Student’s report
On Economics by Constantine Nikitin
Contents
Silicon Valley - what is that? 3
Stanford University 3
Hewlett Packard - the garage myth 5
HP: Foundation and first years 5
The rise of HP up to the present 6
The HP Way - an example of corporate culture for a whole industry 7
HP today. 7
The rise of Silicon Valley 10
Invention of the transistor 10
Shockley Semiconductor 11
Importance of military funding 12
Intel Corp. 13
Foundation in 1968 13
First products - Moore's Law 13
"Ted" Hoff's first microprocessor 14
Cooperation with IBM in the 1980s 15
Intel today 16
The emergence of the PC industry 17
Altair - the first PC 18
The first computer shops 19
Homebrew Computer Club 19
The Apple Story 19
"Woz" and Jobs - the two "Steves" 19
The first Apple 20
Building up the company 21
Apple II - starting the personal computer boom 22
Turbulences in the early 1980s 23
The Lisa project 23
The Macintosh revolution 24
John Sculley and Steve Jobs 25
Apple today. 27
Silicon Valley - what is that?
This question may have occurred to many people's minds when they came across the term Silicon Valley. What hides behind it is mostly unknown to them, although the revolutionary inventions and developments, which have been made in this «Valley», affect everyone's daily life, and it is hard to imagine our modern civilization without them. Silicon Valley is the heartland of the microelectronics industry that is based on semiconductors.
Geographically, it is the northern part of the Santa Clara County, an area
stretching from the south end of the San Francisco Bay Area to San Jose,
limited by the Santa Cruz Mountains in the west and the northern part of
the Diablo Range in the east. It covers a thirty- by ten-mile strip
extending from Menlo Park and Palo Alto, through Los Altos, Mountain View,
Sunnyvale, Cupertino and Santa Clara, down to San Jose.)
The name Silicon Valley was coined in 1971 by Don C. Hoefler, editor of the
Microelectronics News, when he used this term in his magazine as the title
for a series of articles about the semiconductor industry in Santa Clara
County. "Silicon" was chosen because it is the material from which
semiconductor chips are made, which is "the fundamental product of the
local high-technology industries.")
Silicon Valley saw the "development of the integrated circuit, the
microprocessor, the personal computer and the video game") and has spawned
a lot of high-tech products such as pocket calculators, cordless
telephones, lasers or digital watches.
Looking at our high-tech society in which the PC has become indispensable -
both in business and at home, replacing the good old typewriter by word
processing - the crucial role of Silicon Valley as the birthplace of the
microelectronics and then the PC revolution becomes even more evident.
Silicon Valley is also seen as a place where many entrepreneurs backed by
venture capital have made the American Dream come true as "Overnight
Millionaires."
This makes Silicon Valley a philosophy saying that everything which seems
impossible is feasible and that improvements in our society can take place
daily, as Thomas McEnery, the mayor of San Jose, the capital of the Santa
Clara County, puts it.)
Thomas Mahon calls it the "economic and cultural frontier where successful
entrepreneurship and venture capitalism, innovative work rules and open
management styles provide the background" for the perhaps "most profound
[...] inquiry ever into the nature o f intelligence" which might, together
with "bioengineering and 'artificially intelligent' software, [...] affect
our very evolution.")
On the following pages I would like to convey the image of Silicon Valley
as the nucleus of modern computing, presenting the most important events,
which comprise the developments of the three major companies Hewlett-
Packard, Intel and Apple.
Stanford University
The story of the Silicon Valley starts with Stanford University in Palo
Alto, which has been of fundamental importance in the rise of the
electronics industry in Santa Clara County.
In the 19th century, Spanish settlers, who have been the first white
visitors to California, founded civilian communities and gave them Spanish
names such as San Francisco, Santa Clara or San Jose. They liked the
Mediterranean climate in the Santa Clara Valley, which was very hospitable.
This area came to be used by farmers and ranchers cultivating orchards, for
it provided "some of the world's finest farming soil.")
In 1887, Leland Stanford, a wealthy railroad magnate who owned a large part
of the Pacific Railroad, decided to dedicate a university to his son's
memory who had died due to a severe disease shortly before he intended to
go to a university.
Leland Stanford and his wife built Leland Stanford Jr. University on 8,800
acres of farmland in Palo Alto and also donated 20 million dollars to it.
The university opened in 1891 and "would in time become one of the world's
great academic institutions.")
In 1912, Lee De Forest, who had invented the first vacuum tube, the three-
electrode audion, discovered the amplifying effect of his audion while
working in a Federal Telegraph laboratory in Palo Alto. This was the
beginning of the Electronics Age, and "amateur radio became an obsession")
at Stanford University.
Frederick Terman, who was the progenitor of the initial Silicon Valley
boom, changed the state of this university fundamentally. Today he is also
known as the "godfather of Silicon Valley.") Terman was born in 1900, and
as the son of a Stanford professor (who developed the Stanford-Binet IQ
tests) he had grown up on the campus. After his graduation from Stanford
University he decided to go East to the Massachusetts Institute of
Technology (MIT), which was the leading university in technology then. He
studied under Vannevar Bush, who was one of America's leading scientists,
and was offered a teaching position at MIT after receiving his doctorate in
1924.
He returned to Palo Alto to visit his family before he intended to start at
MIT, but he was caught by a severe case of tuberculosis, which forced him
to spend one year in bed. This made him finally to decide to stay in Palo
Alto and teach at Stanford University because of the better climate in
California.)
Terman became head of the department of engineering by 1937 and established
a stronger cooperation between Stanford and the surrounding electronics
industry to stop the brain drain caused by many students who went to the
East after graduation, as they did not find a job in California then.)
The Varian brothers are an example of such cooperation between university
and industry. After graduation they founded a company upon a product they
had developed at the Stanford laboratories. Their company, Varian
Associates, was settled 25 miles from the university and specialized on
radar technology.
After World War II, the Stanford Research Institute (SRI) was founded. Its
aim was to provide the industry with more skilled students and to increase
the number of companies in Santa Clara County.
Terman wanted companies to settle next to the university. In 1951, he
founded the first high-technology industrial park, the Stanford Research
Park, "where business, academic and government interests could come
together in a synergistic vision of the future.") Portions of this land
would be leased to companies, because the "original Stanford family land
gift forbade the sale of any of its 8,800 acres.") These companies were
offered close contacts to the SRI and could lease land for 99 years at a
fixed price, which they had to pay in advance. The first firm to settle in
this park was Varian Associates leasing land for $4,000 an acre, which was
a good deal as there was no inflation clause in the agreement making this
site today worth several hundred thousand dollars.
More and more firms - among them Hewlett-Packard as one of the first
residents - settled their Research and Development (R&D) departments in
this park, and they were to become the "core of the early explosive growth
of Silicon Valley.") Today, there are m ore than 90 firms employing over
25,000 people.
During the Korean War the US government placed Stanford with a great deal
of their projects, which made more, and more electronics companies (among
them IBM and Lockheed) open R&D departments in Santa Clara County.
Due to his prepaid leasing program Terman received more than $18 million
and, moreover, many companies endowed the university with gifts, which
Terman used to hire qualified professors from all over the USA. Thus, he
had created a mechanism which increased the settlement of the electronics
industry.
The successful Stanford Research Park has served as a worldwide model for a
lot of other high-technology parks.)
Hewlett Packard - the garage myth
Hewlett-Packard was one of the first companies to be founded in the Silicon
Valley and has today become the largest one to be seated there. Its story
is typical for this Valley and has had a great impact on many firms founded
later on.
HP: Foundation and first years
Bill Hewlett and David Packard met at Stanford University in 1934. Bill
Hewlett was the "son of the dean of the Stanford Medical School, while Dave
Packard had come to Stanford from Pueblo, Colorado,") and was an
enthusiastic radio ham.
They both were very interested in electronic engineering and spent a lot of
their free time experimenting in Terman's lab who supported them. After
graduation in 1934, Packard went to Schenectady, New York, where he worked
for General Electric (GE), while Hewlett went on studying at the MIT. In
1938, Terman called them back to Stanford where they would earn electrical
engineering degrees after their fifth year of study.
During this year they decided to work on a project professor Terman had
suggested to them in his course at university: In the garage next to their
rented apartment in Palo Alto they developed a variable frequency
oscillator, which was much better than existing products but cost only a
"fraction of the existing price ($55 instead of $500).") Terman was very
convinced by this product, so he encouraged them to try to sell it. He
himself loaned them $538 for the production and arranged an additional loan
from a bank in Palo Alto.
