Pushkin too quick. No, it's perfect push kid stuff. You got it.
Imagine you're just starting out in your field and one day, out of the blue, you get a call from this guy who basically invented the field, this guy who is a giant in the field, and he says, I want you to come work for me. Dream come true. So of course you go, you work for him. But he turns out to be an absolute nightmare. This is what
happened to young Robert Noise in nineteen fifty six. And I'm going to argue on the show today that this chain of events is actually what led to the creation of Silicon Valley.
One Bad Boss, Silicon Valley, one Bad Boss, a couple geniuses, the right mix of technology and historical facts, Silicon Valley. Let's do it.
So Robert nois the guy who got the call. He was He was a golden boy. He was a real corn fed Iowa American golden boy.
He grew up in Iowa.
In the nineteen thirties and forties, went off to Grinnell College in his hometown.
When he was there, he sang in the choir. He was a champion diver, and he played the leading man in a local radio soap opera, heart Throb, heart Throb. A few decades later, the great Tom Wolfe wrote a profile of Noise in Esquire. Yeah, why don't you give us a little hit? Let me read this While he looked to you. He never blinked and never swallowed. He absorbed everything you said and then answered very levely, in a soft baritone voice, and often with a smile that
showed off his terrific set of teeth. He also had a good dentist. Look at that, yeah, wolf said, it was like he had a halo floating on his head, and kind of annoyingly. He was a genius.
Got into transistors before anybody really knew what transistors were, went off to Mit, got a PhD. And then he got a job at this little electronics company in Philadelphia, and he got bored. Suddenly he's in his twenties, he's a golden boy. He's working at this kind of second tier place and it's just not going that well. And then one day Noise is at his office and the phone rings and he picks up the phone and here's this voice on the other end. The voice says, Shockley here.
Noise later said this was like picking up the phone and talking to God. Three months later, Noise moved to Mountain View, California, to Wortlenoah.
At the time. Yeah, turns out God, William Shockley is a horrible boss, a paranoid micromanager, cruel, really cruel, and the fact that he was such an asshole wound up having profound consequences for the world. I'm Jacob Goldstein and I'm Robert Smith. And this is Business History, a show about the history of business today. On the show, the invention of Silicon Valley, a place that is an actual place, but it's more a state of mind, a culture where
restlessness is a virtue in quitting your job. It's heroic.
Yeah, I mean Silicon Valley is this agglomeration, right, It is the most important agglomeration in the history of agglomeration. Perhaps it has created the most important technologies of the twenty first century and truly the most valuable companies in the history of the world.
And it started with an asshole William Shockley and a golden boy, Robert Noise.
So let's start with Shockley. He really comes first in the story. Shockley was roughly a generation older than Noise. He grew up in Palo Alto in California in the nineteen teens and twenties, when it was you know, a little college town surrounded by farms and orchards.
Yeah. I think grapes of wrath east of Eden, right, these classic books about farm workers. That's what Silicon Valley was at the time. Yeah. Yeah, right over the hill from Salinas, right, not far. Shockley was a difficult child. He bit his mother a lot, He bit multiple babysitters. He didn't go to school. He was homeschooled until he was eight. His parents were high achievers. His dad had a PhD from MIT, his mom graduated from Stanford. It was one of the first people to solo climb Mount Whitney,
I believe, the highest mountain in the continental United States. True. And you know, Shockley eventually went to school and turned out to be a brilliant student, got a PhD from MIT, and in nineteen thirty six he went off to work at Bell Labs in New Jersey. We haven't really talked about Bell Labs yet on the show, and we should do a whole episode about it because it was really critical for all the development of the technologies of the twentieth century. It was set up as AT and T's
research lab in the early part of the century. And AT and T of course had a monopoly on the phone system, so you know, they had a ton of extra money. But more than that, bringing all these geniuses together to work on technology wasn't just about phones. It was about any hard problem that they could think of. They developed the first solar panels right, the first cell phone system, the Courtz clock. They found evidence of the Big Bang, the creation of the universe was discovered by
the phone company, which is amazing. And the main part of this was this idea that if geniuses just interact, they will come up with solutions that they could not come up with alone. And if you want to picture it, one of the Bell Labs, there were several of them when in Lower Manhattan, couple in New Jersey. One of the Bell Labs is the building they use for the show Severance. Is that that giant hall, you know, the outside shots of it. That's what Bell Labs look like. Huh.
