Inside Intel
Tim Jackson
Originally published in 1997 and now available as an ebook. The first book on ‘the most profitable company on earth’, by the bestselling author of Virgin King.This edition does not include illustrations.Intel has been dubbed the most powerful chip company in the world and is now universally acknowledged as the only serious rival to Microsoft. Intel’s products are at the heart of the personal computers everyone uses at home and at work, yet the company has for many years been underestimated, to a large extent as a consequence of its secretive corporate culture.In this, the first book to be written about this company, Tim Jackson exposes a fascinating story of personal rivalry, powerful emotion, technological leadership, aggressive marketing, and spectacular failure and success. A company with as much paranoia as Apple, as much will to succeed as Microsoft, as much pig-headed arrogance as IBM, and led by some formidable characters who risked $1 billion and their entire trade reputation on concealing an error in the Pentium chip, provides the basis for a Barbarians at the Gate of a book by one of our leading authors.‘Has all the elements of a successful novel – power battles among industry titans, excessive wealth, ruthless management and even sex’ – Financial Times
COPYRIGHT (#ulink_0fd37194-d7bf-5bfe-a07b-0ce98ee7a5cf)
Fourth Estate
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First published in Great Britain by HarperCollinsPublishers 1997
Copyright © Tim Jackson 1997
Tim Jackson asserts the moral right to be identified as the author of this work
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Source ISBN: 9780006387977
Ebook Edition © DECEMBER 2016 ISBN: 9780008240615
Version: 2017-01-05
DEDICATION (#ulink_4c3f946a-b350-54dc-a2d3-8deec2cf0dc2)
To Emily Marbach
CONTENTS
COVER (#u7205c27e-d9e3-5906-97d3-b0fa8caa8e5f)
TITLE PAGE (#u570f0124-4983-514c-8f97-7e7f814c6570)
COPYRIGHT (#ulink_fc3b48e9-faea-5b3f-9698-7622afe7da7f)
DEDICATION (#ulink_92792912-3bbd-55f4-843e-b1dac55d03c6)
PROLOGUE: A Half-Billion-Dollar Mistake (#ulink_8b655786-90f2-51c3-b78b-7b6612b0d2b0)
PART ONE · INNOVATION (#ulink_296bc0dc-d89e-5c49-b829-ff1baaf7fbab)
1 The Odds-On Favourite (#ulink_ea2f86d0-0953-55f7-bc50-1b52ac31a87e)
2 2,000 Starts a Week (#ulink_b412df2e-27ab-50d0-83a7-7d6dce1db49b)
3 The Third and Fourth Men (#ulink_461a49ef-de4b-500f-94c3-df4ac9c4d49a)
4 Into the Potato Patch (#ulink_6bf4c9d6-9886-5f19-bf1f-4d0473245819)
5 A Saviour from Bucks County (#ulink_021981af-9b92-5842-bd0b-8c2fad48e9a0)
6 The Rebels
7 Yellow Snow
8 The Microprocessor
9 Public Company
10 Second Source
11 Turning Failure to Profit
12 A New Standard
PART TWO · DOMINATION
13 Borovoy Wins a Patent Battle
14 A Competitor on the Horizon
15 Penang Burning
16 Gopen Beats the Union
17 The Stop-Gap
18 Marriages and Divorces
19 Organization and Alpha Particles
20 The Microma Mistake
21 Crush!
22 Whetstone’s Design Win
PART THREE · EXCLUSION
23 Seeq and Destroy
24 Checkmate Powell
25 Microcode
26 Gold
27 The Vancouver Complaint
28 A Scandal in Malaysia
29 Davidian’s Bonus
30 The New CEO
31 An Anonymous Caller
32 Lagging the Koreans
33 Raising the Tax
34 The Two Webbs
35 Departures
36 A Question of Drafting
37 The Traitorous Two
38 A Hacker Inside
39 Tech Support Screws Up
40 The 10x Force
41 Winning the Platform Wars
KEEP READING (#ube528596-b2fd-5aa0-a014-9609e4c92f62)
NOTES
INDEX
ACKNOWLEDGEMENTS
ABOUT THE AUTHOR
OTHER BOOKS BY
ABOUT THE PUBLISHER
PROLOGUE (#ulink_c91d2ee1-1702-5b71-abf6-aae894c0c68d)
A Half-Billion-Dollar Mistake (#ulink_c91d2ee1-1702-5b71-abf6-aae894c0c68d)
ARTHUR ROCK WAS PROBABLY standing staring out of the floor-to-ceiling windows, gazing at the evening lights of the December city skyline, when the call came in.
His office suite, on the twelfth floor of a tall tower in San Francisco’s financial district, had a group of comfortable sofas at one end dominated by a collection of bold modern pictures. But Rock, who had suffered a bout of polio as a child, liked to take calls standing up. Next to his desk stood a light-coloured wooden reading lectern, which allowed him to work on his feet – like a clerk in a nineteenth-century government office.
It was hard, though, to imagine anyone further removed from the nineteenth century. Rock was a billionaire venture capitalist, who had made his money by investing in some of the most successful technology companies in history. He saw his job as doing more than simply picking winners and then sitting back to watch them get on with it. When Arthur Rock invested money in a company, he sat on its board of directors and helped to guide its strategy. In times of crisis, when his investments might be at risk, he’d be ready if needed to step in with firm advice on how the company should recover its correct course.
The incoming phone call gave no clue that today might be one of those occasions. As Rock’s secretary put the call through to his speakerphone, he heard the soft-spoken voice of Gordon Moore, chairman of Intel Corporation, opening the proceedings with his customary calm. Ever methodical, Moore would often start Intel’s board meetings by checking that all the participants had received the appropriate papers from Jean Jones, his trusted secretary for nearly thirty years.
Rock didn’t need to be told why the Intel directors were holding today’s board meeting by conference call instead of at the company’s headquarters in Santa Clara, just over an hour’s drive south of the city. Like the other Intel directors, he had read all about the crisis in the New York Times and the Wall Street Journal.
Intel’s heavily advertised flagship product, its new Pentium microprocessor, was flawed. The company had known about the flaw for some months and kept quiet about it, believing that only a tiny fraction of the millions of users of the chip across the world would ever be inconvenienced by the problem. But the flaw had been discovered by a mathematics professor, whose data had been posted on the Internet. Intel’s attempt to play down the issue had angered customers, worried investors, and ultimately provoked a storm of criticism in the media, culminating in a damaging report on CNN.
As the problem escalated, Intel’s response had been doggedly consistent. The company had kept repeating that the flaw was unimportant, and kept insisting that it required no corrective action from most owners of computers equipped with a Pentium chip. Intel had admitted that a small number of specialized users, mostly scientists or mathematicians, might need their Pentiums replaced. But Andy Grove, the company’s combative chief executive officer, insisted that the people best equipped to decide who was in this category were Intel’s own engineers. As a result, customers who wanted to return a flawed Pentium would have to call Intel and convince the company that they really needed a replacement.
Intel’s approach to the issue had the support of the computer industry. The last thing that makers and retailers of PCs wanted was to be put in a position where they had to open up hundreds of thousands or even millions of PCs already in the distribution channel on their way to end-users, and go through the time-consuming and expensive business of replacing their existing processors with new ones. So the industry, which understood from experience that no microprocessor was ever perfect on first launch, stood staunchly behind its leading chip manufacturer. Company after company issued press releases telling customers that the Pentium flaw was nothing to worry about, and Intel’s approach to the problem was just fine.
That wasn’t how the general public saw the issue. Inflamed by critical comments on the Internet, newspaper readers and TV viewers couldn’t understand why a maker of microprocessors should be any different from the rest of manufacturing industry. If you were in any other business and discovered a major problem with one of your products, you offered customers a free exchange, no questions asked. It was as simple as that. You didn’t screw them around by telling them the problem probably wouldn’t affect them and force them to call you and jump through hoops before they could get a replacement. Yet that was what Intel seemed to be doing – and its attitude seemed to be brazenly arrogant, since the problem with its new chip, advertised as the latest and greatest in computer technology, was a simple one: it couldn’t do long division properly.
For a few uneasy weeks the alliance of expert insiders had succeeded in defying the instincts of the less well-informed outsiders. It had looked as though Andy Grove’s boldness and willingness to take criticism and unpopularity would eventually triumph. The chorus of complaints against Intel had begun to die down, and consumers had seemed to be getting the message that the Pentium flaw wasn’t such a big deal after all.
But the situation was precarious. It depended on the giants of the computer business maintaining complete unanimity. If just one major vendor changed sides, then it would no longer be possible for Intel to convince its customers that all the experts agreed there was no problem.
That change had now happened. International Business Machines, the computer giant that had unwittingly helped Intel rise to dominance of the industry, had broken ranks. For reasons that Intel had not been able to fathom, the company had put out an announcement saying that it was putting shipments of new machines equipped with Pentium chips on hold until the issue was resolved.
