The Man Behind the Microchip Read online

  The group could certainly leave without Noyce. Where to go was another question, however. Easiest would be for them to peel off, one by one, to be hired by one of the electronics firms popping up along the East Coast or in Southern California. The easy route was unappealing, however. The seven young men liked working together. They respected each other’s minds and enjoyed bouncing ideas around. They also had a sense that, given their deliberately complementary skills—Shockley had chosen wisely—they were more valuable as a group than separately.

  Was it even possible to stay together? The Shockley dissidents were unsure. The work they wanted to do was much too risky and research intensive for traditional bank financing, and venture capital did not exist. The only way that the young men could envision staying together was to try to get hired as a group and convince the corporation that hired them to set up a semiconductor division.

  They set about exploring their options while keeping up appearances at Shockley. Quite early on, Eugene Kleiner suggested that they write a letter to an investment firm where his father had an account. Hayden, Stone, and Company was a small firm, but it had a solid reputation among New York investment banks, and it had recently arranged the financing for General Transistor, the first publicly held independent transistor firm and a manufacturer of germanium devices. Perhaps the bankers could help find a company to hire the group en masse. The other six men agreed to this plan.

  Kleiner composed a letter to the person in charge of his father’s account. “We have an experienced and well-diversified group of men with background in the fields of physics, electronics, engineering, metallurgy, and chemistry,” he wrote. With $750,000 to cover salaries and expenses, “we believe that we could get a company into the semiconductor business within three months.” Kleiner continued, “The initial product would be a line of silicon diffused transistors of unusual design applicable to the production of both high frequency and high power devices. It should be pointed out that the complicated techniques for producing these semiconductors have already been worked out in detail by this group of people and are not restricted by any obligation to the present organization.” The young men felt they knew as much as anyone in the world about building transistors. Between them, they had done everything from basic scientific research to ordering supplies, to building equipment, to overseeing small-scale production runs.86

  They admitted they had already done much of the work—“at a cost of over a million dollars”—necessary to bring their new employer into the semiconductor business. They also said they expected to hire several highly trained technicians from Shockley Semiconductor Labs. Privately they may have discussed whether or not importing techniques learned and people trained at Shockley might constitute some sort of intellectual property theft, but they decided the techniques were common practice, and the potential hires would always have the option of staying with Shockley’s operation.

  The group had two pressing concerns. First, they needed to obtain a $25,000 license from Western Electric to cover Bell Labs’ semiconductor patents—a cost they factored into their projected expenses. Second, they admitted they needed “good management,” for no one within the group “ha[d] ambitions as a manager at the top level.” Kleiner’s letter promised that despite the management vacuum, “the horizontal ties in the group are strong and adequate technical leadership is present within it.”87

  The account manager to whom the letter was addressed had left Hayden, Stone, so the missive was passed around the office until it landed on the desk of a newly minted Harvard MBA, Arthur Rock, who describes himself as the investment firm’s version of a “resident scientific guru.” Rock, a native of Rochester, New York—his father had owned a candy store—had a runner’s build and an unusually intense manner for someone who was barely 30. He had been a professional investor since the day he left Harvard. He read the letter carefully. The seven men sounded inexperienced but promising. The letter’s strongest selling point, in Rock’s estimation, was “the fact that Shockley had chosen them”—for as Rock well knew from his research on the transistor business, “[Shockley] had the choice of almost anyone in the country.”88

  Adding to his interest were the early reports out of the General Transistor financing, which looked extremely promising. Rock knew that his boss, Alfred “Bud” Coyle, was interested in making similar investments. Rock showed Coyle the letter and said that he thought it was worth the price of a plane ticket to visit the seven scientists in California.89

  A few weeks later, in late June, Coyle, Rock, and the seven Shockley scientists were seated around a dinner table in San Francisco. After a bit of probing, Rock decided that the seven men, all about his age, were “pretty good guys.” He and Coyle were prepared to help the group—but not in finding a company to hire them and start a new division. The bankers urged the scientists to consider asking a firm to finance an entirely new business along the lines detailed in Kleiner’s letter. Rock and Coyle further suggested they seek more than $1 million, not the $750,000 the group thought they needed.90

  The conversation fired the young men’s imaginations. Picture what they could do with $1 million and no Shockley to thwart their efforts! Starting something on their own would also mean that they could stay in the Bay Area. That would make it easier to attract the people they had met at Shockley and other local companies. It would also make them happy personally. They had all grown deeply attached to their new home, with its glorious weather and easy driving distance to mountains, ocean, and San Francisco.91

  There was, however, one problem. As the group had itself admitted in its letter, they lacked a manager. Coyle and Rock were concerned they might “have a little problem selling this thing” to other bankers at the firm without being able to point to a clear leader among the Shockley defectors. The seven told the bankers about Noyce: “We have a leader, but he feels a lot of obligation to Shockley. He ha[s] a title that we don’t have, and he is also a very sharp guy. He is not going to give away the store.”92

