The Man Behind the Microchip

by Leslie Berlin

  IMMEDIATELY UPON NOYCE’S AND KLEINER’S RETURN to California, Richard Hodgson flew to San Francisco to begin formal negotiations with the eight scientists and Rock and Coyle at the offices of a law firm hired by the bankers. The negotiations proceeded along a friendly and predictable path. The Shockley defectors, fresh from 30-odd “no-thank-yous,” felt that they were in no position to drive a hard bargain, but Arthur Rock and Bud Coyle, who had a good sense of the type of arrangement they sought, ensured the young men were not fleeced.11

  After the discussion ended, Richard Hodgson took the group to celebrate at the St. Francis, a classic San Francisco hotel on Union Square. Dressed in his New York business suit and a fine hat, Hodgson looked a bit like a Mafioso as he approached the maitre d’. “Hodgson is the name, reservation for nine,” he said gruffly. The maitre d’ looked at his reservation book and then called over another tuxedoed man who shuffled through pages, increasingly discomfited. After a whispered conference, the pair looked up. “I’m sorry sir, we cannot find the reservation.”

  Hodgson began to fume and fuss, showing a side the young men had not seen before. He muttered under his breath, “How many times did I tell her to make the reservation …”

  The restaurant staff looked nervous: “We’ll make up a table for you right away, sir.”

  In short order, the group was escorted to a fine corner table. As soon as they were alone, Hodgson began to laugh. “Works every time.”12

  WHILE NOYCE AND HIS PEERS CELEBRATED, his parents worried the deal might be “shaky.” What did he know about this Fairchild, or these bankers, for that matter? Noyce hastened to reassure them. “We [have] over a million dollars guaranteed which will keep us going for about 18 months without any income from sales,” he wrote, adding “we have acting as our agents in this one of the ten largest investment banking houses in the country.” He had paid close attention during the negotiations and declared the entire process “a very interesting education for me!” His excitement was palpable: “The agreement will be signed in a couple of weeks, and shortly therafter [sic] The California Transistor Corporation will spring into being, with yours truly as Director of R & D.”13

  For all his bravado and talk of large sums of money, Noyce had no savings. This proved a problem when Rock and Coyle told the group of eight that they each needed to pay $500 for an ownership stake in the new company. Noyce asked his parents to inquire if his grandmother, the only member of the family with financial reserves, could lend him the money. He promised to repay her with interest.

  THE DEAL WITH FAIRCHILD Camera and Instrument now imminent, the eight men needed to break the news to William Shockley, who suspected—perhaps Beckman had called him after his conversation with Hodgson?—that a group of employees planned to leave. Shockley began summoning his researchers to his office one at a time, probing them for information about a brewing insurrection. Gordon Moore was the second man called—the first was not among the group—and he told Shockley he might as well stop questioning people because Moore was leaving and so was nearly everyone else in the R&D lab. The news devastated Shockley, who left the building a few minutes later.

  Moore found himself surprisingly saddened by Shockley’s obvious dismay. To be sure, Shockley was a martinet who browbeat his young employees and who knew nothing about running a business. And yet he was an excellent teacher. Before joining Shockley, the group of eight had, between them, three years of transistor experience—and all that experience resided in Bob Noyce. None of them had ever worked with silicon. After less than 18 months with Shockley, however, the eight were sufficiently competent to start a company that within the space of a decade sold hundreds of millions of dollars of silicon semiconductor devices. To be sure, these extremely bright young men learned from day-to-day immersion in the technology and the literature surrounding it. They gleaned much from each other in their makeshift seminars and daily professional banter. But they also learned from Shockley, who may not have been an easy man to work for, but who had an uncanny ability to suggest experiments and simplify complex ideas.14

  Maturity and distance have even brought a new perspective on some of Shockley’s management techniques. He, for example, refused to hire technicians for manufacturing. Production, he said, was so important that he wanted his top technical men to serve on a “PhD production line” to build the devices themselves. This production line has been cited as evidence of Shockley’s fondness for humiliating his employees with work that was far below their training, but the kernel of his demand—the notion that precise production techniques lie at the heart of successful semiconductor manufacturing—is today universally accepted. In the 1960s and 1970s, moreover, a variant of the PhD production line was a standard troubleshooting method in the industry: engineers would personally walk chips through the production process in a “hand-carried run” to determine the root of production problems.15

