The Rise Of Silicon Valley

California’s Santa Clara Valley is an alluvial plain at the southern end of San Francisco Bay. Until the 1960s the valley was home to prune, apricot, and cherry orchards and a worldclass canning and packing industry. Today the world knows it as Silicon Valley.

Though that name burst into world renown in the past thirty years, the origins of the electronics industry there reach back a whole century. Silicon Valley did not spring out of nothing; its beginnings were nurtured for decades largely by one man, Frederick Terman, an electrical-engineering professor at Stanford University, in the heart of the valley. He spent his life helping lay the groundwork for what became Silicon Valley, making it possible for the area to become the capital of American high tech.

In the late nineteenth century, when electrical industries began everywhere, California seemed almost a colony of the United States. It lagged behind the East in developing manufacturing industries partly because it had to import the essential resource of industrial energy—coal. But four decades of gold mining gave Californians a rich knowledge of hydraulic engineering. By the 1890s entrepreneurs and engineers were talking of harnessing waterpower to generate electricity for the state’s coastal cities.

Regional electric power companies began building hydroelectric plants in the Sierra Nevada, using the Pelton waterwheel, developed in San Francisco for the mining industry, and generators produced by Eastern manufacturers. To bring the electricity to San Francisco and other cities, the power companies had to develop high-tension long-distance transmission systems. By 1901 they had succeeded, and in the process company engineers and university engineering professors had created a new cooperative style of research and development. Engineers and professors exchanged designs and tests of equipment, and they communicated easily. As one power-industry representative put it, the professors tore “the mask of ambiguity from electrical theory.” They made it possible to avoid “an interminable labyrinth of mathematics [or] catacombs of theory … by at once opening up a panorama of results.”

In 1898, for instance, the Stanford professor Frederic A. C. Perrine, his students, and several power-company engineers together successfully field-tested a new high-potential oil switch that made possible the construction of forty-thousand-volt lines across the state. Perrine took a two-year leave from Stanford to consult with the new Standard Electric Company of California, for which he coordinated tests of aluminum wire, helping introduce it for use in California.

Stanford University had been founded in 1885 by the Central Pacific Railroad magnate Leland Stanford, as a memorial to a son who died young; it first accepted students in 1891. Within a decade its electrical-engineering program had become an important element of the California electric-power industry. Its graduates found ready work in the expanding power companies, and its professors worked closely with the industry. In 1905 Harris Ryan, a pioneer in transmission research at Cornell, came to Stanford to head the young electrical-engineering department, and he furthered the idea of university-industry cooperative research and development, installing the first high-voltage laboratory in the West in 1913 and the first two-million-volt university laboratory in America in 1926.

Meanwhile, shipping interests at the growing port of San Francisco became interested in the wireless communication system developed in Europe by Marconi. Wireless firms had begun to serve the coastal region soon after 1900, and in the words of the’ historian Arthur Norberg, “wireless was ripe for innovation and excellent for exploitation with minimal capital. The only obstacle for amateur and entrepreneur alike was how to circumvent the Marconi patents.”

In 1909 Cyril F. Elwell, a graduate of Stanford’s electrical-engineering program, solved that problem by purchasing rights to the wireless patents of the Danish scientist Valdemar Poulsen. He demonstrated the system in Palo Alto, near Stanford, and won financial backing from Stanford’s president, David Starr Jordan, and several professors to organize a company. Elwell set up his new firm in San Francisco, and by 1911 it had a manufacturing branch called the Federal Telegraph Company with a laboratory in Palo Alto. Now young university graduates had a backyard opportunity— in what would later become Silicon Valley—in a new branch of the electrical field.

In 1910, when his family moved into this fruitful environment, Frederick E. Terman was a bright and talented boy of ten. His father, the psychologist Lewis M. Terman, had just joined the Stanford faculty, bringing his family from Indiana. The elder Terman had a reputation as an expert in human intelligence, and he soon developed the Stanford-Binet intelligence quotient, the basis for standard IQ testing. Frederick Terman hunted rabbits in the hills of the Stanford campus, fished and swam in local lakes, and caught the wireless craze. By age sixteen he had built a transmitter with his friend Herbert Hoover, Jr.