I hadn't knowne that. So Shockley is hired, and you know, there is all of this incredible creative work going on, but Shockley is hired frankly to work on a more practical problem for AT and T, a more phone company centric problem, and that is this vacuum tubes. Vacuum tubes were these little glass tubes kind of like an elongated light bulb, all the size of your thumb, maybe a
little taller, okay. And the fundamental thing they did was amplify electric signals, which is a huge problem in technology at the time. Right if you speak into a microphone or say a telephone headset, the electricity your voice generates as tiny, the signal is very small. How do you get that into wires that go across the United States? You have to amplify it along the way, and they use these little tubes to do it. Now, the problem is these tubes are fragile, like they are glass tubes,
and they used a tremendous amount of energy. They would heat up. In fact, you had to like let them heat up before you could even turn on the tube radio at the time, or the tube amplifier. Really, speaking as a man who is familiar with vacuum tube technology or ever, I have spent some time with older radios where you have the vacuum tubes and of course the
audio professionals who say those were the golden day. You are that audio profession I love a vacuum tube, but go on, so, okay, so it's the thirties.
Long distance calling is growing fast. But the vacuum tubes, for the reasons you're describing, are a nightmare and also by the way they burn out, right, they are like incandescent light bulbs. It's very hard to scale a company on this technology. That's expensive and unreliable, and you have to keep sending people out to.
Put in new vacuum tubes.
Right, So Shakley is put in charge of this team that's trying to find a better replacement for the vacuum.
Tube or something that a solid state that doesn't brick. Yeah, yeah, that doesn't break, that's cheaper, that scales.
So you know, Shokley at a fundamental level is thinking about electricity and specifically how electrons move.
Through materials, and of course there is this spectrum.
We're on one end of the spectrum, you have insulators like glass and rubber, where electrons don't flow easily through them. On the other end of the spectrum, you have conductors like copper, where electrons flow right through them.
If only there was something in between, you know, not an insulator, not a conductor, sort of quasi conductor.
It's like a conductor, it's like a semi conductor. There were these materials that were semi conductors, things like silicon and germanium, and people were starting to understand that you could maybe control them so that their behavior would change under different settings, and that if you could do that, if you could get it to switch from basically an insulator to basically a conductor, you could use that as a way.
To amplify an electric signal. You could put a tiny electrical signal in there and it would be boosted by like one hundred times. This is the way it works.
Yes, And the dream is it would be, you know, a cheaper, more reliable version of the vacuum tube. So Chockles were on this in the late thirties and then Hitler invades poland damn it, World War two comes along and Shockley and every other high powered nerd in America gets reassigned to go work on the war effort. Side note, I feel like we should do a show or a series sometime of like How the Nerds Beat the Nazis.
I feel like there's a lot there. Yeah, yeah, I mean one obvious one is the first sort of modern style computer was built as part of the war effort, using vacuum twas, using like eighteen thousand vacuum tubes in a room that was like fifteen hundred square feet, right like bigger than you know, your apartment, you know, a million times weaker than an iPhone or whatever.
But yes, that was a computer. It was used to to calculate the trajectories of artillery, which I love. Shockley, for his part, was working on tactics for Navy convoys to fight subs, which is dear to my heart because my own grandfather was on a Navy convoy in the North Atlantic fighting Nazi subs. So okay, so the words beat the nazis good news, Thank you nerds. And then Shockley goes back to work trying to figure out a
replacement for the vacuum tube. And it is hard to get it to work, right, classic leap from theory to practice is quite hard. They can't get it to work. They can't get it to work. But then finally, in November of nineteen forty seven, two researchers on Shockley's team
they start to figure it out. They have what comes to be called the Miracle month, and the next month, in December, they get this slab of germanium with a little bit of like Jerry rigged foil on it to work to amplify an electrical signal by a factor of one hundred, and they call it the transistor. And Shockley, William Shockley is not throwing them a party, is not entirely psyched. Here. Let me read his quote. My elation with the group's success was tempered by not being one
of the inventors. There is some frustration that my personal efforts, started more than eight years before, had not resulted in a significant inventive contribution of my own. Not sure. Not a lovable guy, Shockley not a team player, right. He in fact goes to the lawyers at Bell Labs and it's like, you guys should put my name on the patent. I know I actually do the work, but come on, it's my team. I've been working on it. The lawyers don't actually agree to do this. They don't do it, and so.
Shockley goes off in secret and starts working on a better way to make a semiconductor. Basically, take this work and improve upon it. And remember he is a genius, right, he is a very talented engineer, and so he succeeds.
Obviously, we're making fun of Shockli a little bit, but this like monomaniacal resentment that he had and had his entire life leads to all of these breakthroughs. Yes, well, not only does it lead to these breakthroughs.