The new firm Hewlett-Packard (HP) was founded in 1939, and its first big
sale were eight audio oscillators to Walt Disney Studios, which used them
for the soundtrack of "Fantasia.")
From now on, they concentrated on highly qualified products and innovative
electronic instruments for engineers and scientists. This main product line
has been kept till today.
By 1942, five years after its foundation, HP already had 60 employees and
reached annual sales of about $1 million. So it became necessary to
construct the first HP-owned building in Palo Alto. The two Stanford
graduates had successfully built up their own company which had been
founded upon an idea during their studies and was to rise from a "garage-
headquartered firm") to a leading company in the world. This phenomenon was
typical for Silicon Valley and would be imitated by many following
companies such as Apple.
The rise of HP up to the present
During World War II the demand for electronic products brought HP many
orders, and the company could grow constantly in the subsequent years. HP
continued to invent new devices such as the high-speed frequency counter in
1951, which greatly reduced the time required (from 10 minutes to one or
two seconds only) to accurately measure high frequencies. Radio stations
used it, for example.
The net revenue went up to $5.5 million in 1951 and the HP workforce was at
215 employees. So, in 1957, the stocks were offered to the public for the
first time. The additional capital due to the stock offering was invested
to acquire other companies and t o expand globally such as into the
European market. As a consequence, in 1959, the first manufacturing plant
outside Palo Alto was built in Böblingen, West Germany.
HP entered the Fortune magazine's list of the top 500 U.S. companies in
1962, and established the HP Laboratories in 1966, which were the
"company's central research facility") and became one of the world's
leading electronic research centers.
In the 1970s, the company's product line was shifted from "electronic
instruments to include computers"), and the world's first scientific hand-
held calculator (HP-35) was developed in 1972, making the "engineer's slide
rule obsolete.")
In the 1980s, HP introduced its LaserJet printer (1985), which became the
company's successful single product ever, and moved into the top 50 on
Fortune 500 listing with net revenues of more than $10 billion (1988).)
Today, HP has total orders of $16.7 billion and employs more than 92,000
people in the whole world.) Annually, The company spends over 10 percent of
its net revenues in R&D. These investments are fundamental to keep up with
the "state-of-the-art" technology, which uses the most modern inventions.
New products have always played a key role in HP's growth, therefore more
than half of 1992's orders were for products introduced in the past two
years.) HP's more than 18,000 products include "computers and peripheral
products, test and measurement instruments and computerized test systems,
networking products, electronic components, hand-held calculators, medical
electronic equipment, and instruments and systems for chemical analysis.")
Bill Hewlett and Dave Packard today rank with America's richest men ($1.7
and $0.85 billion) and are widely respected, especially in Silicon Valley
where they are viewed as the two "most successful entrepreneurs in
America.") They have spent millions of t heir profits for social welfare
and have established the Hewlett-Foundation.)
Hewlett and Packard have set a pattern of an outstanding company against
which every new high-technology firm "must be measured.")
The HP Way - an example of corporate culture for a whole industry
From the beginning the two founders have developed a management style,
which had never occurred in a large company before. They coined a new type
of corporate culture, which was to be called "the HP way."
HP always renounced the "hire and fire" mentality, which meant to employ
many workers for a single big order and to dismiss them afterwards.
Instead, the company offered its employees "almost perfect job security.")
Even in 1974, when the U.S. economy was in a profound crisis and many
people were unemployed, HP avoided layoffs by a four-day workweek, which
was a unique measure in corporate America.
The two founders trusted in the "individual's own motivation to work") and
treated their employees as family members; hence the custom to call each
other by the first name - even the two chiefs were only known as Bill and
Dave.
The HP workers were participated in the company with stock options and were
even paid additional premiums when HP was successful - today known as
profit sharing. These measures served to identify the employees with their
work and to encourage them.
Moreover, the HP way included extensive employment benefits such as
scholarships for the employee's children.
At the end of the 1950s Bill and Dave decided to write down the company's
objectives, which were to serve as guidelines for "all decision-making by
HP people,") since the company had grown ever larger. With some changes,
those objectives are still valid today. They cover as follows: "Profit,
Customers, Fields of Interest, Growth, Our People, Management, and
Citizenship.") And these objectives are to be achieved through teamwork.
HP's strategies nowadays comprise mainly the "Management by Objectives",
"Management by Wandering around" meaning informal communication within the
company, and "Total Quality Control" which aims at producing highly
qualified products.)
The HP way is seen as model for corporate culture in many countries.
The roots of many subsequent companies are located in HP, e.g. Steve
Wozniak, who worked at HP and later co-founded Apple. This has led to the
establishment of a new corporate culture in Silicon Valley and many firms
have tried to imitate the HP way and ad opted measures such as stock
options, innovative work rules, teamwork, and profit sharing.
HP today.
Business Summary PALO ALTO, Calif., Nov. 13, 2000 -- Hewlett-Packard
Company (NYSE: HWP) today reported 17% revenue growth (20% excluding
currency effects) in its fourth fiscal quarter ended Oct. 31, 2000.
Excluding extraordinary other income and restructuring expenses, diluted
earnings per share (EPS) was up 14% from the year-ago quarter.
During the quarter, HP completed its previously announced 2-for-1 split of
its common stock in the form of a stock dividend. Share and per-share
amounts have been adjusted to reflect this split.
Net revenue was $13.3 billion, compared with $11.4 billion in last year's
fourth quarter. EPS for the quarter was 41 cents on a diluted basis,(1)
excluding investment and divestiture gains and losses, the effects of stock
appreciation rights and balance sheet translation, and restructuring
expenses. Including these items, diluted EPS on a reported basis was 45
cents per share on approximately 2.05 billion shares of common stock and
equivalents outstanding. This compares with diluted EPS of 36 cents in the
same period last year(2).
"We are pleased that revenue growth is accelerating, but very disappointed
that we missed our EPS growth target this quarter due to the confluence of
a number of issues that we now understand and are urgently addressing. I
accept full responsibility for the shortfall," said Carly Fiorina, HP
chairman, president and chief executive officer.
"Issues that reduced profitability included margin pressures, adverse
currency effects, higher-than-expected expenses, and business mix. The good
news is that our business is healthy, demand is strong, and we are making
good progress against our strategic objectives as we continue the hard work
of reinventing hp. We are determined to succeed and are not backing away
from our growth targets," Fiorina said.
HP also announced it has terminated discussions with PricewaterhouseCoopers
(PwC) regarding the potential acquisition of its consulting business.
Fiorina said, "We are disappointed that we have not been able to reach a
mutually acceptable agreement to acquire PwC's consulting business. This is
a high-quality operation, and we believe the strategic logic underlying
this acquisition is compelling. However, given the current market
environment, we are no longer confident that we can satisfy our value
creation and employee retention objectives -- and I am unwilling to subject
the HP organization to the continuing distraction of pursuing this
acquisition any further. We remain committed to aggressively growing our
consulting capabilities, organically and possibly by acquisition, and are
open to other business arrangements to achieve our goals."
Business Summary
Net revenue in the United States was $6.0 billion, an increase of 13% from
the year-ago quarter. Revenue from outside the U.S. rose 20% (26% in local
currency) to $7.3 billion. In Europe, revenue was $4.5 billion, an increase
of 15% (27% in local currency). In Asia Pacific, revenue was $1.9 billion,
an increase of 36% (34% in local currency). In Latin America, revenue
increased 11% to $0.6 billion.
Imaging and Printing Systems
The imaging and printing systems segment -- laser and inkjet printing, and
imaging devices and associated supplies -- grew 6% in revenue year over
year (9% in local currency) against a very strong quarter last year.
Internet printing and a migration to color are driving strategy and growth.
Strong sales of supplies, scanners, all-in-one (AiO) products, and consumer
imaging devices, as well as overall strength in Europe and Asia, partially
offset softness in the U.S. business printing market and continuing price
erosion in inkjet printers.
Nearly 12 million printing and scanning devices were shipped during the
quarter. HP's color LaserJet market share continues to grow and new
products began shipping in October. Imaging revenues grew 31% over the year-
ago period, driven by strong performances in all product lines: AiOs up
31%, scanners up 12% and digital cameras and printers up 137%. AiO units
were up 53% and PhotoSmart printer units were up 208%. Supplies revenues
grew 15% against a strong quarter last year.
Operating margin was 13.4%, up from 13.2% last year.