Terman graduated from Stanford in 1920 with a bachelor’s degree in chemical engineering. He worked briefly at the Federal Telegraph lab and then returned to Stanford to enroll in Harris Ryan’s electrical-engineering program. After graduating from that, in 1922, he earned a doctorate at the Massachusetts Institute of Technology. He returned home to ready himself for a new career in the East but was struck down by tuberculosis.

In 1925 Ryan opened a small radio-communications laboratory in the attic of Stanford’s electrical-engineering building and offered his convalescent former student a half-time teaching job there. Terman had already made up his mind to work in radio and accepted at once. “I took [over] the course in the theory of high voltage lines,” he recalled years later, “and just modified it into a generalized theory of long lines [so it] included telephone lines, radio frequency transmission lines, antennas, artificial lines, filters, and so on.”

Terman felt that Stanford was falling behind other schools in electrical engineering and needed better research with more backing to catch up. In 1927 he wrote an article for Science suggesting that better engineering research was done in corporations than at universities. He gave a copy to Ryan along with a letter asking for support. “With its past reputation as a center of high voltage research, and with the establishment of the Ryan Laboratory,” he wrote, “Stanford is in an excellent strategic position to initiate a pioneer movement that will make this the national research center of electrical engineering.”

Ryan was swayed. Terman got additional money, recruited bright students, and began ambitious research projects in radio-wave propagation and vacuum-tube design. The radio lab soon became a hub for, as Terman put it years later, “electronic nuts, those young men who show as much interest in vacuum tubes, transistors, and computers as in girls.” He supervised thirty-three advanced degrees in his first six years, half of the department’s total. After Ryan retired, in 1932, more and more electrical-engineering students gravitated to Terman. He was “studious, soft-spoken, and-forever-self-effacing,” writes Michael Malone, the author of a history of Silicon Valley, “first a brilliant teacher and later a profound visionary.”

One of the things that attracted students to Terman was his interest in the local electronics industry. He recalled, “I would take the boys out to see … what the world off campus was like, and sometimes have people from these companies come in to give talks to the students.” This became especially important after Federal Telegraph relocated to the East in 1932; the company had been the prime local employer for Stanford communications graduates. Federal’s departure left “kind of a semidesert out here, and one was interested in these [small] companies and helping where they could.” Among the remaining firms were Heintz and Kaufmann and Eitel-McCullough in San Francisco and the new Litton Engineering Laboratories in Redwood City. Both Ralph Heintz and Charles Litton were Stanford graduates.

Terman also sought links with other university departments. In 1929 he wrote in his annual report on the laboratory, “It is anticipated that from time to time in the future cooperation from the chemistry, physics, and mathematics departments will be very desirable and perhaps necessary.” Such connections were made largely as the result of the work of a Stanford graduate named William W. Hansen, who joined the physics department in 1934.

Hansen wanted to use the Ryan Laboratory to pursue research using electrons to probe the atomic nucleus but found that too expensive, so he developed his own cavity resonator to accelerate electrons and called it the rhumbatron. At the same time, a young pilot named Sigurd Varian and his brother Russell opened a small laboratory near their home in Halcyon, a town about halfway between Palo Alto and Los Angeles, to develop an aircraft navigation and detection system. Russell Varian had been William Hansen’s roommate at Stanford, and he suggested that the rhumbatron might be useful for the project. A collaboration began that brought the rhumbatron to the brothers and the brothers to Stanford. The university agreed to take them on as unpaid research associates and give them laboratory space and a hundred dollars a year in materials in return for a half-interest in any resulting patents. Within a few months they had developed a new electron tube called the klystron, which seemed to be the key to the navigation-and-detection problem. They quickly sought and received financial support from the Sperry Gyroscope Company in New York, a boost that launched increased microwave research at Stanford.

Terman was named head of Stanford’s electrical-engineering department in 1937. He soon was trying to bring together two of his former students, William Hewlett and David Packard, who had met on campus and then gone their separate ways after graduating in 1934. Packard had taken a job in New York with General Electric; Hewlett had continued with Terman for a while and then gone to MIT for further study. In 1936 Terman helped Hewlett get a job and also brought Packard back to Palo Alto with a graduate fellowship.

