we didn’t. So we offered very good stock options. And they liked working for Micrel because we were a good company and we were very competitive. We were competitive with both LTC and Maxim. And so we were getting quite a name for ourselves. But come 1994, in December 1994, we decided that we’re prepared and ready to go public. So it’s not that I wanted to go public at that point, just that with the pressure of my employees and the pressure of the board and just the environment that we were in the back in the early ’90s, we decided to go ahead and take the company public.
Now I wanted to go public at some point, but I thought it was still a little bit early. I wanted to go public more like in ’98, ’99. So we were about four years earlier than I wanted to do, but the good thing is, is that when we did go public at a good stock price, at a reasonable one, we didn’t have to raise a lot of money because Micrel didn’t need a lot of money because we were a good, cashflow positive, and we had lots of cash. So we raised as little as we could in the public market so we didn’t have to give up a lot of ownership of the company to do so. So talking historically, where a lot of companies’ stock price dropped below their IPO price at some point in their life cycle, we didn’t. Our stock price never did drop below our IPO price. And that was always something we used to tout, and we’re proud of.
Guy Smith: This gets to what I think is a split with inside of Silicon Valley on the subject of leadership. We were talking earlier about the 1980s, Bill and Dave were still wandering around the Hewlett-Packard headquarters at that time. They had your view about the longevity of a company, about it being an enduring enterprise, not a bottle rocket company, as you have called them before. And they didn’t make hard, fast moves, but during the 1980s, they were growing like a weed, innovating the mini computer market, taking over the personal computer market, basically inventing and reinventing from the ground up the whole printer market, whether it was IT or desktop. So you took that kind of approach when it came to the IPO and moving your company forward, it was much more of a measured response instead of the prototypical Silicon Valley jump through every ring of fire you can to move as fast as you can. Talk about that a little bit, because this is part of Silicon Valley history, you know, the difference between what you called the bottle rocket companies and the hoist companies.
Ray Zinn: Bill Hewlett and David Packard called it the HP Way. That’s the model. This is the HP way. So we adopted that saying at Micrel. We call it the Micrel way, which is to be profitable no matter what, to make sure that we had longevity as opposed to just in and out, as they say. And I did compare my company, Micrel, to a hoist. You could go to a garage and watch them lift a car up, it’s not too exciting. Not a lot of people go in to watch somebody lift the car off the ground. But a hoist can lift a very heavy object off the ground and sustain it for long periods of time, whereas a bottle rocket or fireworks, I mean, they go screaming upward, everybody wants to see them. They’re gorgeous to watch, and they’re wonderful, but they fizzle out. And then what do you have? It’s just not very enduring, as they say.
So we always promoted Micrel as always profitable, enduring, lasting forever, solid as a rock and being the Micrel way, similar to Bill Hewlett and David Packard talking about the HP Way. And HP was highly, highly admired back in the ’80s, highly admired. And they did a lot of acquisitions. Some of them okay, some of them not so good. And it got them off in a different direction, as you pointed out, Guy, into the mini computer market, which was the big thing back in those days. They also did consumer calculators, scientific and financial calculators. They built a lot of watches. They came out with the first smartwatch, as they say. You could have a little computer on your wrist. And that was the HP wristwatch. It was pretty big. I mean, it’s pretty massive, but it was the first one. So they were getting into consumer electronics. I’m not sure that was the best move on their part, but they did do it. I mean, it’s a different approach.
So with that, guys, let’s close this segment of the history of Silicon Valley out, and we’ll invite everybody to come back, as we move forward into the ’90s and hopefully talk a little bit about what Silicon Valley looked like in the 1990s and go from there. So, thanks again for being with us, Pete and Guy, for being here with us today. Grateful for your support. Please read my book, Tough Things First, as well as my new book, Zen of Zinn, and we have a new one coming out called Zen of Zinn Two, that will come out shortly, probably in the next four or five months. And we’re also contemplating doing a history of Silicon Valley episodes on these podcasts that we’re doing. So please join us again. Grateful to have you here with us, and we’ll see you next time.