Computing Systems
The computing systems segment -- a broad range of Internet infrastructure
systems and solutions for businesses and consumers, including workstations,
desktops, notebooks, mobile devices, UNIX(R) and PC servers, storage and
software solutions -- grew 29% in revenue year over year (32% in local
currency) with strong performances across all product categories.
UNIX server revenues rose 23% year over year, with orders up 43%, driven by
excellent performance in low- and mid-range servers. Superdome, HP's new
high-end server introduced this quarter, is achieving stronger-than-
expected market acceptance, and volume shipments remain on schedule for
January. NetServer revenues were up 20%. Enterprise storage revenues were
up 40% with the HP Surestore E Disk Array XP512, HP's flagship enterprise
storage product, up 90% in revenues with strong backlog. Software revenues
(excluding VeriFone) were up 18%, but down sequentially with strong order
backlog at the end of the quarter. OpenView revenues were up 29% with
orders up 60%. PC revenues were up 40%, with home PC revenues up 62%,
notebooks up 164%, workstations up 11%, and commercial desktops up 8%.
Operating margin was 3.7%, up from 3.2% last year, but down sequentially
from 7.3% in the third quarter primarily due to margin pressures, higher
expenses and mix changes.
IT Services
The IT services segment -- hardware and software services, along with
mission-critical, outsourcing, consulting and customer financing services -- grew 15% in revenue year over year (18% in local currency). HP's
consulting business achieved in 46% revenue growth, with substantial new
hires broadening and deepening the organization's capabilities.
Operating margin was 7.4%, essentially flat with 7.5% last year.
Costs and Expenses
Cost of goods sold this quarter was 72.5% of net revenue, up from 71.3% in
the year-ago period. Expenses grew 15%. After adjusting for currency,
expense growth was 17%. Operating expenses, as reported, were 20.3% of net
revenue. This compares with 20.7% in the comparable period last year.
Asset Management
Return on assets for the quarter was 10.5% compared with 9.8% in the
comparable quarter last year. Inventory was 11.7% of revenue compared with
11.5% in last year's fourth fiscal quarter. Trade receivables were 13.1% of
revenue compared with 14.1% in the prior year period. Net property, plant
and equipment was 9.2% of revenue compared with 10.2% in the year-ago
quarter.
Full-year Review
Net revenue increased 15% to $48.8 billion. Net revenue in the United
States rose 14% to $21.6 billion, while revenue from outside the United
States increased 16% to $27.2 billion.
Net earnings from continuing operations were $3.6 billion, an increase of
15%, compared with $3.1 billion in fiscal 1999. Net earnings per share were
$1.73 on a diluted basis, up 16% from $1.49 last year.
Outlook for FY 2001
For the 2001 fiscal year ending Oct. 31, 2001, HP expects to achieve
revenue growth in the range of 15 to 17%, compared to 15% in FY 2000. Gross
margin percentage in FY 2001 is expected to be in the range of 27.5 to
28.5%, compared to 28.5% in FY 2000, with improvements beginning in the 2nd
quarter. Total operating expenses in FY 2001 are expected to be
approximately 10 to 12% above FY 2000. Tax rate is expected to remain
constant at approximately 23%.
The forward-looking statements in this Outlook are based on current
expectations and are subject to risks, uncertainties and assumptions
described under the sub-heading "Forward-Looking Statements." Actual
results may differ materially from the expectations expressed above. These
statements do not include the potential impact of any mergers, acquisitions
or other business combinations that may be completed after Oct. 31, 2000.
HP will be discussing its fourth quarter results and its 2001 outlook on a
conference call today, beginning at 6 a.m. (PST). A live Webcast of the
conference call will be available at
http://www.hp.com/hpinfo/investor/quarters/2000/q4webcast.html. A replay of
the Webcast will be available at the same Web site shortly after the call
and will remain available through 4:30 p.m. PST on Nov. 22, 2000.
The rise of Silicon Valley
Hewlett-Packard was Silicon Valley's first large firm and due to its
success one of the area's most admired electronics firms.
While HP was important for the initial growth of the area and at first was
based on electronic devices, the actual Silicon Valley fever was launched
in the mid-1950s with Shockley and Fairchild, and other semiconductor
firms, and went on to the microelectronics revolution and the development
of the first PCs in the mid-1970s, continuing till today.
Invention of the transistor
One major event was crucial for this whole development. It was the
invention of the transistor that revolutionized the world of electronics.
By the 1940s, the switching units in computers were mechanical relays,
which were then replaced by vacuum tubes. But these vacuum tubes soon
turned out to have some critical disadvantages, which impeded the further
progress in computing technology. In contrast, transistors were much
better. They could perform everything the vacuum tubes did, but "required
much less current, did not generate as much heat, and were much smaller")
than vacuum tubes.
The use of vacuum tubes, which could not be made as small as transistors,
had meant that the computers were very large and drew a lot of power. For
example the famous American ENIAC, built in 1946 and consisting of more
than 18,000 vacuum tubes, had a total weight of 30 tons, filled a whole
room of 500 square meters and consumed 150 KW per hour. The breathtaking
development in computers can be seen, when comparing the ENIAC with today's
laptops which are portable with about 5 kg, are battery driven and run some
100,000 times faster.)
This development was launched by the transistor (short for "transfer
resistance") invention in 1947 by William Shockley and his colleagues John
Bardeen and Walter Brattain. This "major invention of the century") was
made at the Bell Labs in Murray Hill, New Jersey, which are the "R&D arm of
the American Telephone and Telegraph Company (AT&T).") And in 1956, the
three scientists received the Nobel Prize in Physics for their invention
that had "more significance than the mere obsolescence of another bit of
technology.")
The transistor is a "switch - or, more precisely, an electronic "gate,"
opening and closing to allow the passage of current.") Transistors are
solid-state and are based on semiconductors such as silicon. The crystals
of these elements show properties, which are between those of conductors
and insulators, so they are called semiconductors. The peculiarity of
semiconductor crystals is that they can be made "to act as a conductor for
electrical current passing through it in one direction") only, by adding
impurities or "doping" them - for instance, "adding small amounts of boron
of phosphorus.")
Shockley Semiconductor
In 1955, William Shockley, co-inventor of the transistor, decided to start
his own company, Shockley Semiconductor, to build transistors, after
leaving the Bell Labs. The new firm was seated in Palo Alto in Santa Clara
County, California, where he had grown up. Shockley man aged to hire eight
of the best scientists from the East Coast, who were attracted by his
scientific reputation. These talented young men - "the cream of electronics
research" - represented the "greatest collection of electronics genius ever
assembled". Their names were: Julius Blank, Victor Grinich, Eugene Kleiner,
Jean Hoerni, Jay Last, Gordon Moore, Robert Noyce and Sheldon Roberts.)
But however brilliant Shockley was, who was called a "marvelous intuitive
problem solver" and a "tremendous generator of ideas" by Robert Noyce, it
soon turned out that he was "hard as hell to work with", as his style was
"oppressive" and he "didn't have trust and faith in other individuals.")
When Shockley refused the suggestions of his eight engineers who wanted to
concentrate on silicon transistors, while their boss pursued research on
four-layer diodes, they decided to quit and start their own firm in 1957.
Within several months Shockley had to shut down his firm, since he had lost
his engineers, whom he called traitors and they are now known as "the
Traitorous Eight".
Although Shockley was not very successful with his firm in Palo Alto, he
"deserves credit for starting the entrepreneurial chain-reaction that
launched the semiconductor industry in Silicon Valley,") since he had
brought together excellent scientists there like Robert Noyce without whom
there might never have been a Silicon Valley on the San Francisco Peninsula
at all. Or as M. Malone calls it, "Shockley put the last stone in place in
the construction of Silicon Valley.")
The father of one of those young men who left Shockley had contacts to a
New York investment firm, which sent a young executive named Arthur Rock to
secure financing for their new enterprise. Rock asked a lot of companies,
if they were interested in backing this project, but has not been
successful so far. The concept of investing money in new technology
ventures was largely unknown then, and indeed the term "venture capital"
itself wouldn't be coined until 1965") - by Arthur Rock, who should become
Silicon Valley's first and most famous venture capitalist later on.
Finally, due to Rock's efforts, the "Traitorous Eight" managed to obtain
financial support from industrialist Sherman Fairchild to start Fairchild
Semiconductor in 1957.