The result was pandemonium as Intel’s customer-support lines were flooded with anxious callers. A new round of criticism was unleashed in the media. Finally, the company was forced to face one of the toughest decisions of its history. Should it guarantee to exchange all the flawed chips – even for customers who used their computers for nothing but playing games – and face up to wasting half a billion dollars on an unnecessary returns programme? Or should Intel stick to its guns? Should it save some money in the short term, but run the risk of throwing the computer industry into turmoil and causing long-term damage to the value of its brand?
This, Gordon Moore explained, was the question that Intel’s board now had to decide.
Maybe Arthur Rock should sit down after all.
The decision the Intel board took that day was undoubtedly the right one. Reversing completely its former position, the company announced that it would now offer a no-questions-asked exchange to anyone who owned a flawed Pentium. Andy Grove issued a grovelling public apology for the irritation that his previous stance had caused, and the company set up an emergency call centre to handle the expected rush of customers dialling in to take up the offer. To cover the costs of the incident, the company set aside $475m – more than half its earnings during the last quarter of 1994, when the board meeting took its decision – and turned one million of the world’s most advanced microprocessors into nothing more than ornamental tie-pins and key chains.
Once Intel had backed down, the bad publicity went away almost instantly. Within weeks, public confidence in the corrected Pentium chip began to return. Within months, the two class-action lawsuits that had been filed against the company as a result of the Pentium flaw began to move to settlement. And Intel, scarred and chastened by the experience, began to return to the business it knew best: building microprocessors for personal computers.
Today, three years later, the incident has been forgotten by most people other than specialists in the microprocessor industry. Intel’s brand is stronger than ever, and its share price has nearly quadrupled since that telephone board meeting. In retrospect, the Pentium incident now looks like an aberration, a buying opportunity, a hiccup in the otherwise irresistible rise of one of America’s most powerful and successful companies.
But was it an aberration? Or did the Pentium scandal reveal something important about Andy Grove and the company that he ran?
Intel Corporation, founded in 1968, can claim credit for inventing some of the most important technologies of the modern electronics industry and bringing them successfully to the mass market. Towering among its achievements is the invention of the microprocessor, which has brought the power of computing to the desks of hundreds of millions of people all over the world, and has changed the world around us by putting intelligence into appliances ranging from vacuum cleaners to cell phones and from toys to cars.
The conditions that gave rise to this extraordinary spike of scientific innovation were put in place by two men, Robert Noyce and Gordon Moore. Both of them were leading figures in California’s electronics industry, long before the San Francisco Bay Area even became known as Silicon Valley. It was their charisma, their leadership, their contacts and their reputation that brought together a group of the most talented engineers in the world and established the framework that allowed scientific creativity to flow.
But it was only for a short time that innovation was the most significant thing that Intel did. When it released the world’s first microprocessor to the market, Intel was just two years old, and had been a public company for only one month. It did not yet stand out far from the crowd of other startup companies trying to make money from the uncertain new technology of integrated electronics.
So Intel changed. From being just an innovator, it became a company whose objective was to deliver – to make sure its good ideas were turned into practical products that customers could use, products that arrived on schedule and at prices that fell consistently year by year. This transformation was no mean feat. It forced Intel to become rigorously organized and focused, and to find a balance that allowed it to keep firm control over its operations without jeopardizing the creativity of the scientists who were its greatest commercial asset.
The result of this transformation was that Intel rose to domination of its industry. Its memory chips, the products that generated most of its sales, swept the mainframe computer industry by storm, and its microprocessors became the standard on which the entirely new industry of the personal computer was built. It wasn’t the intrinsic merits of Intel’s products that brought about this domination. Instead, it was more apparently banal things like distribution, customer support, product range, documentation, and technical development tools.
The process was by no means smooth. Nearly nine years after Intel created the microprocessor, the company found itself running last in a three-way race for market share. Yet the company refused to give up. In a matter of days it created a campaign to convince its employees that regaining leadership of the microprocessor industry, and crushing its leading competitor, was a matter of survival. The campaign, called Operation Crush, worked like a dream. Intel’s microprocessor, acknowledged even by its own engineers as technically inferior to the competition, had become the industry standard. Almost by accident, a later version of it was chosen by IBM as the basis for the IBM Personal Computer.
As the PC began to change the face of the computer industry in the 1980s, Intel once again went through a transformation. Now that it was the industry leader, the company no longer needed to focus on delivering ground-breaking new products or using marketing campaigns to overthrow a more powerful rival. Instead, the key to its continued success was to keep challengers at bay and to attack any threat to its high profit margins. So Intel planned and carried out a ruthlessly brilliant programme to change the rules of the chip industry. Instead of authorizing other companies to base their products on its designs – a practice, known as ‘second sourcing’, that was accepted as the only way to give customers security of supply – Intel resolved secretly that it would become the monopoly supplier of its chip designs. To achieve this goal the company had to flout a long-term technology agreement with a key partner. But the stakes were too high for this to be an obstacle.
So lucrative was Intel’s monopoly, though, that the company began to face the problem that plagues all successful technology companies: how to stop others from setting up new companies that threatened its position. Here Intel responded in a style that would have earned the respect of any general on the battlefield. It launched a string of long-running lawsuits – civil and criminal, state and federal – against competing chip design teams, former employees, semiconductor manufacturing plants, venture capitalists and at one stage nearly even going to war with the computer companies that were its own customers. Intel’s legal department spent hundreds of millions of dollars, and the general counsel who headed it was at one point told that one of the targets he would have to meet in order to get a good performance appraisal was a fixed number of new lawsuits to start each quarter. The strategy of suing everyone in sight wasn’t likely to win many friends, and Intel lost or settled more cases than it won. But the policy of filing writs first and asking questions later helped Intel to hold on to its monopoly profits for longer.
The other focus of this ‘exclusion’ phase of Intel’s history was branding. After years of giving its products only part numbers instead of names, the company realized at the end of the 1980s that the ultimate way to keep competitors out was to make consumers associate the Intel name with high quality and reliability. So the company ran a succession of programmes encouraging PC buyers to concentrate on the processor inside, not the name on the box. First came the ‘Red X’ campaign, in which a big red X was spray-painted over the name of an outdated Intel chip that the company wanted to supersede. Then came ‘Intel Inside’, in which the company subsidized the cost of PC manufacturers’ advertisements if they included the right slogan and logo in their copy. Finally, in a move that made it dramatically harder for competitors to attract the attention of customers, the company switched from numbering its processors to giving them names.
Brilliantly successful at excluding competitors though it was, this campaign had a side-effect. It infuriated many of the most powerful players in the PC industry. They saw Intel’s promotion of its brand as a direct threat to their own, and a move that would tilt the balance of power against them in favour of low-cost, no-name companies that would now have the credibility of Intel’s backing. In one startling moment, the CEO of Compaq Computer went public with a withering attack on Intel’s strategy.
Though the issue continues to rumble on, it has to some extent been overtaken by events. Intel’s domination of the microprocessor industry is now so complete that the company has little to gain from making life harder for rivals building processors that conform to the Intel instruction set, or chip makers promoting entirely different standards. In the late 1990s Intel is in the position of a gardener who has marked out a plot and removed all the weeds. Its job now is cultivation. In this fourth and latest phase of the company’s history, the objectives are to make sure that every time a consumer walks out of a store with a PC in a cardboard box, more of the total selling price of that machine falls straight to Intel’s bottom line; to persuade consumers to replace their PCs more often – or as a second best to keep their old machines, but upgrade the Intel processors inside them; and to make the PC as a whole a more attractive product, so that people choosing between buying a new TV and a new computer will make the choice that brings in profits for Intel.
This new ‘cultivation’ phase puts Intel in the position of being less a competitor to other companies than a leader for an entire industry. It has given the company an incentive to develop new technologies not because it hopes to make money from them directly, but because they can increase overall demand for computers. For instance, Intel developed a piece of software which allowed people to make telephone calls over the Internet – and gave it away, inviting people to download it for free from its web site. No matter that there were other companies trying to sell such software, or that Intel’s new package might threaten an existing line of conferencing products that the company had developed. The point was simply that the new software package gave customers without a PC a new reason to buy one.
With booming sales and profits, fewer threats on the horizon than for many years, and tens of thousands of employees whose loyalty is assured by the hundreds of thousands of dollars they stand to make from Intel stock options, the company seems almost unassailable. But it has its weaknesses – and they, like its strengths, are intimately tied to the personality of one man. To a greater degree than most outsiders realize, Intel is the personal creation of its chief executive, Andy Grove.
Andy Grove, a Hungarian refugee who anglicized his name after arriving in the United States by boat in 1956, is one of the most extraordinary figures in American business. He is brilliantly intelligent and articulate, driven, obsessive, neat and disciplined. Intel has been built in his image. The values taught in the company’s private ‘university’ – directness in confronting problems and extreme rationality in approaching management questions – are an extension of Grove’s own personality.