In 1937 Terman encouraged Hewlett and Packard to form a business to commercialize an audio-oscillator Hewlett had developed under Terman’s guidance. In a tiny shop in Packard’s garage, Hewlett perfected the device, a distortion analyzer that generated signals of different inaudible frequencies and was useful for tasks like testing loudspeakers. He and Packard also produced an electronic frequency meter, and Terman was able to tell when they had orders for their devices: “If the car was in the garage there was no backlog. But if the car was parked in the driveway, business was good.” By 1940 the two young engineers’ growing business had nine employees. It would expand rapidly during the war years.

In addition to helping Hewlett and Packard, Terman directed several students to William Hansen’s klystron project. On the eve of World War II they were successful in making the klystron a practical microwave radio device with many applications. The Sperry company became an important war contractor, and Terman’s connection to Hansen’s work helped him land ten thousand dollars from Sperry for klystron research at Stanford. Meanwhile, Sperry moved Hansen’ and his physics team to its Long Island research center for the duration. In December 1940, before leaving, Hansen taught a special class on the klystron for Terman’s graduate students, preparing them for the war work they would be doing with Sperry’s support. As the historians Stuart Leslie and Bruce Hevly write, “Sperry’s support of klystron research back at Stanford trained a new generation of microwave engineers. … In just a few years Stanford’s electrical engineering program had gone from providing a couple of graduate students for the physics department microwave studies to a full-fledged research commitment of its own.”

Terman, too, was swept across the continent by the war. In 1942 Vannevar Bush, chairman of the federal Office of Scientific Research and Development, asked him to move to Boston to take over the top-secret Radio Research Laboratory at Harvard. There he managed more than eight hundred people designing jamming devices for radar and developing tunable radar receivers. He lived across the street from the treasurer of Harvard University, and because his project brought in more than half the money Harvard was receiving for war research, the two became friendly. On Sundays Terman chatted with his Harvard acquaintance as he worked in his garden. “I asked him what he thought would happen after the war. It seemed to me there’d be a new wave of government support. The scientific war effort had been so very successful.” Terman’s friend agreed.

As Terman later said, “The war had made it obvious to me that science and technology are more important to national defense than masses of men. The war also showed how essential the electron was to our type of civilization.” After the war “there would be, for the first time, real money available to support engineering research and graduate students. This new ballgame would be called sponsored research.”

When Terman returned to Stanford in 1946 and assumed leadership as dean of engineering, he moved forward with the view that the university could achieve a position of national importance in electronics. It already had a strong reputation in high-voltage power transmission, but in Terman’s words, the “newer opportunities, the opportunities of the future, were in electronics and things related to electronics.” So he launched a simple plan to attract the brightest faculty to take on the most desirable research projects and draw the best graduate students. And that faculty would develop close connections with private industry. He called his approach steeple building, for the way a church traditionally represented the spiritual center of the commercial community around it. Since Stanford already had an edge in microwave technology, with its klystron work, he looked to that field as the foundation for the future.

“After the first month or two I was back at Stanford,” recalled Terman, “a couple of boys showed up from the Navy. The Office of Naval Research had just been established, and they headed for my lab first.” The ONR had government money to grant for university research. Terman talked over some ideas with the men and landed a $225,000 annual contract for basic research. “We started off with three projects. The one in chemistry fizzled. The physics project led to the Nobel Prize for Dr. Felix Bloch, who discovered nuclear magnetic resonance. The project in electrical engineering was a seed that blossomed into today’s nationally recognized research program in engineering.” It also led to the founding of Stanford’s Electronics Research Laboratories (ERL) and the development of the Stanford Linear Accelerator Center, which also drew on government money.

The ERL carried out fundamental studies in electronics. The researchers there bristled at the idea that it might become a development laboratory for military or commercial ventures, but they did follow Terman’s lead in building ties outside the university. After the war Russell and Sigurd Varian had opened a business in San Carlos, not far from Palo Alto, joining Hewlett-Packard, Litton Engineering, and other homegrown electronics firms. ERL researchers worked informally and sometimes formally with these and other companies, converting their discoveries into practical hardware, and the number of innovations coming from ERL’s fundamental research gave Stanford a position of increasing importance to military and commercial interests. The klystron became a basic ingredient in radar, in atom smashing, and in the Stanford Linear Accelerator, and the ERL also did a great deal of work in microwave tubes and in nuclear magnetic resonance, developing the F-6 fluxmeter for precise magnetic-field measurements. When the Korean War began, in 1950, the Office of Naval Research went straight to Terman with an applied-research proposal, and Terman got university support for it within two weeks.