Fairchild Semiconductor was developed by Shockley's firm, and as the "still
existing granddaddy of them all") has itself spawned scores of other
companies in Silicon Valley: Most semiconductor firms' roots can be traced
back to Fairchild. The most famous ones of them are National Semiconductor,
Intel, Advanced Micro Devices (AMD); and many well-known Valley leaders
have worked at Fairchild, e.g. Charlie Sporck (National Semiconductor),
Jerry Sanders (AMD's founder), Jean Hoerni, and last but not least Robert
Noyce, who is considered the "Mayor of Silicon Valley") due to his
overwhelming success.
Robert Noyce was born in southwestern Iowa in 1927. His father was a
preacher in the Congregational Church and thus was "perpetually on the move
to new congregations, his family in tow.") When the Noyces decided to stay
at the college town of Grinnell, Iowa, for a longer period of time after
many years of moving, this place meant stability in young Bob's life and
thus would become his first and only real home, which he would later regard
as important for his eventual success.
After high school, Robert studied at Grinnell College. His physics
professor had been in contact with John Bardeen (one of the three inventors
of the transistor) and obtained two of the first transistors in 1948, which
he presented his students, including Bob Noyce. This aroused young Robert's
interest in semiconductors and transistors, which made him try to learn
everything he could get about this fascinating field of solid-state
physics.
Having graduated from Grinnell College he continued his studies at "the
premier school of science on the East Coast, MIT,") where he met famous
scientists like Shockley. He received his doctorate, and decided to work at
Philco until 1955, when he was invited by William Shockley to join a new
firm named "Shockley Semiconductor" in Santa Clara County - together with
seven other splendid scientists.
When the so-called "Shockley Eight" started a new venture with Fairchild
Semiconductor, Robert Noyce began "his own transformation from engineer to
business manager:") He was chosen to lead the new company as he seemed the
best to do this job.
Fairchild Semiconductor focused on building a marketable silicon transistor
applying a new manufacturing process called "mesa". Despite being the
smallest company in electronics business then, it attracted public
attention, particularly in 1958, when "Big Blue" - as dominant IBM is
nicknamed - ordered the "first-ever mesa silicon transistors") for memory
drivers in its computers.
This order contributed to the early success of Fairchild Semiconductor, and
indicated the beginning of a long relationship between IBM and Silicon
Valley.
Importance of military funding
Before switching over to the events at Intel, the aspect of military
funding is to be dealt with, since it has played an important role in the
early days of Silicon Valley.
During World War II, after the Japanese attack at Pearl Harbor in 1942, a
great deal of the U.S. military forces and of the military production was
moved to California. Within a few years, California - formerly an
agricultural state - became a booming industrial state and the military
center of the USA.)
After the war, in the time of the Cold War and the arms race, the Korean
conflict, the "missile gap" and the space program, the Pentagon kept
ordering high-technology products from the armament factories in
California. Many companies established R&D departments and production
facilities in Santa Clara County near Stanford University, which provided
them with bright engineers and scientists, and were largely supported by
the Pentagon's demand for electronic high-tech products.
Examples for such firms are FMC, GTE, Varian Associates, Westinghouse, and
finally Lockheed, which opened its R&D department in the Stanford Research
Park in 1956, and started Lockheed Missiles and Space Company (LMSC) in
Sunnyvale. Lockheed's move to Northern California was crucial for the
developments in Santa Clara County; today the company is Silicon Valley's
largest employer with more than 24,000 people.)
Military funding for high-tech products was responsible for the early
growth of Silicon Valley in the 1950s and 1960s. The U.S. Department of
Defense was the biggest buyer of these products, e.g. its purchases
represented about 70 percent of the total production of ICs in 1965.)
While this share in chip demands has dropped to 8 percent today, the
Pentagon remains the biggest supporter of new technologies and accounts for
most of the purchases of the latest developments.
Intel Corp.
After the transistor and the integrated circuit, the invention of the
microprocessor in the early 1970s represents the next step towards the
modern way of computing, providing the basis for the subsequent personal
computer revolution.
It was at Intel where the first microprocessor was designed - representing
the key to modern personal computers. With its logic and memory chips, the
company provides the basic components for microcomputers. Intel is regarded
as Silicon Valley's flagship and its most successful semiconductor company,
owing its worldwide leading role to a perpetually high spending on research
and development (R&D).
Foundation in 1968
It all started in 1968, when Bob Noyce resigned as head of Fairchild
Semiconductor taking along Gordon Moore and Andy Grove, to embark on a new
venture. They had decided to leave the company, because they wanted "to
regain the satisfaction of research and development in a small, growing
company,") since Fairchild had become big with lots of bureaucracy work to
be done. Gordon Moore had belonged to the famous Shockley Eight and was in
charge of the R&D team at Fairchild. Andy Grove, a young Hungarian émigré,
who had earned a doctorate in chemical engineering at U.C. Berkeley, had
joined Fairchild in the early 1960s.
Intel (short for Integrated Electronics), a typical Fairchild spin-off, was
financially backed by venture capital from Arthur Rock, who had been in
contact with Noyce since 1957. The company was founded upon the idea of
integrating many transistors on a chip of silicon, after Noyce had
developed a new photochemical process. The three engineers initially
focused on building the first semiconductor chips used for computer memory,
which should replace the dominant memory storage technology at the time,
called "magnetic core". Intel's task was to drive down the cost per bit by
increasing the capacity of memory chips dramatically.
First products - Moore's Law
Within a year, Intel developed its first product - the 3101 Schottky
bipolar 64-bit static random access memory (SRAM), which was followed soon
after by the 1101. This chip (1101) was a 256-bit SRAM and had been
developed on Intel's new "silicon gate metal -oxide semiconductor (MOS)
process," which should become the "industry's process technology of
choice.") With the first two products, the young company started with 12
employees and net revenues of $2,672 in 1968, had already gained the
technological lead in the field of memory chips.
Intel's first really successful product was the 1103 dynamic random access
memory (DRAM), which was manufactured in the MOS process. Introduced in
1970, this chip was the "first merchant market LSI (large-scale integrated)
DRAM," and received broad acceptance because it was superior to magnetic
core memories. So, by the end of 1971, the 1103 became "the world's largest-
selling semiconductor device" and provided the capital for Intel's early
growth.)
Until today, semiconductors have "adhered to Moore's Law," which has been
framed by the "cofounder of Fairchild and Intel" when the first commercial
DRAMs appeared in the early 1970s. This law predicts that the price per bit
(the smallest unit of memory) drops by 30 percent every year. It implies
that you will receive 30 percent more power (speed/capacity) at the same
price, or that the "price of a certain power is 30 percent less.")
Moore's Law applies to both memory chips and microprocessors, and shows the
unprecedented rapid progress in microelectronics. This "astonishing ratio"
has never occurred in "the history of manufacturing" before. Applied to
automobiles, it means that "a Cadillac would have a top speed of 500 miles
per hour, get two hundred miles to a gallon of gas and cost less than a
dollar" - almost incredible.)
1971 was a crucial year at Intel. The company's revenues surpassed
operating expenses for the first time, and the company went public, raising
$6.8 million.
Moreover, the company introduced a new memory chip - the first erasable,
programmable read only memory (EPROM). Invented by Intel's Dov Frohman, the
new memory could store data permanently like already existing ROMs, but
besides could be erased simply by a beam of ultraviolet light and be used
again. The EPROM was initially viewed as a "prototyping device" for R&D.
The invention of the microprocessor in the same year, however, showed the
real significance of the EPROM, which could be used by original equipment
manufacturer (OEM) customers (they build the end-products) to store
microprocessor programs in a "flexible and low-cost way." The "unexpected
synergy" between the EPROM and the microprocessor resulted in a growing
market for both chips and contributed a great deal to Intel's early
success.)
"Ted" Hoff's first microprocessor
The invention of the microprocessor marked a turning point in Intel's
history. This development "changed not only the future of the company, but
much of the industrial world.")
The story to this technological breakthrough began in 1969, when a Japanese
calculator manufacturer called Busicomp asked Intel to design a set of
chips for a family of programmable calculators. Marcian "Ted" Hoff, a young
and "very bright ex-Stanford research associate") who had joined Intel as
employee number 12, was charged with this project. However, he did not like
the Japanese design calling for 12 custom chips - each of them was assigned
a distinct task. Hoff thought designing so many different chip s would make
the calculators as expensive as minicomputers such as DEC's PDP-8, although
they could merely be used for calculation. His idea was to develop a four-
chip set with a general-purpose logic device as its center, which could be
programmed by inst ructions stored on a semiconductor memory chip. This was
the theory behind the first microprocessor.