Andy Grove’s slogan – some have called it ‘Grove’s Law’ – is ‘only the paranoid survive’. Daily life inside Intel follows this maxim to the full. By comparison with Microsoft, the company is almost obsessively secretive. The house joke is that its photocopiers are fed with paper that is already marked ‘Intel Confidential’ at the top of every page. The company also operates a security department whose job is surveillance not only of competitors or thieves that might harm Intel’s interests, but also of the company’s own employees. This department has several times crossed the boundaries of what is considered proper behaviour in US corporate life.
In a recent book Grove claims to have elevated paranoia to a tool of management. He argues that it helps companies to watch out for dramatic changes in the business environment that faces them – changes that he calls ‘10x forces’ because they are ten times more powerful than the forces normally encountered – and to respond quickly to them. Yet the irony is that Intel’s own record here is patchy at best. The first 10x force facing Intel in its history was the replacement of old-fashioned core memory devices in the computer business with smaller, cheaper, faster integrated circuits. The company responded brilliantly: it recognized the trend, led the change, and grew to become a significant industry player as a reward for its vision.
Later 10x forces have been recognized more slowly. A case in point is the microprocessor. Although it was Intel that sold the world’s first microprocessor, the company was very slow to see the potential of its creation – only taking it seriously when two of its best engineers left to set up in competition. For years it viewed the device as a component to be used primarily in industrial controls rather than in computers, and it turned down an early suggestion by a team of its own scientists to build the world’s first ‘desktop computer’, and a gift from inventor Gary Kildall of the operating system that could have taken the place of Microsoft’s MS-DOS. But at least the outcome – Intel’s domination of the PC microprocessor business – suggests that little harm was done.
The same cannot be said for the third 10x force that faced Intel. Towards the end of the 1970s Japanese semiconductor makers started to pose a serious threat to the memory-chip business that had always been Intel’s cash cow. The issue was complicated by roller-coaster market conditions that prompted the Japanese firms to ‘dump’ their products on the American market, selling them not only below the prices they charged in their home market but also well below their manufacturing cost. But the underlying problem, which Grove and Moore refused to face up to, was that Japanese chip companies paid more attention to quality and spent more effort trying to perfect their manufacturing processes than Intel did.
The result was that the lead that Intel had created in the memory-chip business began to erode – and by the middle of the 1980s the company’s refusal to accept that it needed to go back to school was threatening its very survival. Only when Andy Grove and Gordon Moore asked themselves what they would do if they were a new management brought in to clear up the mess did the solution emerge. Intel pulled out of memory chips, savagely cut back its workforce, and refocused its firepower on microprocessors. This decision, analysed exhaustively in business-school case studies and magazine articles, has been hailed as one of the company’s finest moments. But the praise begs the question of whether Intel could have solved the problem earlier at lower cost. Had Grove responded to the 10x force of Japan more quickly, might Intel today be twice as big and profitable as it is?
In 1997 it is the Internet that Grove identifies as the most powerful 10x force facing Intel, along with the rest of the computer industry. So far, few fundamental changes to the company and its operations have seemed necessary. While Microsoft has made extensive changes to its applications products and operating systems, basing them on a new vision of working in which almost all information from daily calendars to reports is published and exchanged over computer networks, Intel’s response seems to have been more muted. The company has issued an extension to the instruction set of its processors, called MMX, which allows computers to process sound and pictures more efficiently. It has made some astute venture-capital investments in a number of the more interesting Internet startups. It has helped to push the PC industry towards building computers that cost less and are easier to install and maintain.
But Intel would look very different in a networked world in which individual users had less computing horsepower and fewer bloated software packages on their desks, relying instead on smaller, simpler and faster pieces of software downloaded across the Internet as needed. In such a world the extensive installed base of software that is compatible with Intel technical standards would be much less of an advantage. Yet the company’s response so far has been to do little more than point out, with some justification, all the shortcomings and flaws in this vision, and to pour cold water on the much-hyped Network Computer promoted by Oracle’s Larry Ellison. It is all too tempting to wonder whether the moment when Intel’s triumph appears sweetest might – like the moment when IBM’s mainframes seemed secure in their domination of the computer business – be the beginning of its downfall.
As it faces the challenges ahead, Intel has a number of strengths. Its management team, almost entirely developed internally, is extremely strong. Its corporate culture allows the company to set objectives, communicate them swiftly to its workforce, and make a good attempt at achieving them. Its compensation system, which rewards hard work and loyalty with stock options worth millions, but checks underperformance with regular reviews and ‘corrective action’ programmes for laggards, is highly successful in motivating Intel people to give their best. And its lack of hierarchy makes it easier to respond swiftly to change and to make rational decisions.
But the Intel that Andy Grove has created also has its weaknesses. The company has been plagued by arrogance since its earliest years. It has frequently taken a high-handed approach to its customers, and suffers from the ‘Not Invented Here’ syndrome as badly as many technology companies. Most alarmingly, the company has found it increasingly hard to accept outsiders into its senior ranks. Like transplanted organs, managers brought into Intel from outside have more often been rejected by the patient than absorbed.
These weaknesses are likely to come into renewed focus when Andy Grove departs from the scene. To many insiders, a post-Grove Intel is still unimaginable. After managing the company’s operations for two decades, and more recently guiding its strategy too, Grove has become almost synonymous with Intel. Yet he passed his sixty-second birthday before this book was published, and had a narrow escape from prostate cancer in 1996.
In theory, the succession is settled. Craig Barrett, Intel’s chief operating officer, was promoted to the company’s presidency in May 1997. He now officially handles the company’s day-to-day business and is ideally placed to succeed Grove on his retirement. But there must be a question about whether a less forceful, less driven personality than Grove will be able to lead the company with the same success.
Ultimately, the deciding issue will be people. And it is people, not technologies or strategies, who are the focus of this book. Its aim is to offer an account of Intel’s story as seen through the eyes of dozens of different employees, from the most junior to the most senior. The lives of these people don’t add up to a comprehensive history of the company. Since the company has always refused to cooperate with outsiders attempting to tell its story from an independent standpoint, that may have to wait for many years until the secrets of Intel’s current operations are no longer of commercial value. Instead, the intention here is to give a glimpse of life inside Intel – and in doing so to say something about one of the most extraordinary and most ruthlessly successful businesses in history.
PART I (#ulink_7a99449f-153f-564f-8d20-9d54395c3806)
INNOVATION (#ulink_7a99449f-153f-564f-8d20-9d54395c3806)
‘We are really the revolutionaries in the world today – not the kids with the long hair and beards who were wrecking the schools a few years ago.’
GORDON MOORE, Intel founder,
quoted in Fortune magazine
1 (#ulink_faf8e896-9762-56f5-9b86-5e967cd16b6f)
The Odds-On Favourite (#ulink_faf8e896-9762-56f5-9b86-5e967cd16b6f)
YOU PROBABLY THINK you can skip this chapter.
The scene is already in your mind. It’s late at night, and the garage is entirely dark except for the pool of light cast on the workbench by a low-cost anglepoise lamp. The future billionaire is hunched over the computer, oblivious to the clutter of empty pizza boxes around him, absorbed in his work. His hair is unwashed, and he’s been wearing the same grimy T-shirt almost every day since he dropped out of college. He has few contacts and no backers. His only assets are his technical skills and the brilliant powers of persuasion and negotiation that will blossom over the years to come.
There’s probably no single company that conforms to every one of these stereotypes. But most of America’s most successful technology companies display at least some of them: modest beginnings, fighting against the odds, brilliant ideas that go against conventional wisdom, founders who are outsiders and have nothing to lose if they fail. Look at Steve Jobs and Apple, or Bill Gates and Microsoft. These are the models that we’ve come to think of as the ways to start a successful high-tech company.
The creation of Intel Corporation in 1968 was quite different.
Instead of being young and rebellious, its two founders were middle-aged and respectable. Instead of being poor and isolated, they were prosperous and known already as leading figures in their industry. Instead of labouring for months or even years to find a backer for their venture, they rounded up $2.3m of funding in an afternoon, on the basis of a couple of sheets of paper containing one of the sketchiest business plans ever financed.
The two most important words of the business plan were Robert Noyce. Forty years old, Noyce was the general manager of Fairchild Semiconductor, one of the most prominent businesses in the Bay Area to the south of San Francisco. But he was more than that: he was one of the creators of the integrated circuit.
To understand the significance of this, you have to remember that the earliest computers used vacuum tubes as the basic elements of their circuits. Vacuum tubes, working like small-sized light bulbs, were bulky and unreliable – and since they had to be heated before they could work properly, they were also gluttonous consumers of electricity. A large computer could easily be big enough to require its own little power station – and its vacuum tubes pumped out enough heat to turn a massive room into an oven.