  At Rock’s and Coyle’s urging, they decided to try again to convince Noyce to join them. Sheldon Roberts spent a long evening on the phone with Noyce, telling him about the meeting with the bankers, trying to convince him that the group could stay together, do something exciting, and even make money. At one point Roberts told Noyce that Shockley was playing him for a fool by giving him titles but little real authority. He pointed out that the group’s departure would eviscerate Shockley Semi-conductor—only the four-layer diode effort would remain intact. Noyce waffled. One minute he would sound like he was ready to join the seven; the next, he was (in Moore’s words) “chickening out.” He was concerned that his fellow technologists might have mistaken the bankers’ excitement at the prospect of a fast commission for a genuine belief that the young group could build a viable company. He wanted absolute assurance that the seven were going to leave and that they had a realistic chance of launching a successful transistor operation. He was not going to stake his career on high hopes and friendly feelings.93

  At last Noyce agreed to come to the next meeting with Coyle and Rock, scheduled for the following morning. “I have looked back on my two primary reasons for coming out here—to work with Shockley and to come to the west coast [sic],” he explained to his parents. “The importance of the first has been considerably diminished, primarily by recent experience, but also by finding out that the great aren’t much better than the average. And the second can be maintained otherwise, in a different situation.”94

  At the appointed time, the men converged in the driveway of Vic Grinich’s house. Several of them were surprised to see Noyce: “I looked in the back seat and there was Bob,” recalled Julius Blank. “‘Nice to have you here,’ I said. He replied in that deep voice of his, ‘Nice to be here.’” Half the group squeezed shoulder to shoulder in the Roberts family’s station wagon, the rest in another car. Excited and nervous, they headed up the Peninsula to the Clift Hotel in San Francisco.95

  They met Arthur Rock
and Bud Coyle in the Redwood Room of the historic hotel. Noyce made an immediate impression on Arthur Rock, who sensed he was primus inter pares (first among equals). As bright and competent as the other seven, Noyce also exuded a confidence and charm that Rock had not sensed in the rest of the group. “What came through was that he was some kind of a leader and they looked up to him,” says Rock. “He became the spokesperson.” One of the other dissidents put things a bit more directly: Noyce, he said, “swung from being recalcitrant to becoming the big talker. The rest of us did not have anything to say after that point.”96

  The eight Shockley men and two bankers agreed they would start their own company. Coyle, a ruddy-faced Irishman with a fondness for ceremony, pulled out ten newly minted one-dollar bills and laid them carefully on the table. “Each of us should sign every bill,” he said. These dollar bills covered with signatures, the bankers told the eight young scientists, were their contracts with each other.97

  4

  Breakaway

  Days later, the group of eight and Arthur Rock reviewed copies of the Wall Street Journal and lists of firms traded on the New York Stock Exchange, circling the names of companies that might, maybe, be interested in backing them. If a company made capacitors, batteries, resistors—anything that even hinted at an interest in electronics—the young men considered it fair game. Soon Rock had written some 30-odd names on his legal pad. Included were computer manufacturer Sperry Rand, adding-machine giant Burroughs, National Cash Register, and consumer electronics giant Magnavox, as well as companies such as General Mills and United Shoe that might want to use transistors when they upgraded their manufacturing processes. Rock promised that when he got back to New York, he would start calling around.1

  Meanwhile, the group should continue their work at Shockley and keep their thoughts on future good fortune. That was not hard to do. The oldest, Kleiner, was 32, and the rest were under 30. Most had young children. They lived in one of the fastest-growing, most beautiful spots in a country more prosperous than ever before in its history. The very soil beneath their feet was so fertile that every spring Noyce hosed down his seven budding plum trees to avoid a summertime deluge of fruit. In such a place, it was not difficult to focus on the future.2

  The group of eight was working at the heart of one of the most exciting and patriotic industries in Cold War America: electronics, glamour girl of the space age. At the beginning of the decade, space travel had been only a fantasy; now, in 1957, both the Soviets and the Americans had announced imminent completion of rockets that could orbit the Earth. Such sophisticated technology relied on the smallest, fastest, most reliable electronics available—and that meant transistors. Already in 1957, more than 3.5 million transistors had been produced, an increase of 175 percent over the previous year’s output. Transistor sales had zoomed 105 percent to $7.1 million in that same one-year period. In the six years after Bell Labs began licensing the rights to the device, some dozen new transistor firms emerged from within Bell Labs, Hughes Aircraft, Motorola, and RCA. These companies all sold to the same customers, the United States military and its subcontractors, the only organizations with sufficient financial resources and incentive to buy complex state-of-the-art electronics.3

  The coterie of eight also planned to target the military market, but the group differed from other young transistor entrepreneurs in its large size, particularly relative to the size of the Shockley operation from which it came, and in its funding plan. Fully half of the senior scientific staff, and almost 15 percent (one in eight) of Shockley’s entire workforce had signed the one-dollar-bill contracts. By contrast, firms such as Transitron or Philco had been started by one or two rebels from firms with hundreds of employees.