With the help of new employee Stan Mazor, Hoff perfected the design of what
would be the 4004 arithmetic chip. After Busicomp had accepted Hoff's chip
set, Frederico Faggin, one of the best chip design experts, who had been
hired recently, began transforming the design into silicon. The 4004
microprocessor, a 4-bit chip (processes 4 bits - a string of four ones or
zeroes - of information at a time), contained 2300 MOS transistors, and was
as powerful as the legendary first electronic computer, ENIAC.
Soon after the first 4004s had been delivered to Busicomp, Intel realized
the market potential of the chip, and successfully renegotiated with the
Japanese to regain the exclusive rights, which had been sold to Busicomp.
In November 1971, Intel introduced the 4004 to the public in an Electronic
News ad. It announced not just a new product, but "a new era of integrated
electronics [...], a micro programmable computer on a chip.") The
microprocessor is - as Gordon Moore call s it - "one of the most
revolutionary products in the history of mankind,") and ranks as one of 12
milestones of American technology in a survey of U.S. News and World Report
in 1982. This chip is the actual computer itself: It is the central
processing u nit (CPU) - the computer's brains. The microprocessor made
possible the microcomputer, which is "as big as it is only to accommodate
us." For "we'd have a hard time getting information into or out of a
microprocessor without a keyboard, a printer and a terminal," as Th.Mahon
puts it.)
However significant Hoff's invention, nevertheless, it was hardly noticed
in the public until early 1973. The microprocessor had its own instruction
set and was to be programmed in order to execute specific tasks. So Ted
Hoff had to inform the public and t he engineers about the capabilities of
the new device and how to program it.
Cooperation with IBM in the 1980s
Intel's measures in the late 1970s as a reaction to increasing competition
from other chip manufacturers paid off greatly and resulted in a remarkable
technological lead against its competitors. The most significant
consequence, which was a landmark in the company's development, was IBM's
decision to rely on the Intel 8088 microprocessor for its PCs in 1980.
IBM (short for International Business Machines) has been the world's
leading company in the big mainframe computers since the 1950s. Due to its
dominance, it was often compared with a giant and referred to as "Big
Blue." Surprisingly, it was not before 198 1 (the PC revolution had already
been on for a few years) that IBM introduced its own Personal Computer.
Because of IBM's dominance and worldwide reputation, its PCs soon became
industry standard and penetrated the office market: other established
computer companies followed and introduced their own PCs - the so-called
"clones" - which were compatible to IBM' s models. To maintain
compatibility, all these manufacturers were forced to rely on Intel's
microprocessors, which thus were bootstrapped to industry standard, too.
As well as for Intel, the CPU manufacturer, IBM's decision has been crucial
for a company in the software field: Microsoft's (Redmond, Washington) MS-
DOS was chosen as the IBM PC's operating system and became industry
standard. It is essential to every IBM compatible PC. Microsoft, a small
company in 1980, grew explosively, and is today's superior software giant.
At the beginning of the 1980s, IBM was concerned about Intel's ability to
keep investing in R&D and therefore decided to support Intel by buying $250
million (=12%) of the company's stock. This endorsed Intel's position, and,
in 1987, IBM sold the last of its shares in a strong Intel.
Intel today
Annual report 2000
[pic][pic][pic]
[pic][pic][pic]
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Today, Intel supplies the computing and communications industries with
chips, boards and systems building blocks that are the "ingredients" of
computers, servers, and networking and communications products. Industry
members to create advanced computing and communications systems use these
products. Intel's mission is to be the preeminent building block supplier
to the worldwide Internet economy.
[pic]
Intel® Architecture platform products[pic] Microprocessors, also called
central processing units (CPUs) or chips, are frequently described as the
"brains" of a computer, because they control the central processing of data
in personal computers (PCs), servers, workstations and other computers.
Intel offers microprocessors optimized for each segment of the computing
market:
Intel® Pentium® III Xeon™ processors for mid-range to high-end servers and
workstations
Intel® Pentium® 4 and Pentium® III processors for entry-level servers and
workstations and performance desktop PCs
Intel® Celeron™ processors for value PC systems
Mobile Pentium® III processors for performance in mobile PC systems
Chipsets perform essential logic functions surrounding the CPU in
computers, and support and extend the graphics, video and other
capabilities of many Intel processor-based systems.
Motherboards combine Intel microprocessors and chipsets to form the basic
subsystem of a PC or server.
e-Business solutions enable services and channel programs to accelerate
integration and deployment of Intel Architecture-based systems and
products.
[pic]Wireless communications and computing products[pic] These products are
component-level hardware and software focusing on digital cellular
communications and other applications needing both low-power processing and
high performance. These products are used in mobile phones, handheld
devices, two-way pagers and many other products. For these markets, Intel
offers Intel® Flash memory, application processors based on the Intel®
StrongARM processor core, and base band chipsets for cellular phones and
other wireless devices.
Networking and communications products[pic] Communications building blocks
for next-generation networks and Internet data centers are offered at
various levels of integration. These products are used in communications
servers, network appliances and computer telephony integration equipment.
Component-level building blocks include communications silicon such as
network processors and other board-level components, software and embedded
control chips. These products are integrated in communications hardware
such as hubs, routers, switches and servers for local and wide area
networking applications. Embedded control chips are also used in laser
printers, imaging, automotive systems and other applications.
New business products[pic] These products and services include e-Commerce
data center services as well as connected peripherals.
[pic]
Intel's major customers include:
Original equipment manufacturers[pic] (OEMs) of computer systems, cellular
phone and handheld computing devices, telecommunications and networking
communications equipment, and peripherals.
Users of PC and network communications products[pic] including individuals,
large and small businesses, and Internet service providers—who buy Intel's
PC enhancements, business communications products and networking products
through reseller, retail, e-Business and OEM channels.
Other manufacturers[pic] including makers of a wide range of industrial and
communications equipment.
The emergence of the PC industry
Until the early 1970s, computers were huge machines - from the largest
ones, the supercomputers, to mainframes and minicomputers - and were mainly
used for scientific research in universities and in military institutions,
and for business calculations in major companies. Surprisingly, when the
first microprocessors appeared, none of the established companies such as
IBM, DEC or HP had the idea to build small, personal computers. They just
did not see any market for them and could not imagine what those machines
should be needed for. None of these large companies anticipated the
possibilities of PCs, which are today used in almost every office, in the
home, in the school, on airplanes, etc. and can act as typewriters,
calculators, accounting systems, telecommunications instruments, libraries,
tutors, toys and many the like.
So, it was the hobbyists, single electronics wizards who liked tinkering
with electronic devices that constructed their own computers as the first
PCs. These "computer nuts" ignited the "fire in the valley;") they launched
the personal computer revolution in Silicon Valley "out of their own
fascination with the technology. The personal computer arose from a spirit
of sharing "hard-won technical information" with other computer freaks who
developed their devices for the fun of tinkering around in this fascinating
field of electronics. Some of these frequently young hobbyists found
themselves almost overnight as millionaires, after they had sold their
devices in a newly founded firm.
Before dealing with the story of Apple, which is typical of Silicon Valley
and responsible for the breakthrough of the personal computer, some
information about the first PC and the emergence of the PC industry shall
be given.
Altair - the first PC
Altair is often regarded as the first personal computer, although it was
one of those switches and lights computers - programming is done by
arranging a set of switches in a special order, and the results appear as
different combinations of lights. In other words, such a machine is a
genuine computer, but absolutely useless, as Steve Wozniak, one of the PC
pioneers, put it.)
After the first microprocessors had come onto the market, Ed Roberts, an
engineer at MITS, a small calculator company in Texas, decided to build a
kit computer, which he intended to sell to hobbyists. He chose Intel's 8080
as the CPU for his computer, since this chip was the most advanced and
powerful at the time. As Roberts wanted to sell his computer for less than
$500 and the official price for the 8080 was already at $360, he contacted
Intel and could finally receive the chip for only $75 apiece.
By the end of 1974, Roberts finished his computer, which was named Altair.
When the Altair was introduced on the cover of the January 1975 issue of
Popular Electronics as the first personal computer, which would go for $397
only, the market response was in credible. The low price was the actual
sensation, because it was largely known that the price for the Intel 8080
CPU powering the Altair was already at $360. So many hobbyists, engineers
and programmers who had keenly waited for their own personal computer,
which they could experiment on at home, welcomed the new product and
ordered "their" Altair on the spot.