The building-block of today’s electronics industry is a miniature switch that takes advantage of the fact that certain crystals, such as silicon, sometimes conduct electricity and sometimes don’t. This switch, dubbed a ‘transistor’, earned a Nobel Prize for the three physicists at Bell Labs who discovered it in 1948. The early transistors were smaller, and needed no heating element to make them work. Moreover, unlike a light bulb they didn’t need to be changed every so often. But they shared one of the drawbacks of the vacuum tube: to build a computer, you had to connect them one by one into electrical circuits.
Bob Noyce’s claim to fame was making it possible to put more than one transistor on to the same fragment of silicon. The circuits built using this technique became known as ‘integrated circuits’. Coincidentally, two different teams in different companies 2,000 miles apart conceived the integrated circuit almost simultaneously in 1959. The winner of the first integrated-circuit patent was Jack Kilby, an engineer at Texas Instruments. But it was Noyce and his colleagues at Fairchild Semiconductor who succeeded in turning the integrated circuit from a laboratory prototype into a product that could be mass produced in ever-increasing numbers and ever-falling prices – and Noyce who had made it possible for engineers to dream of myriad new products that had never before been possible.
Noyce did not fit the stereotype of the inventor. He was gregarious, charming, athletic and handsome. Brought up in Grinnell, a small town in Iowa where his father was a Congregational minister, he was a boy scout who went to Sunday school every week and graduated valedictorian at the local high school. His entry in the school’s year book described him as the Quiz Kid, ‘the guy who has the answers to all the questions’, who played in the school band, sang in its chorus, was a leading light of the Latin and science clubs, and acted in six plays. At college, he was the swimming team’s best diver, and took the lead in a radio soap opera. The sole cloud over his exemplary youth, which formed the centrepiece of a profile of Noyce that Tom Wolfe wrote for Esquire in 1983, was an incident at college when he and a fellow-student stole a twenty-five-pound suckling pig for a Hawaiian barbecue on campus. People took pigs seriously in the Iowa farm belt. But it was a sign of the charmed life that Noyce seemed to lead that not even an offence of this gravity could spoil his career. An admiring physics teacher talked the college authorities out of expelling him. Instead, he was sent off to work at an insurance company for a few months, and then after his graduation to the Massachusetts Institute of Technology, where he earned his PhD.
More than two decades later Bob Noyce had become general manager at Fairchild and chairman of the board of trustees of his old college in Iowa – but he was still everybody’s best friend. He had a way of looking at you that made it clear that he took what you said very, very seriously, and a way of talking in his gravelly, deep voice, usually waiting until everyone else had weighed in first, that made you take what he said more seriously still. He had what Wolfe described as the ‘halo effect’. (‘People who have it seem to know just what they are doing; they make you see their halo.’) He was not only a born leader; he was also an inspiration.
Gordon Moore, reporting to Noyce at Fairchild Semiconductor as head of research and development, was a very different personality. While Noyce was five foot eight and dark-haired, Moore was over six feet and balding. While Noyce was the life and soul of every party – drinking, singing, playing tricks and accepting every dare offered to him – Moore would sit with a few close friends, quietly talking around a table. His temper was a model of equanimity, and his two great passions were fishing and messing around in boats. He was born in the small coastal town of Pescadero, just thirty miles south of San Francisco, where his father was deputy sheriff of the county. If you bumped into him walking out of his local hardware store on a Saturday morning, which people often did, you’d find him in a pair of worn overalls, peering down at his solid work boots through his wire-framed glasses. You might easily have mistaken him for a modestly prosperous orchard farmer, out in his pick-up to buy something he needed to fix a leaking pipe or to put up a swing for the kids on the apple tree in the back yard.
But Moore was every bit as great an engineer as Noyce. His PhD, in chemical engineering, was from Caltech, the prestigious California Institute of Technology near Pasadena. He was the winner of a number of important patents. And he had an uncanny knack for solving technical problems. If you took a problem that looked as though it had five or six routes to a possible solution, most engineers would waste a lot of time exploring and then ruling out the ones that didn’t work. Not Moore: for some reason that neither he nor anyone else could explain, the one avenue of enquiry that he chose would often be the one that yielded the best results.
Moore was legendary for sitting down at the lunch table in the company cafeteria with a group of engineers who had been battling with a problem for several months, and suggesting, very quietly, that they might like to take a look at this or try that. More often than you would expect, they would go away and take his advice – and discover that fifteen minutes of Gordon Moore had brought them closer to a solution than months of unaided work. Moore was also a gifted listener and judge of character. Slow to anger, he would hear everyone out. Only in the presence of people who went on for too long, repeating an unnecessary point far beyond the point of boredom among others, would Moore’s self-control finally slip and his anger become visible.
When a local paper asked Moore in 1968 why he and Noyce had decided to set up a new company, his answer was that they wanted to experience once again the thrill of working in a small, fast-growing company. Not for the first time, he might have added. Noyce and he had been involved in startups twice already. In 1956 they had helped William Shockley, the leader of the team at Bell Laboratories that developed the transistor, to set up his own laboratory. A year later the pair had been among a group of eight who walked out on Shockley to start their own transistor company under the banner of Fairchild.
The mass defection from Shockley Laboratories had been provoked by the old man’s irascibility and paranoia, and his insistence on ignoring their advice in a technical dispute over which area of research they should concentrate on. To raise funding for the new company, the ‘Traitorous Eight’ struck a deal with Sherman Fairchild, an inventor on the East Coast whose father had been one of IBM’s earliest investors. Fairchild had advanced $1.5m to them in 1957, on the understanding that they would create a subsidiary of his Fairchild Camera and Instrument Corporation specializing in the manufacture of semiconductors. If the venture failed, Fairchild would pick up the tab. If it was a success, the company would have the right to buy them out for $300,000 apiece.
It was a success. Two years later Fairchild’s company exercised its option, and made them all rich men. The eight founders were left in place at Fairchild Semiconductor – but they no longer had any real control over the business, nor any great stake in its success. Noyce was promoted from general manager to group vice-president of the parent company, and was held in the highest respect by its owner; but everyone knew that the big decisions were always made by the accountants back in Syosset, New York.
For a while the problems remained invisible. As the 1960s wore on, however, members of the original team became bored and drifted out of the company to set up on their own. Fairchild Semiconductor became the electronics industry’s equivalent of a sycamore tree with its winged seeds: every season, seeds from Fairchild would spin away gently in the wind, land somewhere nearby and burst into growth as new saplings. Meanwhile, as Fairchild’s growth began to slow, the money men from New York began to come up with strange compensation schemes, in which the general manager of each part of the division was paid a bonus linked to the current profits of the business he was responsible for. This turned cooperation into rivalry, and made the managers reluctant to put into effect the technologies developed by Moore and his team. New technologies might make money in the long term, but not in the short – and in the fast-moving environment of Silicon Valley, who could tell where you’d be working by the time the payoff came?
The bell tolled for Fairchild Semiconductor in 1967, when Charlie Sporck, the company’s famed manufacturing genius, set up in competition at National Semiconductor, and hired away busloads of his former colleagues. It required no great insight to tell that Fairchild was irreparably injured, and that the best Noyce and Moore could do would be to slow, rather than staunch, the flow of blood. A year later the two men were the last of the eight founders left.
The decisive moment was a conversation between the two men on a sunny weekend afternoon, while Noyce was mowing his front lawn. Once the partnership was established, the next step was clear. Moore, as head of Fairchild Semiconductor’s research and development (R&D) department, would start work on the products the new business would develop. Noyce, who eleven years earlier had led the negotiations with Sherman Fairchild that created the company they were now planning to leave, would raise the money.
It took Noyce just one phone call. The deal with Fairchild a decade earlier had been brokered by an investment banker from New York called Arthur Rock. Rock had come out to California to see the Traitorous Eight; he had helped them to draw up a list of potential backers, and he had shopped their idea to thirty-five different companies before getting a yes from Sherman Fairchild. Since then, Rock’s life had become intertwined with the Fairchild founders. He had moved to California and set up a new investment bank of his own in San Francisco, specializing in the financing of new companies. (Today, this business is known as ‘venture capital’; the phrase was invented by Rock himself.) Rock felt bound by loyalty to Fairchild to avoid taking any active steps that would hasten the break-up of Fairchild Semiconductor. But he had already helped two of the founders of the business to set up on their own, and Bob Noyce was his best friend among the remaining six. The two men used to take hiking and camping holidays together.
‘Bob just called me on the phone,’ said Rock afterwards. ‘We’d been friends for a long time … Documents? There was practically nothing. Noyce’s reputation was good enough. We put out a page-and-a-half little circular, but I’d raised the money even before people saw it. If you tried to do it today, it would probably be a two-inch stack of papers. The lawyers wouldn’t let you raise money without telling people what the risks are.’