Right, So he's acting like a jerk at Bell Labs and completely a contrary to the ethos of the place, right, which is supposed to be everybody comes together. And so once he does this, nobody wants to work with him anymore. He gets passed over. And so he decides, and here here's the quote. He decides, the hell with that, I'll go set up my own business. I'll make a million dollars that way.
So in nineteen fifty four, Shockolei leaves Bell Labs, leaves New Jersey, moves home to Palo Alto, California. Still remember kind of the middle of nowhere, kind of the middle of nowhere.
Univers still still known for its annual Prune Festival, although although to be fair, I mean Hewlett Packard was there by this time. It's a legit company. Stanford was growing. They had just set up their industrial park. But yes, far from the center of the technological action. Right, Bell Labs was the center of the tech world. Mit was the center of the tech world. The East Coast was where all the action was, not California. Shockley's moving to
Palo Alto because it's home. And two years after he moves home, he starts a company that he calls Shock Semiconductor with the idea of making transistors ubiquitous. And he writes in his journal something I actually find kind of poignant. He writes, idea of setting world on.
Fire, Father Proud, We're already seeing the very beginnings of the Silicon Valley ethos, right, the postute doesn't really get along with others, the resentment, you know, the focus, right, but also this other thing that like I can change the world, the universe.
Yes, yes, he is a very smart engineer with a lot of ambition and some tragic flaws, right, and all of those are important in the story and classic Silicon Valley traits.
So Shockley gets there. He is, in fact a visionary. He sees the future and he is right right.
He sees that semiconductors, the transistor is going to be useful in a lot of ways, not just for the phone company. Right, Like transistor radios are starting to be a thing around this time, hearing aids. It's clearly going to be really important for military applications.
Because until this time anything electronic had to stay in one place. So he's seeing this world where you can move electronics, yes, and they won't break. Yeah. Miniaturization, right, things getting smaller. This is a huge theme that is going to be key to the whole twentieth century. And
I remember the nineteen seventies getting a transistor radio. It was so important that they had it in the name, you got a transistor radio, because people were still like, I can't believe a radio can be held in my hand, Very.
Smith, Am I right that you actually bought a transistor radio a year ago or something.
I bought ten of them for my students just so they can see what it was like. They can move the dial, and yes, you can still buy them on Amazon. They have the like pull out antenna. It does have the pullout antenna. We had what's at home? We used to listen to the baseball game. We used to listen to the Padres games on a transistor radio. I still have one in my shower. I listened to it every morning. I love that. So Shockley has this vision. He is right about the future of the world. He is a
genius who has been central to the the transistor. He started his company and now he needs a team. And so he calls his you know, engineers from Bell Labs, like, hey, let's do this. They're like, no, no, I know you. There's no way I'm leaving the center of the world to move out to the mill of nowhere to work for you. So he has to fight people who don't know him, who don't know him, but who know of him. Right, that's the sweet, that's the key.
Yes, this is how he finds Robert Noise, this golden boy engineer we talked about at the beginning of the show. Right, Noise had actually gotten hold of of an early transistor when he was in college before anybody really you know, knew what they were. He was really excited about it.
And by the time Noise gets this call, he's working at this second tier electronics company in Philadelphia and suddenly, out of the blue, William Shockley, the great genius, calls him on the phone, and as Noise said later, it was like he whistled and I came.
Shockley is a good spotter of talent.
He hires like a dozen by all accounts, extremely talented engineer, young guys in their twenties. Another key we're going to talk more about is Gordon Moore of Moore's Law's Law.
And so they get out to California and at first it's great noise and more and these other young engineers are living the dream, right, working for this guy who founded their field, who helped discover the transistor. And he's got this former Apricot shed in Mountain View that's the headquarters, which is probably worth ten million dollars. Yeah, Chocolate really is talented, right.
He has this breakthrough idea right at the beginning of the company, which is this. The transistors that he'd been working on at Bell Labs were made of germanium. But germanium is hard to work with. It's brittle, stops working at high temperatures, and so he decides to use silicon, of.
Course, another semiconductor. It would have been weird if it were germanium Valley, right, I like germadium valley. They call themselves Germys or something. Yeah, Silicon's cheaper, it's easier to work with, but you know, it's hard to get things to work.
It's hard to produce them economically at scale, it's hard to make hardware.
But it's a problem they think they can solve. Which is the sweet spot, right, It's just if you're a young, ambitious engineer, it's where you want to be.