Roberts had never expected such a great response and his small firm was
flooded by those immediate orders (more than 4000). He boosted up the
production, but still could not meet the huge demand. The Altair was a
success at first, and Roberts sold many of them.
However, he had increased production at the expense of quality and further
refinement of his computer, so the Altair brought along a lot of trouble
and was finally supplanted by other computers, which were superior.
Nevertheless, the Altair as the first successful microcomputer, contributed
a lot to the PC revolution, since it encouraged other people to build
personal computers (e.g. IMSAI, Apple).
The first computer shops
During this time, the mid-1970s, the first computer shops came into
existence. Pioneering in this field was Paul Terrell who came to the idea
of running such a shop, after the Altair had been put onto the market. His
first Byte Shop opened in Mountain View (located in the heart of Silicon
Valley) by the end of 1975.
Initially, Terrell sold the Altair and accessory products such as
additional memory boards and other devices, which came onto the market.
With the arising microcomputer industry, he could offer his customers -
mainly hobbyists and engineers - more and more products, and his shop
became a success. Other Byte Shops were opened and Terrell's computer shop
chain expanded beyond the Silicon Valley. The computer shops provided its
customers with a variety of devices around the computer and also with
service and help.
The Altair was shipped as a kit computer and was to be assembled first, and
then it was still not difficult to work with it. The hobbyists helped each
other with advice. It was this spirit of sharing solutions and the common
interest in microcomputers that led to the foundation of the first computer
club.
Homebrew Computer Club
The legendary Homebrew Computer Club was the first of its kind, and
provided an early impetus for the development of the microcomputer industry
in Silicon Valley. Its first meeting in March 1975 was held in one of its
members' garage in Menlo Park in Santa Clara County. The Homebrew members
were engineers and computer enthusiasts who discussed about the Altair and
other technical topics. The club attracted many hobbyists and was attended
by nearly 750 people one year after its foundation. The Homebrew Computer
Club had its own philosophy. People meet, because they were interested in
computers and liked tinkering with them, but not for commercial reasons -
at least in its early times. Its members "exchanged information about all
aspects of micro computing technology") and talked about devices they had
designed. From its ranks came the founders of many microcomputer companies
- for example Bob Marsh, Adam Osborne, or Steve Jobs and Steven Wozniak -
the famous Apple founders.
The Homebrew Computer Club is the place where the roots of many Silicon
Valley microcomputer companies are located. It has "spawned a revolution in
micro processing") and represents an "important step in the development of
a multi-billion dollar industry.
The Apple Story
Apple provides one of Silicon Valley's most famous stories. It shows features that are typical for most start-up firms in the valley, however, it is unique and its early success and its contribution to the personal computer are unmatched.
"Woz" and Jobs - the two "Steves"
Apple's history starts with the story of two young and exceptional people
who began building a computer in their garage and "launched the
microcomputer revolution,") changing our daily life in many respects.
The Apple story is the story of the two "Steves". Stephen G. Wozniak was a
typical Silicon Valley child. Born in 1950, he had grown up with the
electronics industry in Silicon Valley, and had been intrigued by
electronics from the start, since his father w as an electronics engineer.
Wozniak, known to his friends as "Woz", was bright and was an electronics
genius. At the age of 13, he won the highest award at a local science fair
for his addition-subtraction machine. His electronics teacher at Homestead
High School recognized Woz's outstanding talent and arranged a job for him
at a local company, where Steve could work with computers once a week. It
was there that Wozniak saw the capabilities of a computer (it was the DEC
PDP-8 minicomputer) and studying the manual, it became his dream to have a
computer of his own one-day. He designed computers on paper. Many other
students who grew up in Silicon Valley shared this dream.
In 1971, Wozniak built his first computer with his high-school friend Bill
Fernandez. This computer (they called it Cream Soda Computer) was developed
in his friend's garage and had "switches and lights just as the Altair
would have more than three years later.")
Bill introduced Woz to a friend of his named Steven P. Jobs. Jobs was born
in 1955, and his foster parents were - unlike most other people in Silicon
Valley - blue-collar workers. However, growing up in an environment full of
electronics, Steve came in con tact with this fascinating technology and
was caught by it.
Jobs was a loner and his character can be described as brash, very
ambitious and unshakably self-confident. With his directness and his
persistency he persuaded most people. He had the ability to convey his
notions and vision to other people quite well. An d he was not afraid to
talk to famous people and did never stop talking to them until they gave in
and did what he wanted. His traits could already be observed in his
adolescence, for instance when he - at the age of thirteen - called famous
Bill Hewlett, president of HP, and asked him for spare parts he needed for
his frequency counter.
Although Steve Jobs was five years younger than Wozniak, "the two got along
at once." Apart from their common fascination with electronics, they
"shared a certain intensity." Whereas Woz was intense in digging "deeper
into an intellectual problem than anyone else," Jobs's intensity was in
ambition. Moreover, both were genuine pranksters, and often they fooled
others with their technical knowledge.)
When they heard of "phone-phreaking" - making free long-distance telephone
calls with a device called "blue box" - the two started their first
business venture, building those blue boxes.
In 1972, Steve Jobs went to Reed College in Oregon; however, there he
became more interested in Eastern religions, dropped out a year later and
returned to Silicon Valley, where he took a job with Atari (a young video
game company) until he had saved enough money to go on a trip to India for
some months. Then he went back to California and to his work at Atari.
After attending three different colleges, Wozniak had begun work for
Hewlett-Packard in summer 1973. When Atari planned to develop a new game
called "Breakout," Jobs boasted he could design it in only four days -
quicker and better than anyone else. Jobs t old his friend Woz about it,
and the two designed the game in record time, working four nights and days,
and were paid the promised $700 for it. This experience showed them that
they could work together on a tough project and succeed.
The first Apple
When the Homebrew Computer Club came into existence, Wozniak began
attending its meetings. As he later would recall, Homebrew was a revelation
for him and changed his life. He met people who "shared his love for
computers") and learned from them as well a s he encouraged them with his
technical expertise. Others brought along their Altairs, which Wozniak was
interested in but could not afford. He realized this computer resembled the
Cream Soda Computer he had built some time ago.
Soon after, Chuck Peddle at MOS Tech released his new 6502 microprocessor
chip for only $20, which was a sensation compared to the usual price of
$400 for those chips then. Suddenly, Woz saw his chance and decided to
write the first BASIC for it, which was the most spread programming
language. After finishing with the BASIC, he made a computer for it to run
on. The other hobbyists at Homebrew were impressed by Wozniak's kit, which
actually was a board with chips and interfaces for a keyboard and a video
monitor.
Steve Jobs saw the opportunity of this machine, which they named Apple, and
finally persuaded Wozniak to start a company in April 1976. The two raised
the money for the prototype model with a printed circuit board by selling
Jobs' VW microbus and Wozniak's HP calculators. With the Apple I, Steve
Wozniak had designed a "technological wonder") and made his dream of owning
a computer come true. His friend Steve Jobs played the role of a salesman
and his ambitious promotion made the Apple I "a star in the tight world of
computer freaks.")
The breakthrough for the two Steves came in July, when Paul Terrell ordered
50 Apples for his Byte Shop, however on condition the computers were fully
assembled in a case and equipped with a cassette interface to enable
external data storage.
Jobs could "obtain net 30 days credit") for the parts they needed for their
computer. Working hard in Jobs parents' garage, they managed to construct
the 50 Apples within those 30 days.
The Apple I was continuously refined by Wozniak, and its sales made the
young company known, partly because the company's name appeared on top of
computer lists, which were published by electronics magazines in
alphabetical order.
Building up the company
While the first Apple was being sold, Steve Wozniak had already begun work
on another computer, the Apple II. This machine would have several special
features which had not appeared in any microcomputer before and would make
it "the milestone product that would usher in the age of the personal
computer.")
Jobs and Wozniak sensed the market potential their new computer would have,
but realized they did not have the necessary capital for constructing the
machines. So they tried to sell their computer to several established
companies such as Atari, HP and MOS Tech, which, however, rejected. Looking
out for some venture capital to produce the new computers by themselves,
Steve Jobs met with Mike Markkula, who had been a marketing manager at
Fairchild and Intel.