The resulting $450,000a-year applied-electronics research contract consolidated Stanford’s position in electronics. Terman became the director of a new Applied Electronics Laboratory (AEL), housed in a new facility built with Navy money and a gift from Hewlett-Packard. In directing the program, he accepted only projects that would strengthen Stanford’s basic electronics research and enhance the university’s reputation. He also redoubled his efforts to build stronger ties with industry. And now what Terman described as a “community of interest between the University and local industry” became essential; a stated purpose of the AEL was to produce prototype electronic devices and then work with the firms that would manufacture them.

The “community of interest” was further encouraged by Stanford’s financial problems. The university’s endowment couldn’t generate adequate operating or capitalimprovement funds, and its founding grant prevented it from selling off any of its eighty-one hundred acres of land. The university administration, working after 1951 with a faculty committee, concocted several plans for generating income from the land, including agricultural development, a regional shopping center, and housing projects. A forty-acre corner was earmarked for light industry. Most of the planners’ energy went into the shopping center and housing. Varian Associates looked at the industrial land and took the first initiative toward developing that.

Varian Associates specialized in developing products —like the klystron and its spin-offs—from research conducted at Stanford, and the firm regularly hired university faculty, research associates, and students. By 1949 it had outgrown its San Carlos facilities. Russell Varian and Edward Ginzton, whom Terman had steered into the klystron project as a student before the war and who now was a Varian director as well as a Stanford professor, decided to build a branch research-and-development facility near the university. Varian asked Stanford to lease land to the firm, an arrangement that seemed eminently sensible. The firm’s research was based on university patents, and Stanford faculty numbered among its important shareholders, directors, and consultants.

This move got Terman, also a Varian director, involved in shaping the university’s master land-use plan. He strongly favored leasing only to companies with activities connected to the university’s programs, but the plan seemed to include other industries, even insurance companies. The second lease, to Eastman Kodak for a photo-processing plant, stirred Terman to action. By 1953 he was on the university’s Advisory Committee on Land and Development and busy converting Alf Brandin, the university’s business manager, to his way of thinking.

Terman used several arguments for leasing only to high-tech businesses. He restated his steeples-of-excellence concept. He pointed out the large gifts Stanford had received from Hewlett-Packard, Varian Associates, and Russell Varian, which together equaled the university’s lease income. He also pointed out the important matching tuition local firms paid for their employees in a special honors program for outside engineers. “Brandin was quick on the trigger,” he later recalled. “Very soon thereafter, if you weren’t a high-technology company, you had a hell of a time coaxing him to give you a lease.”

In 1955 Terman became the university provost and turned to building up Stanford’s chemistry department as the foundation for a community of interest in biotechnology. Soon he could see his work bearing fruit. Stanford was fast becoming one of the nation’s foremost research universities. By 1967 it was receiving twelve million dollars a year for corporate- or government-sponsored research. Corporate outright gifts had reached a half-million dollars in 1956 and more than two million dollars by 1965. Meanwhile Hewlett-Packard became the flagship of a new Stanford Industrial Park in 1956, and soon both Ampex and Lockheed’s new Space and Missile Division moved in. By 1960 more than forty firms occupied the 450-acre campus-style park, and Terman was being asked to help mastermind similar feats in Texas and New Jersey.

The Santa Clara Valley, once called by local agricultural boosters the Valley of Hearts’ Delight, had become a growing center for the electronics and aerospace industries. Defense contracts helped drive the boom; the NASA-Ames Research Center, in Sunnyvale, which opened in 1940, also brought contracts and stimulated industry, and the San Jose Chamber of Commerce mounted an intense national advertising campaign to attract more companies. Giant national firms of the tube era of electronics as well as young new entrepreneurs set up shop from Palo Alto south to San Jose. The spreading high-technology community attracted national attention. “Any electrical engineer with ambition ran his résumé around the Valley circuit in hope of a response,” notes Michael Malone.