  Most of the transistor entrepreneurs had been backed by family money or other private capital resources. Arthur Rock at Hayden, Stone soon came to appreciate why. Every company he approached on behalf of the group of eight turned the idea down flat, without even asking to meet the men involved. Some firms may have found the pith of the letter—please give a million dollars to a group of men between the ages of 28 and 32 who think they are great and cannot abide working for a Nobel Prize winner—unpalatable. Even if a firm thought the proposal was interesting in theory, no standard operating procedure existed for the company-within-a-company undertaking Rock and Coyle recommended. What accounting procedures would be used? How could the funding firm allow this group of unknown young men to run their own operation, according to criteria of their own devising, and not permit other employees the same autonomy? In the 1950s, with its ethos of conformity, this smacked of unseemly preferential treatment.4

  Undaunted, Bud Coyle mentioned the scientists to playboy-millionaire-inventor Sherman Fairchild. A meticulous man in his sixties, Fairchild was a bon vivant who frequented New York’s posh 21 Club and wore “a fresh pretty girl every few days like a new boutonniere,” according to Fortune. His father had preceded Tom Watson as the chief executive of the company that would become International Business Machines, and thanks to the vagaries of inheritance (Tom Watson had several children, while George Fairchild had only Sherman), he was the largest shareholder in IBM.5

  Fairchild liked to invent and to build companies around his inventions. He developed an efficient method of lighting tennis courts and started a tennis-court company. Fairchild Recording Equipment Corporation sold several audio products of his design. His biggest companies, Fairchild Aviation and Fairchild Camera and Instrument, manufactured and sold planes and aerial cameras for which he held important patents.

  Sherman Fairchild was not involved with day-to-day operations at his companies, but he suggested to the senior management at Fairchild Camera and Instrument that it might explore the prospects of the West Coast technologists. Headquartered in Syosset, New York, with roughly $23 million in assets, Fairchild Camera and Instrument was a company in transition in the third quarter of 1957. Sales were a satisfactory $43 million, but profits hovered at a negligible $267,000, and the company was suffering from administrative bloat. Sherman Fairchild had recently tapped 37-year-old John Carter, a burly, ruddy-faced vice president at Corning Glass, to assume the reins at the firm.

  A 250-pound, cigar-chomping man who looked every inch the fat-cat capitalist, Carter was uneasy with Camera and Instrument’s focus on defense work, which accounted for 80 percent of profits. His discomfort was confirmed in the third quarter of 1957, when Camera and Instrument began receiving only partial payments on its invoices submitted to federal agencies, thanks to austerity measures recently instituted by the government. Carter immediately slashed administration by 22 percent and sold off several unprofitable divisions. He felt acquisitions offered the easiest entrée into commercial and industrial markets and convinced the board of Camera and Instrument to acquire a small teletype company in the summer of 1957.6

  Semiconductors were a logical choice for the expansion-minded company. The devices were increasingly making their way into the very missiles, satellites, radiation circuits, and reconnaissance computers that used Fairchild Camera and Instrument’s products. In the industrial markets Carter coveted, automobile manufacturers, oil refiners, and tobacco producers either already used semiconductors in their automated operations and testing functions, or were actively looking into how to do so. Camera and Instrument had closely studied the possibility of entering the semiconductor field about six months before Coyle contacted Fairchild, but the company feared the large capital investments and years of basic research that semiconductor work would require. Acquisition would circumvent the problem, CEO John Carter decided, but no promising firm had surfaced until the group from Shockley. As Noyce put it, Fairchild management was “primed and eager to go along if [the Shockley defectors’] ideas seemed practical.”7

  Carter charged Camera and Instrument executive vice president Richard Hodgson with investigating the West Coast group of eight. A Bay Area native and Stanford graduate who had worked at MIT and Paramount Pictures, Hodgson had been hired by Fai
rchild with the mandate “to get the company into electronics.” Hodgson was a likeable and technically capable man whom one Fairchild Semiconductor founder described as “just the right personality to work with us.”8

  Hodgson was eager to meet the California group, who were still working for Shockley at the time, but Sherman Fairchild first insisted that Hodgson personally contact Arnold Beckman to let Shockley’s backer know what was happening and to confirm that he would not stand in the way of unfolding events. Beckman took the high road, assuring Hodgson that “there’s never going to be a problem from me against Fairchild for taking this group away.” Hodgson then flew out to visit with the would-be Shockley defectors and the men from Hayden, Stone. The group of eight, the bankers, and Hodgson talked in general terms about what the group could do and what they wanted in terms of funding and support.9

  Hodgson left the meeting satisfied enough to invite Eugene Kleiner and Bob Noyce to Fairchild Camera and Instrument’s Syosset headquarters. The two flew to New York in late August, with the purpose, as Noyce wrote his parents, “of selling the group [to Sherman Fairchild] and settling the principle of the financing arrangements.” Noyce was impressed with Sherman Fairchild and with his enormous townhouse in Manhattan, which offered commanding views of the city through windows Fairchild had specially outfitted with a gadget he designed to open and shut the blinds electronically.10