Markkula was at the age of 38, but had already retired, since he had made a
fortune of many million dollars by his stock option at Intel. He visited
Jobs's garage and became interested in their project. Markkula, the former
marketing wizard at Intel, thought it "made sense to provide computing
power to individuals in the home and workplace" and offered to help them
"draw up a business plan.") Finally, he decided to join the two Steves. He
offered $250,000 of his own money and his marketing expertise for on e
third of the company, which was incorporated as Apple Computer in January
1977. Markkula's decision marked the turning point in Apple's history; he
took care of the business side and arranged all the things necessary to
create a successful company. Markkula's know-how was crucial for Apple,
since Woz and Jobs did not have any business expertise. This knowledge is
very important for new firms. A lot of other start-ups in Silicon Valley
failed as their founders were only engineers, who lost control over their
enterprises when they could not meet the skyrocketing demand for their
products.
In 1977, Markkula hired Mike Scott, who had worked for product marketing at
Fairchild, as the company's president, because he felt Apple needed an
experienced person to run the company.
Jobs, who wanted only the best for his company, also persuaded Regis
McKenna, who ran the biggest and most influential agency in Silicon Valley,
to do public relations and advertising for Apple. McKenna, who worked for
successful Intel and many other companies, brought Apple legitimacy and,
among other things, designed the famous Apple logo. Another important
contribution was the fact that he made Apple the first company to advertise
personal computers in consumer magazines to "get national attention" and "
popularize this idea of low-cost computers.")
Steve Jobs's persistency had persuaded Wozniak, the electronics genius who
designed the machine, McKenna, and Markkula, the business expert. Jobs
himself was the driving force that brought the key components together to
build up a successful company.
Apple II - starting the personal computer boom
In April 1977, the Apple II was introduced to the public at the West coast
Computer Faire (market), where Apple had rented the largest booth just
opposite the entrance. Wozniak's "technological wonder") was a great
success and the first orders were already made. The Apple II was the "first
true personal computer.") It was the first microcomputer able to generate
color graphics and the first with BASIC in ROM and included a keyboard,
power supply and an attractive lightweight and beige plastic case, which
would become standard for subsequent PCs. The Apple II was more
sophisticated than any microcomputer before, and represented a machine,
which could be worked with effectively. Steve Wozniak had put all his
"engineering savvy") into it, and had created a computer he would like to
own.
The Apple II was given a rapturous welcome in the public. In 1977, the
company sold more than 4,000 computers, which were priced at $1,300, and
grew rapidly.
Programs and data for the Apple II were stored on cassette tapes. But this
common way of storage turned out to be quite unreliable and awkward. Mike
Markkula saw the future in floppy disks, which had been developed by IBM in
the early 1970s, and asked Wozniak to design a disk drive for the Apple II.
Woz took the challenge and finished in record time (only one month). His
final design was brilliant: he developed a new technique ("self-sync") and
created the fastest minifloppy disk drive. It was shipped in June 1978 and
proved vital for Apple's further growth. It made possible the development
of serious software such as word processors and data base packages,") which
increased the practical use of the computer decisively.
In 1979, Daniel Fylstra, a programmer from Boston, released VisiCalc for
the Apple II. This spreadsheet was a novelty in computer software. It
relieved business calculations considerably and could be used to do
financial forecasting. It was the first application that made personal
computers a practical tool for people who do not know how to write their
own programs. VisiCalc was very successful and contributed to the
skyrocketing sales of the Apple II.
The same year, marketing wizard Mike Markkula made another important
decision for Apple future growth. His idea was to create a new market in
the field of education and schools. The Apple Education Foundation was
established, which granted complete Apple systems equipped with learning
software to schools. This market should account for a major part of the
company's sales in the subsequent years, since Apple II soon became the
most popular machine for students.
Turbulences in the early 1980s
The successful stock sale provided Apple with an "extravagant amount of
capital ($1 billion)," which could be spent on developing the "company's
next computer generation.") This time, however, was quite turbulent for
Apple and was marked by crises and inner power struggles.
Designing on Apple III began in 1978. This computer was to be the successor
to Wozniak's Apple II, and was finally introduced to the public in 1981.
But it was not successful - a "disaster" or "fiasco,") since it had too
many faults and did not work properly. Nevertheless, the company was
without any financial troubles, since sales of the Apple II continued to
increase rapidly.
Concurrently, Steve Jobs became the company's visionary and thought about
the next computer generation. Such a visionary is a "person who has both
the vision and the willingness to put everything on the line, including his
career, to further that vision. Jobs became a perfect visionary and
convinced everyone around him with his vision.
In 1979, he and some other Apple employees visited the Xerox PARC (Palo
Alto Research Center), which was known for its advanced research in
computing. What they saw was revolutionary and had never appeared on any
personal computer before. The "environment of the screen was graphically
based" with icons (representing files or programs), with a mouse for
pointing and moving at them, windows and pull-down menus. Thus, the user
could "interact easily with the computer [...] without ever typing a single
letter.
Jobs was quite impressed and wanted to transfer this concept on a new PC
called Lisa, which was intended for the business world. Steve, however,
came up with ever-new ideas for the designers of this project. He "created
chaos because he would get an idea, start a project, then change his mind
two or three times, until people were doing a kind of random walk,
continually scrapping and starting over.")
Markkula and Scott were concerned about the further progress of Lisa. So,
in the course of a reorganization of the company, they decided to put John
Couch, a former software designer at HP, in a charge of the Lisa project.
Jobs was made chairman of the boa rd to represent Apple in the public.
However, Steve was shocked that he was taken the chance to fulfill his
vision, and relations between him and Scott deteriorated.
In February 1981, Wozniak, the technological brains behind the Apple I and
II, crashed his four-seated airplane. He hit his head badly and suffered
from a case of temporary amnesia. For some time, he retired from the
company and he finished his undergraduate degree at U.C. Berkeley.
The company had grown rapidly to 2,000 employees, and some of them had
joined Apple in the hope of a safe job. Setting an example, president Mike
Scott laid off 42 people on a day which came to be called "Black
Wednesday". Apple was shocked since some of t hose people seemed to have
been chosen arbitrarily. Scott's management style became more and more
disliked, and finally Mike Markkula decided to fire Scott and took over his
position until a new president was found.
The Lisa project
Meanwhile, Steve Jobs had discovered his new project. Soon he had taken
control of the Macintosh project, which had been started by Jeff Raskin in
1979 to design a small and handy personal computer. Steve dedicated all his
power to the Macintosh, which was to be a smaller and cheaper Lisa and was
to revolutionize the way of computing.
The company was now separated into three divisions, Apple II, Lisa and
Macintosh, which began competing against each other - particularly between
the latter two.
Lisa was developed by a number of experienced engineers and programmers who
had been recruited from HP, DEC and Xerox. This project was "the most
professional operation ever mounted at Apple") and was in contrast to
Steve's bunch of young hackers at Macintosh.
When Lisa was introduced to the public in August 1983, it was "ahead of its
time:") Lisa was easy to use because of the mouse, graphical interface and
windows, and had additional features such as multitasking. Though is was
first welcomed by the press as revolutionary, Lisa failed. One problem was
Steve's "lack of self-discipline:") When introducing Lisa he talked about
"his" Macintosh which would come out soon and with features like Lisa but
cost only a fraction ($2,000 instead of $10,000 for Lisa). The other
strategic mistake was the announcement that the two computers were not
compatible. So it is no wonder many people waited until the Macintosh would
come.
Finally, Lisa, which was intended for the business market at its price of
$10,000, lacked the ability to communicate with other computers - a fact
which was decisive for this market.
In the meantime, IBM had entered the personal computer market with its
first IBM PC in 1981, and already dominated a large part of it. Its first
PC "wasn't an earth-shattering machine technically") and was much harder to
use than the forthcoming Apple machines. But the fact that it was built by
IBM was enough to make it successful, and many software companies wrote
applications for it. Apple had bravely run a full-page ad saying "Welcome
IBM, Seriously", but it soon seemed to have lost the battle. Nevertheless,
IBM's entry brought Apple a lot of publicity as the only real competition
to Big Blue.
Thus, Lisa was not very successful and the second failure after the Apple
III. Still, Apple's sales increased - only because of the successful Apple
II. But the company needed a successor, and all its hopes were now placed
in the Macintosh.
The Macintosh revolution
The Macintosh was to fulfill Steve Jobs' vision of "computer to the
people". He created a personal computer, which was easy to use and at a low
cost. Steve thought of a tool for all people to broaden their mind - a
revolution towards the modern way of computing.