They all know it's going to be big. It's this very ambitious thing they're trying. And you know, every morning at eight am, the team shows up at the headquarters in the former Apricot Shad and Shockley conducts what Tom Wolf, the journalist, calls the Rcane symphony of you know, getting all these engineers to work together. And Shockley apparently had
this incredible intuition for engineering and for physics. One of the engineers who worked with him said his intuition for experiments was so good it was like he could see individual electrons.
He just saw what was going to happen. Is that great? Isn't that beautiful? If only he could have seen individual human being, Hey o, he would have been much better off. Yes, yes, that classic kind of problem. And soon this sort of monstrous side of Shockley starts to show itself. He gets paranoid. There's this moment when a secretary cuts her hand on
a doorway. There's like a little pin or something sticking out of the doorway, and Shockley becomes convinced that an employee is trying to sabotage the team demands that everybody take a lie detector test, which they refuse to do.
He doesn't get over it, stays paranoid, winds up splitting the engineers into different teams and not telling one team what the other is doing, hiding information, which is like as far as you can get from the Dream, from the Arcane Symphony from Bell Labs.
Right, And at this point it's starting to sound like mental illness. Yeah, really is, Yeah he is. Something is wrong with William Shockley. Right.
And around this time, in nineteen fifty six, he actually wins the Nobel Prize, shares the prize for his work on semiconductors on transistors, and it only makes him worse. He has this paranoid idea that there were people who were trying to keep him from getting the prize. He writes to the Nobel committee saying, like, tell me the names of my enemies.
After he's won of the prisons.
He's won the prize, like take the win, William Shockley, unbelievable.
And then he does one more thing.
And you know, you can get away with a lot if you're managing a team of engineers, but there is one thing, if they're ambitious and talented, that you cannot get away with, and that is becoming less ambitious, scaling
back the vision, and that is what he does. Around this time, he decides that rather than making a silicon transistor that can be used for anything, but that's quite hard to make that they haven't really figured out yet, instead of doing that, he decides that they're going to make something that has a clear, defined limited use case. That is a semiconductor that can do mechanical switching in telephone exchanges.
Ough, he wants to revolutionize the phone company. Yeah, like come on, man, right, Like we came out here to the aprilcot Warehouse to change the world and you want to make calls clear. Okay, So this is.
Like the last straw for a lot of the young talented engineers. But remember this is not an era where if you're like a young talented engineer on the forefront of technology, you can just quit and go do your own thing, right, Like that doesn't exist yet, you know. Sure Shockley started a company, but he was like this very senior guy. He invented the industry. He was to win the Nobel Prize.
And crucially right, there's no money for them. Nobody's going to give them money. There's no venture capitol industry. That is not a thing. So one of these young engineers, guy named Eugene Kleinder, thinks, who can I call? He thinks, I'll call my dad, stockbroker back in New York. That guy knows money.
That guy knows about money, and he calls him, and the broker puts him in touch with another guy at the firm, this thirty year old Harvard NBA named Arthur Rock.
Knowing thirty year old NBAS, It's almost like they were pushing him off on the young guy, like you understand this stuff. Let the young guy hap, yeah, I mean Rock.
Did, like, you know, kind of more interesting and more risky ventures. And so Rock and another banker they fly out to San Francisco and they meet with Kleiner and Moore and a few other disgruntled young engineers from Shockley Semiconductor. And Rock is talking to them, and he's like, well, these guys are smart, and I believe that transistors are going to be a thing. And he's like, look, you guys are smart and.
Got the pocket protectors future.
I'm like, I don't want to say you're a bunch of nerds, but like he is there somebody you work with who's like got some charisma, who walks into a room and people want.
To follow him and they're like, yes, yes, as a matter of fact, our buddy, the former soap opera starred diving champion with the perfect teeth, with the perfect teeth. It's just chilling back in Palo Alto right now. They thought of Noise, They thought of noise. Noise, so they go back and they convince Noise to go talk to Arthur Rock, essentially to join them, and I believe it's the very next day Noise goes with these seven other engineers and Roxy's Noise is like, yes, this is the
guy we need. I love that the money guys are already like I need someone who looks like a president of a company and is a genius.
Ye right, non trivially, and Rock agrees to work with them, and these eight make a pack that if they get the money. If they can, they're gonna leave Shockley Semiconductor.
And I want to.
Make the case in a slightly overdetermined but I think fundamentally accurate way that this moment, when these eight engineers and this banker make this agreement, this is the moment when Silicon Valley is born.