Rock made fifteen phone calls that afternoon, and received fifteen acceptances. His goal was not simply to raise the money for Noyce and Moore: with their track record and his contacts, that would be a snap. Instead, Rock wanted to find investors who could offer some expertise that would be useful to the new business. Partly out of a wish to prevent any single shareholder from becoming too powerful, he decided to scale back the contributions offered by his fifteen contacts. One of the new company’s founding shareholders was Grinnel College of Iowa, Robert Noyce’s Alma Mater. By now, the pig incident had long been forgotten. With Noyce now chairman of the college’s board of trustees, the success of Fairchild made it seem only natural to sell his old college a $300,000 slice of the new venture. The board was happy with the idea; its resident investment guru, Warren Buffett of Omaha, Nebraska, had no objection, and so the investment went ahead. Noyce and Moore had already each put up $250,000; Rock himself came in for $300,000. The backers’ investment in Noyce and Moore would be the best deal they ever made.
It took only a few weeks to choose a business name. The pair started out calling themselves ‘NM Electronics’, but it was agreed on all sides that this sounded kind of old-fashioned. After discarding more than a dozen other ideas, Moore finally came up with ‘Integrated Electronics’. Noyce admitted that it captured just what the new business was about, but suggested that they should contract the name to a single word: Intel. Arthur Rock, whose work in raising the company’s startup capital had earned him the job of Intel’s first chairman, had no objection. The pair discovered too late, shortly after the incorporation papers were drawn up on 16 July 1968, that there was already a company in existence called Intelco. By then, the word was already out about their new venture, and the easiest way to head off any lawsuits was to pay $15,000 for the right to use the Intel name.
Two weeks later, in August 1968, the local Palo Alto Times got wind of the story, and called up Gordon Moore for an interview. The resulting story, which ran across the top of an entire page of the paper, helpfully included both men’s home addresses. Within days, they began to receive résumés, calls and letters of application from talented engineers all over the industry who knew of Noyce’s work on the integrated circuit or of Moore’s achievements at Fairchild. Finding good employees willing to join a startup – usually one of the hardest tasks facing most entrepreneurs – was clearly not going to be a problem.
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2,000 Starts a Week (#ulink_bb1fd277-464a-5251-b876-086d9c57fd60)
GREAT CHANGES WERE HAPPENING in the world during the long, hot summer of 1968. In Paris, students set up barricades against their college professors and the government. In Chicago, demonstrations against the war in Vietnam turned into riots that marred the Democratic National Convention. But the foundation of Intel, which has had a bigger effect on the lives of people in the world than either of these, took place without being noticed outside the narrow confines of the Bay Area’s electronics industry.
That was just how Gordon Moore liked it. The very opposite of a self-publicist, he instinctively avoided talking about his achievements until they were complete.
When Moore was asked by one of the local papers at the beginning of August what kind of devices he and Robert Noyce intended to build at their new company, his response was about as uninformative as it could be: ‘We particularly are interested in the product areas that none of the manufacturers are supplying,’ he said.
Come on, Gordon, that’s hardly news. You wouldn’t be setting up a new company just to copy something already on the market, would you?
When asked to elaborate, Moore would offer only two further thoughts. First, the new company would avoid direct government business. Second, the company would keep to the industrial end of the business rather than trying to develop products for end consumers.
From anyone else, this apparent vagueness might have indicated indecisiveness. But Moore hadn’t spent nine years at the helm of Fairchild’s extensive R&D operation for nothing. His principle was straightforward: there was no need to give away any information, however trivial, to potential competitors. If the people who had backed him and Noyce to the tune of several hundred thousand dollars each could do without detailed information on their technical plans, then so could the rest of the world.
This was no surprise to those who had known him at Fairchild. Moore was always hard to pin down on technical detail, even when he was giving a speech in public. When he was once sitting on a panel at a technical conference devoted to semiconductor materials, someone in the audience raised a question about the silicon nitride layers that Moore’s technical team were rumoured to have been experimenting with. What had the results been?
‘We got exactly the effect we were predicting,’ he answered. There was just one piece of crucial information he withheld from the audience. The engineering team had come to the conclusion that silicon nitride deposits would have no useful technical effect, and some careful tests had proved them right. But Moore thought that if it had taken his own researchers weeks to discover that the technology was a dead end, there was no reason to tell the world. Let the competition waste some time, too.
Behind the veil of vagueness, however, Noyce and Moore knew exactly what business they were going to go into. They would build memory devices. Across America, companies were buying mainframe computers to manage their accounting systems or payroll or medical records. In every case the computer needed a place where programs and data from work in progress could be stored, and then retrieved at high speed. Yet while integrated circuits were increasingly being used in the logic devices that carried out the calculations themselves, memory storage was struck in the pre-transistor age. The cheapest form of computer memory was ‘magnetic core’, a tiny magnetic doughnut which stored information in the form of ones and zeros depending on the way it was magnetized. If only a way could be found to integrate memory cells on to the circuits that Noyce had pioneered, then computer memory could become far more compact and speedier to operate. Once one computer company began to use integrated-circuit memory, the rest would follow suit. Then a virtuous circle of increasing volumes and falling costs would follow, ending up with the complete replacement of core memory with the new semiconductor devices. The potential market was millions upon millions of units a year.
A good reason for keeping so quiet about Intel’s plans was that Moore and Noyce were not alone in seeing this potential. The idea that core memory was eventually going to be replaced by semiconductors wasn’t a wild-eyed obsession held only by eccentrics. It was the received wisdom inside the industry. Route 101, the highway that ran south from San Francisco through the Valley and then onwards to Los Angeles, was dotted with laboratories racing to be the first to develop semiconductor memory devices.
Gordon Moore, though, had a head start. Shortly before his departure from Fairchild, a gifted young Italian semiconductor scientist in his department named Federico Faggin, had invented a new variation on the standards integrated-circuit manufacturing process, known as metal oxide on silicon. By 1968 the new technique, called ‘silicon gate’, was working stably in the laboratory, but it was still far from being a commercial product. With $2m in the bank, and a team of good engineers behind them, Moore knew that he and Noyce could make as good a stab as anyone else in the world at taking this technology and developing it to the point where memory devices could be mass produced at low cost.
But silicon-gate MOS was only one of three promising approaches to the problem of building integrated memory circuits. Another was to build multichip memory modules; a third was to use a process known as Schottky bipolar. Moore and Noyce decided that they would pursue all three simultaneously – and sell whichever they were able to mass-produce first. (Since Schottky proved easily replicable by competitors and multichip modules too hard even for Intel, Moore came to refer to the decision to pursue three lines of research simultaneously as the ‘Goldilocks’ strategy. Like the bowls of porridge left by the bears, only silicon gate turned out just right.)
The scientists left behind at Fairchild after the departure of Noyce and Moore would later respond with hurt pride to the news that their former boss and his new company were trying to commercialize an invention made in their laboratory. They put up a large placard, visible to all comers to the R&D department, emblazoned with the words SILICON GATE WAS INVENTED HERE. One former employee of both companies, looking back, put the accusation baldly: ‘Intel was founded to steal the silicon gate process from Fairchild’. Another was more forgiving: ‘What [we] brought with us was the knowledge that [we] had been some built, and the knowledge of the device physics … We didn’t bring with us recipes, mask sets, device designs, that sort of stuff … What we brought was a lot of knowledge’.
In any case, Fairchild Semiconductor had only itself to blame for the loss of one of its key secrets to a new competitor. For a couple of years now, the best technologies developed in its research labs in Palo Alto had not been making it to Fairchild’s Mountain View manufacturing facility. Instead, they seemed to be attracted by some osmotic principle to Charlie Sporck’s manufacturing aces at National Semiconductor.
This was partly because the rules were different in the 1960s. The days had not yet arrived when technology companies would use patents, trade secrets and other forms of intellectual property as commercial weapons. Scientists were happy to assign to their employer the rights in any patents they earned, in return for a token dollar and a framed copy of the first page of the patent. Why should they be any less generous when it came to scientists in other companies? After all, these were exciting times. Trying to hold back the spread of information at a time when things were moving ahead so fast was not only self-defeating, since any competing technologist worth his salt could design his way around a patent. It also felt unsporting.
Every Friday night, engineers from different companies would assemble at the Wagon Wheel, a local watering hole, to exchange gossip. Not just who was sleeping with whom, but also who was working on what and who was having which problems with which designs and which processes. Prominently displayed on the wall of the bar was a huge enlargement of the innards of an integrated circuit, created by popping the top and using an industrial-strength camera to record the secrets inside. The image served almost as a religious icon, looking down with approval as scientists threw their employers’ secrets across the table as casually as they would pay for a round of drinks.