In 1956 William B. Shockley, forty-six, returned to his boyhood home in Palo Alto. As coinventor of the transistor while at Bell Laboratories in 1947, he had just won a Nobel Prize together with John Bardeen and Walter Brattain. Now Shockley would establish the first semiconductor company in the valley. The brightest young engineers in the country responded to his call, and he hired the best. Within two years his young protégés had brewed a rebellion. Disagreeing with his research directions and fed up with his sometimes contemptuous treatment of them, seven of them began looking for support to set up on their own. With almost no venture-capital resources available on the West Coast, they ended up getting in touch, through a New York investment firm, with the Fairchild Camera and Instrument Corporation, of New Jersey. Fairchild seemed interested but was concerned that none of the researchers possessed clear management skills. So the seven recruited the only holdout at Shockley who had the needed leadership, the twenty-nine-year-old Robert Noyce. The eight quit en masse. Fairchild Semiconductor opened in Mountain View, and Silicon Valley was born.

Numerous problems plagued Fairchild from the start, even though it grew rapidly and introduced the first mass-producible integrated circuit. Michael Malone describes it as a “corporate vocational school” for young engineers. “Here they could screw up without serious repercussions—after all, nobody else knew how the job was done either— and learn from their mistakes.” They did, unleashing the centrifugal forces of entrepreneurial creativity that have surged through Silicon Valley ever since. By 1968 the last of the original eight founders, along with many other Fairchild engineers, had moved on to replicate the founders’ experiences in new ventures. Later Robert Noyce remarked that it came “as a great revelation—and a great motivation, too—” that a young engineer or scientist could get venture capital for a new company. At a 1969 conference in Sunnyvale, fewer than two dozen of the four hundred semiconductor engineers present had not worked for Fairchild, and by the early 1970s former Fairchild employees had started forty-one new semiconductor companies, many of them in the valley.

At first Fairchild’s only apparent direct connection to Terman’s Stanford community was the firm’s hiring of graduate students as production workers. A closer tie came when Marcian (“Ted”) Hoff joined Noyce’s new Intel Corporation after receiving his Ph.D. in electrical engineering at Stanford. In 1969 Hoff developed the microprocessor, the first computer on a chip. Intel’s resulting 4004 chip launched another explosive wave through the valley and beyond. By 1975 Intel’s third microprocessor, the 8080, had become the heart of the first affordable home computer, the Altair 8800, which cost $498.

Popular Electronics ’s announcement of the Altair, in January 1975, brought into existence Silicon Valley’s Homebrew Computer Club, an informal monthly gathering of the burgeoning crowd of computer experts and enthusiasts. Its first meeting, in March 1975, drew thirty-two people to a house in Menlo Park, near Palo Alto. Within weeks the meetings were drawing several hundred and were being held at a Stanford auditorium. According to the computer historians Paul Freiberger and Michael Swaine, the Homebrew Computer Club provided the “intellectual nutrient” on which the valley’s microcomputer companies first fed. Homebrewers “thrived in a kind of joyous anarchy” from which solid engineering and technologies for people emerged.

Stephen Wozniak, a young employee at Hewlett-Packard and a gifted computer hobbyist, was a Homebrewer from the start. He went regularly, absorbed the designs of the home-built machines others brought to the meetings, and began to feel he could improve on those designs. Within a year he had bought one of the latest microprocessor chips, built a computer of his own, shown it off at Homebrew, and passed out photocopies of his design for what would become the Apple. Meanwhile his friend Steven Jobs suggested they start a company, and in 1976 Apple Computer was born in Cupertino—like Hewlett-Packard, in a garage. Eight years later Apple’s sales topped $1.5 billion, and Silicon Valley was the envy of the world.

Since that time the high-tech firms in Silicon Valley have multiplied and expanded. Despite growing competition from Japan and other parts of the country and the ups and downs of individual companies, the valley’s semiconductor, computer hardware, and software industries have continued to thrive. And firms working in other high-tech fields, such as biotechnology, have grown up alongside the electronics companies in the rich Silicon Valley environment. Orchards, cheap land, and affordable housing have largely disappeared; jobs and businesses have taken their place.

Frederick E. Terman, who retired from Stanford in 1965, must have been pleased with this latest chapter in the transformation of the Santa Clara Valley. After all, his vision and life’s work had created the foundation on which it had all been built. In 1952 he had observed, “Almost anything that one wishes to do in the world of today is made possible, or is done better, or is helped by electronics. Through its ability to control, to amplify, and to convert between light, sound, and electricity, electronics provides a nervous system for our machine-age civilization.” By the time of his death, in 1982, his dreams for the valley’s central place in that nervous system had been more than fulfilled.