Not when the first company has started, the Shockley Semiconductors. It's when there's a revolution and they leave to start a second company. And that really is the spirit of Silicon Valley. That's why they're all located in the same place. Because they can do this. That's the promise. Yes, you can do it even if you have no intellectual property, no money, no customers, right, just guts and a dream and some amount of raw talent and a banker who
is willing to help you find them money. That's a key part, right, So you have money and ambition and talent and like that is Silicon Valley. Yes, love it. Yeah. In fact, these eight guys they become legends in Silicon Valley and they become known as the Traders eight because they're you know, being traders to Shockoli, to Shockley Semiconductor. And I want to just dwell for a second on that word traitorous, right, because it is a word that has a very negative connotation as a general matter.
A trader is a bad person, yes, but in the context of Silicon Valley, it is heroic. These guys are leaving this company because it has a bad boss who vision they're being traded to him for the greater good to start this company.
And that that is the core. They're pirates.
They're pirates, very good. Now at this moment, I believe nineteen fifty seven, this whole thing that we're talking about is not a thing, right, There is not this spirit of doing this, This is not a known thing. There is not an ecosystem of capital ready to support them. And so Rock the banker, he starts calling around seeing if there's some company basically that wants to support these guys,
and everybody says no, because why would they say yes? Right, They're like, if we wanted to make semiconductions, we just hire a bunch of engineers, Like why would we give it to some random guys. But after a few months somebody tells Rock he should call this guy named Sherman Fairchild. Great name, interesting guy, son of one of the founders of IBM, NEPO Baby, Nepo Baby, but also talented and successful on his own. I guess not on his own, that's the NEPO part, he tells it. And successful guy.
He got into photography early in his life, started this company, Fairchild Camera, that wound up making a lot of the like aerial cameras used in World War Two. Also loves to take a risk, never got married, loves to spend money, built himself this glass house in Manhattan, goes out to the clubs every night. So really the perfect guy to fund the trader's eight. So he ends up agreeing to put up one point five million dollars. I went a
lot farther back then. But you know, it's not like a startup like we know it today because people didn't make those deals. Instead, what he's creating is this semi autonomous division of Fairchild Camera. The traders say will get some equity, but Fairchild will have an option to buy the project the company outright for three million dollars if it succeeds.
So they agreed to the deal. This is going to be the deal. Now the trader is are ready to leave Shockley.
Now they've got their exit, and on September eighth, nineteen fifty seven, Gordon Moore broke the news to Shockley. It's interesting because Shockley was clearly paranoid, and yet he didn't see this coming. He was shocked. He staggered out of the room. He felt completely betrayed. And the company, Shockley semi Conductory, it never recovered. It never recovered from these guys leaving kind of staggered on for a while, never did anything great. And Shockley himself became a professor of
engineering at Stanford. And then his story gets kind of more grim, like he gets obsessed with like race and IQ and eugenics. It gets kind of bleak, and frankly, that's enough, I think about chocolate.
That's the end of Shocoley in our story today, because the people we care about are the pirates. The eight engineers who left to start something new in nineteen fifty seven are heroes, are the Traders eight. And we'll hear more about them after the break, and we're back.
Trader Essay have just left Shockley Semiconductor, and on October first, nineteen fifty seven, they found Fairchild Semiconductor, a semi autonous division of Fairchild camera an instrument. Three days after they started the company, the Soviets sent Sputnik into orbit.
Amazing, an amazing confluence of events.
Amazing, right, I mean, the US is completely surprised by this.
Right, this is the first satellite to orbit the Earth.
And it's terrifying for the Americans, right, I mean, you know, a is afraid of the spread of communism. It has gone from the Soviet Union to Eastern Europe, to North Korea to the skies above your home.
Literally it is now flying over your head, right, And they think, we need a lot more electronics that are portable, and we can put on planes and rockets and satellites of our own.
Yes, And to be clear, this is extraordinarily lucky timing for noise and more and the rest of the trader essay, right, Like their genius is there's a good chance they would have succeeded anyway.
But a useful lesson. It is great to have lucky timing in business and a desperate customer, which was the US government. Yeah, right, there is now suddenly this space race. This is the thing. Now the Soviets are winning the race. The US has to catch up.
And so you know, it's like Sputnik went up, and billions of dollars in government funding rain down on fair Child Seming conductor and labs around America. Because you can't fit many vacuum tubes in a satellite, in the nose of a rocket, in you know, a fighter jet, you know what, you can fit a lot of transistors. So now there is essentially unlimited demand from the government for a fair Child to build transistors, but.