The selection process Noyce and Moore used in assembling their team was simple. The pair asked everyone they respected, particularly in the electronic engineering departments of universities, for the names of the brightest research scientists they knew. Noyce or Moore would make contact with a phone call, and the candidate would be invited over for a chat – either at Noyce’s house or at some modest local restaurant like the International House of Pancakes. They would chat over a lunch or a breakfast, the candidate sitting on one plastic banquette, the Intel founders sitting opposite on the other, and then Noyce and Moore would make their decision. In addition to being a brilliant engineer, you had to pass two tests to get a job at Intel. You had to be willing to come to work for Bob and Gordon for no more than your current salary with your existing employer – and sometimes, if they thought you were overpaid, for 10% less. In return, you’d be promised stock options, which you would have to trust the two founders would be adequate compensation for a pay rise forgone. Also, you had to be willing to take a demotion. If Intel was going to grow as fast as its founders hoped, its first round of hires would soon be responsible for running much larger teams of people. In the meantime, they would have to spend a few months doing work that was actually more junior than in the job they had come from. An engineer who was currently running an entire division with 5,000 staff to order about and sales of $25m a year would find himself moving to a new job at Intel in which he was once again managing a single fabrication plant, or ‘fab’, and where the big issue of his day might be a maladjustment of a single machine.
The consolation was the strong sense that things would not stay this way for long. Ted Hoff, a brilliant postdoctoral researcher at Stanford who was recommended to Noyce by a professor in his department, reminded the Intel founder during his interview that there were more than half a dozen other new companies already in the market trying to develop semiconductor memory. Was there any need for another semiconductor company? What were the chances of success?
Noyce’s reply exuded quiet confidence. ‘Even if we don’t succeed,’ he said, ‘the founders will probably end up OK.’
Intel’s new hires found that this confidence was equally shared by people outside the company. Gene Flath, a product group general manager hired in from Fairchild to a senior job in the fledgling company’s manufacturing operation, decided to spend the week’s holiday he was owed by his former employer down in Los Angeles looking over new chip manufacturing equipment at a trade show on behalf of Intel. When a couple of pieces took his fancy, it seemed only natural to put in an order for the equipment then and there. And it seemed equally natural that the vendors, hearing that Flath had signed up with Noyce and Moore, were willing to give him immediate credit. Noyce and Moore? That’s OK. They’ll have the money.
There was something infectious in the evident confidence of Noyce and Moore. As their first working space, they chose an old Union Carbide plant, 17,000 square feet on Middlefield Road in the town of Mountain View, an hour south of San Francisco. When the deal was signed, Union Carbide hadn’t quite moved out. Intel got the front office of the building immediately, with the right to hang a big sign outside bearing its logo – the company name, printed in blue all in lower-case Helvetica letters, with the ‘e’ dropped so that its crossbar was level with the line. The idea was that the lower-case letters showed that Intel was a modern, go-ahead company for the 1970s; the dropped ‘e’ was a reminder to its customers that its name was a contraction of ‘integrated electronics’. Some employees, but not all, took that ‘e’ to mean that the word Intel should be pronounced with the emphasis on the second syllable.
Over the succeeding weeks Union Carbide cleared more equipment from the back of the building and Intel brought more people into the front, until one day late in the fall of 1968, Intel Corporation found itself at last the sole occupant of a large industrial shell, ready plumbed for the heavy-duty power, water and gases that were essential to the process of making silicon chips.
Fabricating silicon chips was the modern world’s answer to medieval alchemy, the turning of base metals into gold. Except here, the raw material was sand, which was turned into crystalline silicon which arrived at the fab moulded into a long sausage, two inches in diameter. The silicon would then be sliced into thin ‘wafers’ a fraction of an inch thick. By a series of secret, almost magical processes, each wafer would be coated with scores of identical miniature circuits, neatly stepped in rows and columns. Then the wafers would be scored with a diamond-cutter, and the individual chips would be sawn away from their neighbours and wired individually into black ceramic packages, often with a line of metal pins down each side. It was impossible to convey to your children what an achievement those circuits represented; when one engineer showed the completed chips in their packaging to his kids, they referred to them as ‘Barbie combs’. But if you were in the industry, you knew that each one could sell for a dollar, or ten dollars, or even more, depending on what was inside.
It was the guy given the job of laying out the floor design for manufacturing who was the first to realize the scale of the ambitions of Intel’s two founders. When he asked what capacity the fab should plan for, the figure he was given was 2,000 wafer starts a week. Two thousand clean silicon wafers, each one starting its way through the production process. Each one etched with 100 or more circuits on its surface. Two hundred thousand circuits a week; 10 million a year. Of course in those days you’d be lucky if 10% of them came out right. But for a startup, which had not yet developed either a circuit design or a process to build it with, such investment in capacity was unheard of. Even Fairchild, which had become the world’s leading semiconductor manufacturer, could handle only five times as much. Who did Noyce and Moore think they were?
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The Third and Fourth Men (#ulink_a7f7c857-cee4-5a54-ad8b-f15073dcbbaa)
ONE OF THE FIRST DECISIONS that Noyce and Moore had to take was to choose a director of operations for their new company. ‘Director Ops’, as the title was commonly abbreviated, was the job that carried responsibility for getting products designed on time and built to cost. Only sales and marketing, and the big-picture strategy decisions, were beyond its remit. Picking the right Director Ops was one of the most important decisions that any new electronics company had to make – and the success of Charlie Sporck at National Semiconductor was proof of how successful a company could be if it got its manufacturing operations right.
With their reputation in the industry, Noyce and Moore could have hired just about anyone they wanted within fifty miles. Yet the choice they made was so bizarre that it mystified most of the people who were watching their new business take shape. They offered the Director Ops job to a guy who had no manufacturing experience at all – who was more a physicist than an engineer, more a teacher than a business executive, more a foreigner than an American. They offered the job to Andy Grove.
Grove was born in Hungary in 1936 with the name András Gróf. Being Jewish, he was forced to go into hiding when German tanks rolled into Hungary, and to stay hidden for the duration of the Second World War. The defeat of the Nazis brought only a slight improvement to the hardships suffered by the members of the Gróf family who survived the Holocaust – for Hungary became a satellite state of the USSR, ruled with bleak and totalitarian oppression. Like many other Hungarians, the young Gróf was forced to struggle simply to achieve the basics of getting enough food to eat and fuel to stay warm – and his teenage years in 1950s Budapest were bleak.
By 1956, after Soviet tanks crushed a reforming Hungarian government and replaced it with a puppet regime willing to answer to Moscow, Gróf had become a politically conscious university student. It was clear that young people who had thrown Molotov cocktails at the tanks didn’t have much of a future in Budapest – and that his life might be no more at risk if he tried to escape to the West than if he stayed where he was. The Austrian border beckoned, a gateway to a better life in the capitalist world.
Some weeks later Gróf arrived in America aboard a rusty old ship that had carried US troops during the war. The journey fell far short of the dream nurtured by so many aspiring immigrants to America. Instead of admiring the New York City skyline as the ship made its way into harbour, Grove did not get so much as a glimpse of the Statue of Liberty. Instead, he and his fellow passengers were transferred through the Holland Tunnel by bus to Camp Kilmer in New Jersey, a former prisoner-of-war camp. Gróf’s first impressions of the grim dormitories were not favourable – in fact, he wondered whether the claims made by the communist propaganda machine that conditions were no better in the West might actually be true.
Soon, however, things began to look up. Andrew Grove, as the new immigrant now called himself, moved in with an uncle in the Bronx, and enrolled in a course in chemical engineering at the City College of New York. He began to make a life for himself, waiting tables at restaurants in order to help pay for his tuition. He hated New York, but worked hard and graduated top of his class, with honours that would give him the right to choose where to continue with his studies. When the moment came to decide where to go, it was the weather that was the deciding factor. To get away from the bitter winters of the north-east, Grove enrolled at the University of California at Berkeley, an idyllically sunny town a few miles north of San Francisco. By then, the young scientist was no longer alone. While working as a busboy in a resort hotel in the Catskill mountains near New York, Grove had met a young Hungarian woman named Eva who became his wife. In 1963, shortly after winning his PhD, Grove won a job at Fairchild Semiconductor, where he worked for the next five years in the research and development department while continuing to lecture at UC Berkeley.
As he grew older, Grove seemed to make a deliberate attempt to blot out the first twenty years of his life. Although he and Eva had a number of Hungarian friends, and his mother had come to California to join them, Grove rarely discussed his East European background with his colleagues at work. He was also extremely reticent about being a Jew; he did not attend any of the local synagogues or participate in the Jewish community. Only to his closest confidants would he drop an occasional clue to his former life. To one, he revealed that he regularly woke up at night, shaken out of his sleep by a dream that he was being chased by a pack of barking dogs. To another, he explained that the most appalling experience of his childhood was not one of the privations he suffered while hiding from the Nazis, but the humiliation of being told by some of his childhood Hungarian friends immediately after the war that their fathers had forbidden them to play with a Jew. To a third, he said that he had hesitated before buying a dog for his two little girls to play with because he knew his mother would associate the dog with the German shepherds used by the Nazis to herd persecuted minorities and other opponents on to the trains that would take them to the death camps.