His Macintosh team was made up of teenagers and self-taught hackers -
"idiot savants, passionate plodders and inspired amateurs" - who "loved to
cut code.") They followed his vision and passionately designed this
outstanding computer. Jobs continuously drove his team to ever-greater
feats. He "kept thinking up crazier things, or more aggressive goals if
they were doing good, or if they were achieving their goals he wanted them
to do more. He couldn't just stop, he had to push you to the edge.") Steve
"gave impossible tasks, never acknowledging that they were impossible,") he
"doesn't have any boundaries, [...] because he has always been able to do
anything he wanted" due to "his early success.") As a consequence, people
usually worked 80 hours a week or more for their project.
Steve's most brilliant hackers were Andy Hertzfeld, Bill Atkinson and
Burrell Smith. The Macintosh was equipped with Motorola's 68000 CPU, a 3.5-
inch floppy disk drive, a detachable keyboard, and the amount of space it
took up from the desk should not be larger then a telephone book (this
meant a revolution in size). The computer was meant to be an open system,
and software applications were to be programmed by other companies, the
work of which was supported by a standard modular toolbox. This box made
sure that all applications were easy to use and appeared in a standardized
way. As well as other fundamental software the standard toolbox was
available from the computer's ROM (Read Only Memory).
Influenced by robotics assembly lines in Japan, Steve decided to "build the
most advanced assembly plant in the world") for the production of the
Macintosh. It was fully automated and the labor component accounted for
only one percent of the total cost.
Simultaneously to feverish efforts to finish the Macintosh, Apple succeeded
in finding a new president. Thanks to Steve's visionary powers of
persuasion, John Sculley, top manager at PepsiCo, finally agreed to join
Apple in April 1983.
The introduction of the Macintosh, which was Steve's revolutionary machine
to change the world, was dated to January 1984 and was to be accompanied by
a massive ad campaign in the media. Chiat/Day agency was asked to create a
commercial referring to the fact that 1984 was the year of Orwell's famous
novel. They produced the sixty-second ad, which was really exceptional, and
proposed running it only once - during the Super Bowl, the most watched
television event of the year.
It would be a million dollar minute, which was to capture public attention.
Macintosh was presented as a milestone product that would revolutionize the
way of computing, breaking IBM's, the "Big Brother's" dominance and
conformity it was about to establish by its IBM PCs.
When the commercial was broadcast, it reached 46.4 percent of America's
households. People were stunned about this outrageous ad, which was "unlike
anything they had seen before.") Suddenly, millions of people knew
something called Macintosh. The "commercial sparked widespread
controversy"), and won the highest advertising awards (more than 30).
The Macintosh (priced at $2,495) was a success from the start. Steve Jobs,
the visionary, compared it to Graham Bell's invention of the telephone a
hundred years ago. It was the "most approachable") and sophisticated
personal computer of the time, which ushered in a new era of easy computing
with a graphical interface and mouse. This feature would be taken over by
many software companies in the subsequent years, particularly by big
Microsoft, which developed Windows. This graphical user interface, which ha
s been established as the industry standard today, is quite similar to
Macintosh’s and makes possible the easy use of IBM PCs.
In the first 100 days, an industry record of more than 70,000 Macintosh
computers were shipped - a number that went up to the total of 250,000 sold
units by the end of the year.
John Sculley and Steve Jobs
Despite the astonishing figures of sold Macintosh computers and a boost in
sales to more than $1.5 billion in 1984 (up 55% from 1983),) Apple soon
fell into its most severe crisis, which would only be overcome by Sculley's
hard measures and led to the firing of its visionary Steve Jobs.
John Sculley had been vice-president at PepsiCo where he had successfully
made Pepsi the number one brand in the Cola Wars. Actually, there was no
reason for him, one of America's top managers with a secure and highly paid
position at PepsiCo, to join a bunch of young computer nerds at the West
coast. The reason why he finally agreed yet is Steve Jobs who impressed him
by his visionary ideas and asked him a question to which he did have no
answer: "Do you want to spend the rest of your life selling sugared water
or do you want a chance to change the world?") This question told him that
his "entire life was at a critical crossroads.")
Sculley and Jobs became close friends. They could "complete each other's
sentences" because they "were on the same wavelength.") The "dynamic duo",
as they were called in an issue of Business Week in October 1983, was
esteemed highly in the press and contributed significantly to Apple's good
reputation in the public at the time.
The downfall came soon, however, when their largely overestimated
expectations of the Macintosh sales could not be met. In their euphoria
about the revolutionary Mac, they thought they would ship 80,000 units by
the end of 1984, and had produced them in advance. When the reality brought
"merely" 20,000 with a falling tendency, the crisis was evident. Reasons
for that decline were that the Macintosh was not as "perfect" as expected -
with its 128 KByte RAM (they were then mounted to 512 KB) it was not
powerful enough, and there were hardly any software applications available
yet. Moreover, at the 1985 annual meeting, Jobs and Sculley neglected the
fact that 70 percent of the company's sales were still due to the Apple II,
whereas the Macintosh accounted for only 30 percent. Many sophisticated
Apple II designers were annoyed and left the company.
Steve Jobs became more and more angry and aggressive because of the
continuing drop in Macintosh sales (merely 2,500 units in March 1985).) He
blamed everyone for it, except for himself. Steve just did not see that the
"problem was with him.") In the end, he blamed even Sculley for the crisis
and wanted to lead the company himself. But this seemed impossible to
everyone else: "Steve was a big thinker, an inspirational motivator, but
not a day-to-day manager. What was sad was that he could not see it.")
When Sculley was informed that Jobs intended to remove him insidiously from
the company, he was quite concerned, but then decided to choose the
company's welfare over his friendship to its visionary co-founder.
Supported by Markkula and the other members of the board, in May 1985, he
dismissed Steve from his positions as the vice-president and as the leader
of the Macintosh division; Jobs did not have any managerial power anymore.
Steve Jobs was quite depressed and made trips to Europe and the Soviet
Union. Finally, he decided to leave Apple in December 1985, and sold all
his Apple shares. He took along some of the best employees to start his new
venture - NeXT. He intended to design a workstation for the university
sector. In February 1987, billionaire Ross Perot invested $20 million for
16 percent of NeXT. The new computer was introduced to the public in
October 1988, priced at $6,000.
At Apple, John Sculley took several measures to save the company, which had
become chaotic. In the course of a major reorganization he dismissed 1,200
employees (20% of the total workforce) and put the broken parts of the
company together to form one unified Apple. His restructuring saved a lot
of costs and consolidated the company.
1986 was Apple's worst year with a decline in net sales from $1.92 (1985)
to $1.90 billion. Gradually, Sculley could persuade software companies,
which had turned away from Apple, to write applications for the Macintosh.
Apple found its new market in desktop publishing (DTP), for which the
Macintosh was predestined. By the time, the Macintosh became a serious tool
for the business market and its sales increased again.
Until today, Apple has grown steadily and now reaches net sales of more
than $7 billion. Although the Macintosh lost the battle against Big Blue,
today it is a successful product and was sold over 2.5 million times
worldwide in 1992. Apple remains the second-biggest personal computer
manufacturer after IBM and has released innovative products such as
QuickTime, an easy to use multimedia software combining sound, video and
animation. Its latest development is Newton, a personal digital assistant
(PDA), which serves as an electronic notepad and "integrates advanced hand-
writing recognition, communication and data-management technologies.")
Apple today.
CUPERTINO, California—December 5, 2000—Apple® today announced that it has
experienced significantly slower than expected sales during October and
November, which will result in revenues and earnings for its quarter ending
December 30, 2000 being substantially below expectations.
The company expects to report revenue of about $1 billion and a net loss,
excluding investment gains, of between $225 and $250 million.
The $600 million revenue shortfall from previous expectations is due to
lower than expected channel sell-through across all geographies and
unplanned sales promotions and pricing actions. The net loss is the result
of the revenue shortfall and cancellation charges related to decreases in
forecasted component purchases for current products.
“The swift industry-wide decline in PC sales will result in Apple’s first
non-profitable quarter in three years,” said Apple’s CEO Steve Jobs. “We’re
not happy about it, and plan to return to sustained profitability next
quarter. We are committed to reducing our channel inventories to normal
levels by the end of this quarter, and remain very excited about the new
products and programs Apple will be rolling out in 2001.”
“In light of the lower results anticipated for the December quarter, we now
expect revenues for fiscal 2001 to be in the $6 to $6.5 billion range,”
said Apple’s CFO Fred Anderson.