They still have to make it work. Is it is not easy to do. It is a very hard technical problem because it's not just to put some silicone on and put some wires on it. Even a speck of dust on one of these early transistors could short it out, could create a problem, right, And it's you know, we think of breakthroughs as binary. It's like, oh, they figured out how to make a silicon chip done, But production and scale and efficiency are these endless problems, right, And
they are extremely inefficient. They have an extremely high failure rate, and so they're trying, trying every day, how can we make this better, How can we make it faster? How can we have fewer of them fail? And to that end, the.
Engineers at Fairchild had this idea and that is okay. So the fundamental problem is the silicon is super finicky and fragile. What if we protect it by leaving a layer of silicon oxide on top of the chip, and then we just put little tiny windows in that silicon oxide layer wherever you need to access the silicon directly. It's like painting a house, sure right where the paint is protecting the house, and there's like a window, said the metaphor.
Okay, buy it.
So he takes this idea to Noise, and Noise loves the idea. Noise has his own metaphor.
He says, it's like wrapping the silicon in a cocoon, which I like. And he takes the idea to Fairchild's patent lawyer, and the patent lawyer, being a good patent lawyer, says, I love it. Let's patent the hell out of it. Don't just tell me this one.
Use spend a few days and think of all the possible uses that we can make of this little idea so that we can build as big a patent mote as possible.
So Nois starts thinking.
About it, starts talking to more, you know, doing stuff on the chalkboard, and He's like, Okay, the problem isn't just that the silicon is finicky, right, Like these little transistors, they're complicated and on every one we've got to put like little wires.
We actually have to solder by hand wires into every chip. Yeah, because you have to get the signal in there, and then you have to pull the amplified signal out and just imagine just hundreds of little, tiny wires, right, And they think, wait a minute, what if we can sort of etch this cocoon a little bit and essentially print the wire on top of the silicon oxide on top of the silicon. So basically the wires are are in the little thing. Yes, Yes, And and now that he's
got this, he goes even bigger. Right, he thinks about an even bigger problem that he and the industry are facing, and that is the uses of transistors are multiplying and getting more complex. Right.
People are starting to build computers with transistor instead of vacuum tubes.
And they have all these.
Little components, right, these complex circuits with not just transistors but capacitors and resistors, and there can be thousands of connections among the components, and people are wiring them all together by hand for every computer, right, which is a total nightmare for manufacturing, extremely hard to scale. And so Noise is thinking about this transistor and a cocoon, and he's like, wait, doesn't just have to be a transistor and the wire.
Like, we could use this idea to put all kinds of things on one piece of silicon, right, Like we could put an entire circuit, all the components on this one piece of silicon. This idea is the integrated circuit. This is Robert Noise inventing the chip. Love it. He's not the only one. He's not the only one.
You know, when there is a technological frontier and a ton of money and lots of smart people working. One of the great things about competition and the world is lots of people are right at the edge thinking similar thoughts. So as Noise is doing this, In fact, slightly earlier, one thousand miles away, another engineer, guy named Jack Kilby at Texas Instruments, is also inventing the chip.
Texas Instruments, famous for their calculators in the nineteen seventies. That to me was high tech. A Texas Instrument calculator, yes, yes, also a chip pioneer, and in fact Kilby came up with the idea just before noise, maybe noises ideas a little more elegant. There's of course a patent case killby the noise. But in the end, important thing about this moment in history and this story is the government is going to pay for all the chips everybody can make.
There's enough to go around, and fair Child and Texas Instruments agree to share the intellectual property. Amazing, they decided not to destroy each other, right, like in the Cult War.
So fair Child and Texts Instruments are making chips, they're selling them to the government for ballistic missiles, for all of rockets coming along. And you know, think of this moment, right, this is like peak nerd and a short sleeve button down with the like heavy rimmed glasses doing.
The space race.
Right, this is peak military industrial complex. And I think of the chip as the little hyphen between military and industrial. It's like the center of the military.
Industrial complex, very Tom Wolf of you. So all this government.
Demand is driving more scale. It's pushing Fairchild and Texas Instruments to come up with more efficiencies, right. And one key thing they're doing is they're figuring out how to put more and more transistors and other components on each piece of silicon on each chip, so that it gets more powerful and cheaper.
And they're pretty good at doing this. They're pretty good at doing this, right, we know this. The price falls from one thousand dollars in the late fifties to twenty five dollars by nineteen sixty three. And this moment the mid sixties is when we come to what I'm going to call the most unlikely great moment in business history that we have yet encountered in the young life of our shows. Right, bring it.
That is the moment in nineteen sixty five when the editors of an electronics trade magazine ask Gordon Moore, one of our traders eight, to write an article. This is the great moment writing an article for a trade magazine. This electronics trade magazine has called wait for it, Electronics.