Yet for all Grove’s attempts to remake himself as a regular American and to turn his back on the first twenty years of his life, it was plain to anyone who met him in 1968 that he was something exotic and out of the ordinary. Grove spoke English with an accent that was so strong as to be almost incomprehensible. Over his head he wore an awkward hearing-aid device that looked like a product of East European engineering. His attitude to work was like that of Stakhanov, the legendary Russian miner whose long hours of labour and tons of output for the greater glory of the proletariat were celebrated by Soviet propagandists. And his manner? Well, put it like this: Andy Grove had an approach to discipline and control that made you wonder how much he had been unwittingly influenced by the totalitarian regime that he had been so keen to escape.
But that wouldn’t emerge until later. In 1968, people who met Grove for the first time usually noticed three things. One was that he was very bright, very good at explaining things – particularly semiconductor devices, whose physical behaviour he had written a book about. Another was that he was very organized, and seemed to know exactly what he wanted and how he was going to achieve it. A third was that he was very keen to make an impression, to justify his position. Grove knew that Noyce and Moore had taken a risk by giving him the job of director of operations, and he was determined to prove that they had made no mistake.
Glancing through the various corporate histories that Intel has published, a casual reader might get the impression that Andy Grove was the very first outsider Noyce and Moore spoke to after deciding to set up in business together. This impression is heightened by Bob Noyce’s frequent references to the company as a ‘three-headed monster’, and also to the fact that Grove is described in some company publications as one of Intel’s three founders.
But in fact there was a fourth man present at the company’s birth who left the company a few years after its foundation. Although he pursued a highly successful business career afterwards, he became a non-person from the company’s point of view. Like a disgraced member of the Politburo, his photo has been airbrushed out of the Kremlin balcony photographs. His name is Bob Graham.
Graham was one of Fairchild’s star marketing men. Joining Fairchild a couple of years after its creation in 1957, he soon came to Bob Noyce’s attention by winning Fairchild its first ever million-dollar contract. The distinction was double-edged: although the deal was the company’s largest ever, it gave Fairchild the lowest price per unit it had ever received – $1.09 per transistor for a one-million lot. It was only later, when Gordon Moore’s research uncovered the workings of the economics of the chip business, that it became widely accepted that falling prices and rising volumes were trends that semiconductor makers had to embrace if they were to thrive.
Graham had been one of the earlier departures from Fairchild, leaving in 1965 to take up a job in Florida running the whole of sales and marketing for a competing semiconductor company. But Noyce hadn’t forgotten him. When he began the search for a leader to oversee the marketing effort of his new company, it was to Graham that Noyce made his first call.
‘I thought it over for about a microsecond,’ recalls Graham, ‘and then said “Sure”.’
He concluded terms with Noyce and Moore on 5 June, 1968, the night that Robert Kennedy was shot. On the strength of a handshake, Graham then went straight back to Florida, resigned his job, and called in the house movers so he and his wife could return to California.
Graham made an important contribution to the new company right away. Over a series of phone conversations with Noyce and Moore, he pressed the case for building bipolar circuits as well as those based on metal oxide on silicon technology. His reasoning was straightforward. Memory circuits based on MOS would still require peripheral devices, known as ‘drivers’, to allow them to work properly with the computer. Those drivers would have to be bipolar. If Intel did not develop its own bipolar processes, it would be forced to rely on other companies to build them – yet the bipolar companies, terrified that MOS would put them out of business, would have no incentive to cooperate with Intel. Even if MOS were a sure bet – which it wasn’t yet, not by any means – Graham was convinced that Intel needed a bipolar division too to ensure its survival.
Bob Graham’s contract in Florida required him to give ninety days’ notice, so Andy Grove was already on board when Graham reappeared in California ready to do business. This had two significant effects on Graham’s career with Intel. One was that he had no hand in hiring many of the first wave of staff people; instead, it was with Grove that dozens of engineers and managers made their first contact, and to him that they established their first loyalty. The other effect of Graham’s delayed arrival was that Grove took on more responsibility than he otherwise might have done. Who does what is always vague in a startup; an intelligent, energetic person with an eye for detail who is willing to do the things that others have left behind can become considerably more powerful than his job title would suggest. And Andy Grove was the ultimate details guy.
4 (#ulink_fe38bd04-6c07-5eb0-aa70-609cbef19ac9)
Into the Potato Patch (#ulink_fe38bd04-6c07-5eb0-aa70-609cbef19ac9)
SOME TIME IN THE FALL of 1968, when Intel’s research into semiconductor memory was already in full flow, one of the company’s first hires grabbed Bob Noyce in a corridor. ‘Bob,’ he said, ‘there’s something I need to ask you. I’ve been here for three days already, and I’m not really clear on the reporting structure of this outfit. Can you just draw me a quick organization chart?’
Noyce smiled, and turned into an open doorway. Walking to the blackboard, he picked up a piece of chalk and drew a small X. Around it, he swept a circle, and along the circle he added six or seven more Xs. Then he drew a spoke connecting each of the Xs outside the circle to the X in the centre.
He pointed to the X in the centre. ‘That’s you,’ he said. ‘And these’ – he tapped the outside Xs one by one, the clack of the chalk echoing against the linoleum floor – ‘these are me, Gordon, Andy, Les, Bob, Gene, and the other people you’ll be dealing with. That’s what our organization chart looks like.’
Noyce’s point was more than mere rhetoric. At Fairchild Semiconductor, the East Coast owners of the business had been very strong on hierarchies and on reporting. They believed in ‘clear lines of command’. They thought employees should be like officers in an army, communicating only with their immediate superiors and immediate inferiors. And like soldiers, they considered it the height of disloyalty for an employee to raise an issue with someone higher up if he was dissatisfied with the response he had been given by his immediate superior.
Visionaries before their time, Noyce and Moore saw that in a fast-moving industry where speed of response to change was all-important, and where information had to flow as swiftly as possible if the company was to make the right decision, this approach did not make sense. Instead, they wanted to encourage anyone who had a good idea to speak up, anyone who had a question to ask it. Staff meetings were to be open to anyone who thought they could contribute something by attending; no manager, no matter how senior, should refuse a request for help or information from another employee.
The prestige of Intel’s stars was never in doubt – the PA system kept drumming it in, day after day, as announcements went out every few minutes for Doctor Noyce, Doctor Moore, Doctor Grove. But they were very visible, mucking in where needed. If a circuit layout needed to be checked, Bob Noyce would be ready to lend a hand. If a process designer needed to know something about the behaviour of transistors under specific temperature ranges, Andy Grove would be ready to pull down from the shelf the textbook he had written on semiconductor physics, identify the key equations that predicted how a substance would behave, and help to turn the equations into statements in the FORTRAN programming language. If a piece of complex machinery didn’t work, the man who unscrewed the casing and took a look inside might well be Gordon Moore.
Inevitably, this led to some tensions within a matter of months. Gene Flath, who had been hired to run the company’s first fabrication line, began to find that engineers he had asked to go off and deal with a process problem would come back and announce that they had done something completely different. When he asked them why, the answer would always be the same: ‘Grove told me to do it’. When Flath confronted Grove – and confrontations inside Intel would often be with both parties screaming at the top of their lungs, in front of other people – Grove would deny that he’d given the errant engineers any direct orders. It took some time for Flath to convey to Grove that, as director of operations, he had more power than he realized. To the average engineer, a ‘suggestion’ from Grove was something to be acted on immediately. If Flath was expected to deliver on commitments he had made, this would have to stop. The philosophy inside the company that anyone could talk to anyone else was fine, Flath believed – but it had its drawbacks: ‘It’s very desirable, because you get a lot of good ideas. But it’s not OK to change the batting order without anybody decreeing that this is what would happen’.
The company’s first year was punctuated by intermittent stand-up screaming matches while issues such as this one were gradually sorted out. But broadly, Intel people felt a refreshing sense of freedom. Instead of having to fight the bureaucracy of a purchasing department, every engineer had the authority to sign on behalf of the company for equipment costing up to $100,000. The company parking lot had no pre-assigned spaces for senior management; instead, the rule was simply that those who arrived earliest for work got the spaces closest to the front door. And as the research continued, there was a feeling that you were part of an elite corps, an assembly of the brightest, hardest-working people, a world-beating team. Of course there was a risk of failure. But everyone knew that a talented engineer could easily find work elsewhere if things didn’t work out. There was no fear of long-term unemployment to discourage risk-taking.
‘They offered me the job at the end of breakfast,’ said one of Intel’s very first engineering hires. ‘I called my wife, and told her that I’d just accepted a job with a pay cut of one-third, working for an unknown startup. The good news, I said, was that there were some big names running it. And if it proved a mistake, I could always go and pump gas some place.’
Of the three memory technologies that Moore wanted to investigate, one swiftly ruled itself out. An early look at multichip memory modules suggested that it was too far from becoming a commercial product to be worth devoting effort to. That left the bipolar route and the MOS route. By the fall, Intel’s engineering effort was clearly organized into two terms, each led by a former Fairchild research engineer, to follow these up separately. The MOS team was led by Les Vadasz, a balding, short-tempered engineer who shared Andy Grove’s Hungarian background; the bipolar team came under the control of a brilliant but equally short-tempered engineer called Dick Bohn.