I love when they have a simple title.
Business History, a show about history of business, and electronics magazine asks more to predict where the integrated circuit business is gonna be in ten years.
Could be a puff article, but he actually thinks about it.
He thinks about it. He sees that fairchild and texts instruments have gotten much better at making integrated circuits that they can put more and more components on each little piece of silicon. And he does the math. He actually makes a little and he sees that the number of components on each chip has been basically doubling every year. And at the point he's writing this article, there's somewhere around sixty components. So it figures that's likely to continue.
And he just extrapolates, He just he does the math, He extrapolates out his graph, actually makes a little dotted line ten years out into the future, and he says, Okay, we're making sixty or so components on.
A chip today.
In ten years it'll be sixty five thousand components on a chip. The magic of doubling, magic of compounding.
I feel like this is the point of business history where we see what happens when you have exponential growth. Thomas Edison made the light bulb better. Of course, everyone made inventions better, but not doubling every year or two years. No, this is the central fact about the chip, right, and Moore knows it, crucially right, crucially huge testament to him and his vision. He read this read this paragraph from this article. He knows what this is going to mean.
The grided circuits will lead to such wonders as home computers or at least terminals connected to a central computer, automatic controls for automobiles, and personal portable communications equipment. Wild science fiction, like nineteen sixty five. He's writing this, and he's right. He's one hundred percent correct.
So this is the birth of Moore's law, which Moore himself did not call Moore's law, which is not a law, but which basically was right right in nineteen seventy five. Ten years later that year he was predicting out to He went and looked at how things were going. He was pretty close to right. He realized that progress was slowing down a little. He figured doubling two years or so, when of his colleagues was like, no, it's more like eighteen months.
And so Moore's law was adapted. Right, that's what it became.
It became the number of essentially transistors eventually on a chip doubles eighteen months. In fact, the rate of increase has started to slow in the past decade or so.
It's reaching the limit of physics itself. Right, there's like you're at like weird quantum things are happening with the apps, right. Jansen Wong from Nvidia basically said Moore's law is dead. Maybe maybe not, but the key thing here is this doubling and doubling and doubling over many decades that more predicted from you know, sixty or so components on a chip to billions of transistors on today's chips. Like this was I think, clearly, right, certainly the most important business
trend of the last hundred years. It enabled obviously the computing revolutions, cell phones, the Internet, AI like these key drivers of our world come out of Moore's law. And if you understood Moore's law, then you could predict what something could do in eighteen months, in three years, and five years and ten years. You could start to invent things that literally were not possible today, knowing that the chips will be there when you finish in a year
or two. Yeah, you see smart entrepreneurs catching onto this and doing this like I mean, the example that comes to my mind is Netflix, right, which.
Started out as DVDs by mail, which was a great service, but they did not call themselves DVDs by mail, even though when they started. Most people didn't have broadband streaming video was not a thing, but they knew that because of Moore's law, it was going to be a thing. They knew that would happen, and they planned around it, and it happened, and Gordon Moore basically saw it coming.
But interestingly, around the time he wrote that famous piece, around nineteen sixty five, More and Noise or Golden Boy, we're starting to get restless again. You know, they're they're like they like to shake it up.
These guys. They're fundamentally kind of nerd pirates, and they are about to make one more big move after the break. That was the break, and now we're back the story of Silicon Valley.
So Sherman Fairchild at Fairchild Camera and instrument Remember our investor in Fairchild, he had exercised his option to buy Fairchild Semiconductor outright in nineteen fifty nine. Very shrewd Man, shrewd Man, Noise and Moore and the others kept working there.
You know, they got some money. They kept working there, kept figuring out how to put more components on a chip, selling all they could make to NASA.
And the military. But Noise and More start to get this feeling that would really become a classic feeling among Silicon Valley founders who have sold their companies. Right, they got a bunch of money, great, They weren't really in it for the money, right, Ye. What they wanted was to be doing big, important work. They wanted that feeling of, you know, being free out there on the technological frontier, like nerd cowboys.
Yeah, inventing the chip is great. Putting more things on the chip is great, but then it's just scale. It's going from one hundred components to a thousand components to sixty five thousand, and even if that might be fun, if you're like doing it on your own, right, Yeah. The problem for them was they weren't right. They were no longer pirates, like you said, They were middle managers at a division of fair Child Camera. Right. They were going to be the next Bell Laps. Yeah. Yeah.
Now now they're working for a company that makes movie cameras and stamp machines and they're like, hey, listen, we're going to give stock options to the engineers. And the company in New York is like, no, you're not. Why why yeah? Why?
And they're like okay, but we'll at least we're going to take our profit and like put it back into development, right, because things are going so fast? Why your business you produce money for the investors. Yeah, Like the point is to make money for the shareholders. Just be quiet, keep begging chips and so so funny still in nineteen fifties view of what a business was.
Yeah, that's right, this very kind of man in the grave flannel suit corporation and so noise and more. Don't like this. In nineteen sixty eight, they go back to Arthur rock, the banker who had helped them get set up with Fairchild about a decade earlier. And crucially, the world is really different now in large part because of
the work that these guys have done. Right, Rock over this time had gotten into this idea of connecting East Coast capital with these you know, new companies out on the West Coast, and he'd kind of built on this old tradition that like old money East Coast families had where like with a little bit of the money on the side, they would sort of play around with that They called adventure capital.
Adventure capital, Yes, right, it says a little too. Could you just tighten that up a little bit a little bit, right. So you know around this time, Rock and a few other finance types are creating venture capital. Right, this is happening.
It's going from being a rich man's hobby into a more formal part of the financial system. And so remember the first time Noise and More went to Rock, it took him months to find the money. And in part well, obviously in part because Noise and More way more legit now and they've made the success at Parchil, but also because finance and capital allocation has developed and venture capital is becoming a thing. Instead of two months, this time,
he raises the money in two days. And remember this is nineteen sixty eight, right, So the entire culture of the United States has sort of shifted to the West coast, not just in terms of technology, but in terms of music and fashion and lifestyle, right, and there's this excitement out there. Finally it's not just farm fields. It's people doing amazing, weird stuff.
And I picture these you know, stuffy rich people on the East Coast going hmmm, how do we get a little been involved in what the what the kids are doing out there on the coast.
So that's why they raise the money in two days this time, and you know, the core idea is still this breakthrough that they've had at Fairchild. Right, it is the integrated circuit. It is integrated electronics.
They know this is going to be huge, and so they're founding their company.
It's nineteen sixty eight and they're like, what if we call it integrated electronics?
Very nice, very little, nerdy, little long do it Intel? Intel? Beautiful? So they create Intel, right, they create Intel, and now crucially this time, there's no East Coast camera company that can tell noise and more. What to do now they can build this engineer's paradise they've been dreaming of, and they do.
They build a company where all the engineers get stock options, where it's very non hierarchical, right, no reserve parking spaces, no fancy officers for the boss.
Everybody has the same plain gray aluminum desks. And remind you, this is fifty five years ago, and all the pieces are in place. Yes, all the things that we've think of now as cutting edge Silicon valley culture, the people going out there now to do AI, right, yeah, fifty five years ago that's when this got solidified, Yes, and it worked. Right.
They were like let's build this company, let's make it centered on engineers, and let's have everybody come in every day and try and invent the future. And they succeed right, very quickly. They have a new technological breakthrough that propels them ahead, and Intel remains the dominant chip maker in the world for decades to come. And interestingly, it's not just Noise and more. Other members of that original Tradorus eight also continued to be these kind of restless pirate types.
People actually talk about fair Children companies that came out of fair Child.
Yeah.
One of them started AMD which today is also one of the biggest chip companies in the world.
And they didn't just start companies. They also, because they made money, became the money people themselves. Yeah. Yeah. Eugene Kleiner, the guy who called his dad's stockbroker.
When they were originally looking for money. He started a venture capital fund called Kleiner Perkins, which you've probably heard of because it funded companies like Netscape and Google and Slack, meaning that you know, these original guys, they didn't just start this company. They didn't just create the model. They actually brought the money to fund generations of people who were restless who wanted to go out on their own and try a new thing.
Yeah, if you were a golden boy in the last fifty five years, you did not have to work in Philadelphia for an electronics firm. You didn't have to wait for the phone call from anyone, even God, because you knew there was a place that respected your genius and ambition and restlessness right and that would overlook whatever personal flaws you might have. There was a place that was on the edge of everything, and it was called Silicon Valley, and you could just go there and make your fortune.
Next week on Business History, one more guy from Fairchild was the head of sales starts his own VC firm, and his very first investment is in a company full of stoners that's doing business out of an abandoned roller rink. It's like the Apricot Shed of the seventies.
That company is Atari, and it's the story of the birth of the video game industry.
Our producer is Gabriel Hunter Chang, our engineer is Sarah Bruguier, and our showrunner is Ryan Dilly. I'm Jacob Goldstein and I'm Robert Smith. We'll be back next week with another episode of Business History. A show about the history wait for it, of business.