From the very first there was friendly rivalry between the two teams to see who could deliver a manufacturable product and a stable process first. The bipolar team had an early psychological boost when Phil Spiegel arrived from Honeywell, an East Coast computer company that was one of the ‘seven dwarfs’ competing against IBM to sell mainframe computers. Spiegel explained that Honeywell wanted to steal a march on its competitors by being the first computer manufacturer to build a machine that used semiconductor memory instead of magnetic core. He knew that Fairchild had come very close to developing a bipolar memory circuit with sixteen cells, or bits. Yet Fairchild had never quite managed it, because somehow one of the cells was always a dud. Insiders used to joke that Fairchild’s R&D people had built a great 15-bit memory chip.
Spiegel explained to the people at Intel that Honeywell wanted to be able to ship a new line of computers in 1969 or 1970 that would contain a 64-bit scratchpad memory, big enough to store an eight-letter English word. The company was inviting a number of firms in the electronics business to try to build some working prototypes to this testing specification. Intel was new and untried, but Noyce and Moore’s pedigrees were impressive. If Honeywell could give Intel a downpayment of $10,000 to help fund its research work, was the company interested in trying to beat the other six companies that had already started on the problem?
The offer was less crazy than it sounded. Whichever company came up with a mass-produced chip first was likely to win an order from Honeywell for 10,000 units at $100 apiece. So the up-front fee, although crucially important for a startup that had to keep an eye on its bank balance, represented a bet that only represented 1% of what Honeywell was expecting the finished chips to cost. Since it was by no means clear that anyone could build a 64-bit semiconductor memory circuit, the $10,000 was a small price to pay for adding one more talented team to the field already competing for the prize. Anyway, one of Intel’s engineers had impressed Spiegel and his colleagues as particularly committed and reassuring: H. T. Chua, a Stanford graduate of Chinese ancestry who had immigrated to the US from Singapore. Chua was a quiet, thoughtful man, but he had a air of unmistakable quiet confidence about him which seemed to exude the message: We’ll build your chip for you, and we’ll beat everyone else too.
Chua kept his promise. When Spiegel returned to California in the spring of 1969, Chua met him at the factory door with a sample chip in his hand. The chip designed for Honeywell therefore became the new company’s first commercial product. It was a symptom of Intel’s target market that the new chip wasn’t even given a name. Instead, it was referred to only by a part number, 3101. Intel’s potential customers were engineers inside computer companies, who thought of themselves as rational decision-makers choosing between one part and another strictly on technical merit, quality and price. A catchy name wouldn’t have increased sales; on the contrary, it might have excited suspicion that there was a shortage of engineering talent to cover up for. A simple part number, preferably a number that meant something, was what Intel needed to go for.
Bob Graham, Intel’s marketing chief, realized the success of the 3101 could be of enormous value to Intel. The industry was littered with companies that made grand promises which they failed to fulfil. Cynics used to joke that National Semiconductor, in particular, used to send around a specification for a new chip to customers, and then wait to see what reaction it got before deciding whether to start designing it. Graham wanted Intel to earn the opposite reputation, so he coined the slogan INTEL DELIVERS. It became almost an unbreakable rule inside Intel never to announce a product in advance, just in case something went wrong ‘twixt cup and lip. Instead, he resolved that the company would wait until chips were already on distributors’ shelves before going out to customers to spread the word about a new device.
This early triumph from the bipolar team cranked up the pressure on the competing MOS team to deliver. At one point Vadasz and his colleagues became convinced that they were almost there. The test production line they had set up yielded one device that worked perfectly. The MOS team immediately toasted its arrival with champagne in the cramped company cafeteria – but it was to be many months before they were able to build a second working MOS circuit.
Part of the trouble was that the manufacturing process itself was so rudimentary. Everyone understood that particles in the air could contaminate a semiconductor production line; the defence industry did their most sensitive assembly work inside giant sealed ‘clean rooms’, where the air was filtered to remove the tiny specks that could spoil a circuit. But Intel had no such luxury. Its fab area, recalled Andy Grove, ‘looked like Willy Wonka’s factory, with hoses and wires and contraptions chugging along … It was state-of-the-art manufacturing at the time, but by today’s standards it was unbelievably crude’.
No matter how hard they tried to clean up the fab area, the MOS engineers still couldn’t make circuits that worked. At one late-night meeting, almost in desperation, Andy Grove finally lost patience. Why was the company bothering with silicon-gate MOS technology at all? he asked. Why not go back to a similar, less tricky metal-gate technology where this problem would not arise?
It was Gordon Moore – quiet, thoughtful Gordon – who broke in on Grove’s tirade. ‘I want to see every wafer that comes off the line for the next thirty days,’ he said slowly. ‘Then we’ll make a decision on what to do.’
Over the coming days and weeks the engineers of the group brought the faulty wafers to Moore one by one. They watched him check the devices under a microscope, and test them with the makeshift equipment they had developed. Before the thirty days were up Moore told them what he thought the problem was. When a memory chip was being built, he reminded them, it had to be repeatedly heated up and cooled during different stages of the production process. The temperature change was not abnormal for the electronics industry, but this circuit was particularly sensitive. Because the design had sharp comers where the metal oxide and the silicon met, one would expand more quickly than the other, and a crack would appear that broke the circuit and rendered it useless.
Moore came up with a solution to the problem that was brilliant in its simplicity. He told the engineers to ‘dope’ the oxide with impurities so that its melting-point would fall. This would reduce the brittleness of the chip’s edges, and allow the oxide to flow evenly around the rough comers like melting ice cream. To their astonishment, the MOS team soon discovered that Moore was right. Working almost as an armchair engineer, he had solved the problem that had eluded them for months.
There was a long debate inside Intel as to whether the company should patent the ‘reflow’ process that Moore had invented. The issue was not whether the process could be patented; it clearly satisfied all the legal requirements for a patent. The bigger question was whether the patent would be self-defeating, because the information Intel would have to publish would set competitors on the right track towards similar solutions. In the end the team chose a halfway house. The process was patented in Moore’s name (and a framed copy of the patent was hung in his office as a reward); but once the chip was in production, the exact nature of the reflow process was kept secret from the hourly workers who had been hired to carry out the chip fabrication and packaging. On the long list of processes that the silicon wafer had to undergo before it could be scored and sliced up into dozens of finished memory chips, the reflow process was referred to only as ‘anneal’, a word used to mean heating glass and cooling it slowly. That way, the risk was reduced that a line worker would be offered a dollar more per hour by a competitor, and walk out of Intel’s door with the fledgling company’s most valuable trade secret.
Until there were products to sell, Bob Graham had little to do. The company did not have enough spare cash to hire salesmen to sit around and wait for the engineers to do their job. So Graham identified a candidate who could serve as his second-in-command in the sales and marketing division when the time came – and in the meantime, he amused himself fishing.
Setting his alarm clock to wake him several hours before dawn, Graham would tiptoe out of his modest house in Saratoga so as to avoid waking his wife. Then he would climb into the old Ford Mustang that he had bought from Bob Noyce, and roar up a deserted Highway 101 all the way to San Francisco, where he would park as close as possible to the Golden Gate Bridge. There, waiting under a streetlamp, he would find Gordon Moore in his overalls and work boots. With the motor engine burbling softly beneath the dark wash, the two men would ease Moore’s fishing boat out under the bridge and towards the grounds beyond the bay where salmon were plentiful.
For a scientist, Moore seemed to show scant interest in the state of repair of his craft. Sometimes he had to scrape the rust off the spark-plugs with his pocket knife. Sometimes, the boat’s rudimentary radio would cut out, leaving the fishermen cut off from the outside world. But on one occasion a more serious problem arose. The part of the expedition that required the most skill was traversing what the local fishermen called the ‘Potato Patch’, a narrow channel bordered with rocks just beyond the bridge that led to the fishing grounds beyond. One morning, just as they were halfway through the Potato Patch, Graham noticed water slopping around in the bilges of the boat.
‘Oh,’ said Moore absent-mindedly. ‘I must have forgotten to switch the bilge-pump on.’ He disappeared for a few seconds, and Graham began to hear the sound of the electric pump groaning into action. Thirty seconds later, however, the water level was still rising.
‘The pump!’ yelled Graham. ‘It’s not working!’ Frantically, he and Moore grabbed whatever receptacles were closest to hand, and began to throw bucketfuls of water overboard. Yet as fast as they bailed water out, more seemed to come in. While Graham continued to empty the buckets as fast as he could – splash, splash, splash, splash, splash – Moore went to inspect the drain fittings.
Ten minutes later the problem was solved. The hole in the boat that Moore had discovered was plugged with an old oily rag, and the two friends lay back, exhausted by their efforts. As the sun rose over the city behind them, they celebrated their survival into a new day with an early-morning beer.
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