  Given this influence, it is in some sense sad that Shockley never reaped the benefits of his vision, never made a success of his company staffed by carefully chosen young men who in the beginning had been overjoyed to be working for a bonafide genius and overeager to please him. Shortly after learning that the group would be leaving, Shockley set to work on a terse statement to the press. The departure of the eight would have “no real effect on the Shockley Lab,” he told a reporter from Electronic News. He subsequently flew to Munich, where he hired a passel of German scientists accustomed to a relationship with their academic advisers that more closely approximated Shockley’s hierarchical management style. He moved his operation to the Stanford Industrial Park, where it went through several permutations, but never turned a profit.16

  Shockley followed the fortunes of his former employees with masochistic attention, at one point even hiring an informant to provide him with details on the production methods used at their new company. He also sought to protect his firm’s intellectual property by filing for patents on several of the ideas the defectors had written in their Shockley lab notebooks. He wanted to be sure the licensing fees and credit for their work came to Shockley Semiconductor. After the group left, Shockley filed four patent applications that listed Noyce as the inventor.17

  In 1963 Shockley left industry to join the faculty of the Stanford Electrical Engineering Department, where he taught for the next two decades. As he aged, bitterness and paranoia came to dominate his once-brilliant mind. He became an outspoken eugenicist who donated his sperm with the stipulation it be supplied only to women who were members of Mensa. While his protégés achieved his goals of earning millions of dollars and seeing their names in the business press, Shockley rarely left his Stanford home, where he wrote articles on the intellectual inferiority of blacks to whites and the need to institute birth-control measures for people with low IQ scores. Small wonder Shockley has been called the Moses of Silicon Valley—he brought people to the Promised Land but was himself denied entrance.18

  Before the group officially departed, Arnold Beckman called them into a conference room. Looking sad and reading from notes clearly drafted by an attorney, he reminded them of the rules surrounding confidential information and suggested they try to find work in fields unrelated to semiconductors “to avoid complications.” Jay Last took careful notes:

  Beckman feels that our leaving in this manner is a disloyal act. The right of the individual to change employment is different from a planned concerted action. [Ours] is an act of conspiracy, prejudicial to the employer. We should consider the effect of our actions on employer and on remaining employees.

  This is a great financial loss [for Beckman]. We are not living up to the spirit of [our] employment contract. We have given an implied promise that we would come out and make the operations successful. We are running away because the going has gotten tough. We haven’t thought things through clearly, because we are young and because of the emotion-charged atmosphere. The cost to Beckman is a million bucks down the drain.

  … Beckman feels as if a good friend has sta
bbed him in the back…. Our new sponsor is not ethical.

  We should consider the community reaction. This will be looked on as a shameful act.19

  At precisely the same time that Noyce was abandoning an established firm backed by a known industrialist for a brand-new operation run by him and his friends, expenses in the Noyce household were rising. Billy had just started nursery school, and Penny would begin soon, too. There were payments due on the luxurious refrigerator Bob had bought for Betty when he thought the situation at Shockley looked promising. Betty, who already found herself in tears over money, was further rattled when Mrs. Shockley came for one last visit, staying only long enough to ask, “How could you possibly do this without telling me?” before sweeping out the door. “Mr. and Mrs. Shockley don’t like us any more,” Billy told his younger sisters.20

  William Shockley never forgave Noyce for his “betrayal.” Years after Fairchild was a success, when the two men encountered each other at an industry dinner, Shockley said only two words—“Hello, Bob”—before turning his back and walking away.21

  ON SEPTEMBER 19, 1957, the Shockley defectors, representatives from Fairchild Camera and Instrument, and Bud Coyle and Arthur Rock met to sign papers establishing Fairchild Semiconductor Corporation. The firm incorporated with 1,325 shares of stock. Hayden, Stone owned 225 shares, purchased for $5 per share. Each of the founders—including Noyce, whose grandmother provided the money—owned 100 shares, purchased at the same price. Three hundred shares were held in reserve for key managers yet to be hired. Camera and Instrument agreed to loan Semiconductor a total of $1.38 million over a period of 18 months. In exchange, Camera and Instrument controlled the company through a voting trust. The parent firm received an option to buy all of Fairchild Semiconductor’s stock for $3 million at any point before Fairchild Semiconductor had three successive years of net earnings greater than $300,000 per year. If Camera and Instrument waited more than three years but bought within seven years, the company would have to pay $5 million for Fairchild Semiconductor. It was, as one founder put it, “a very good deal for both sides.”22

  Arthur Rock’s and Bud Coyle’s work in the establishment of Fairchild Semiconductor in many ways presaged the role of venture capitalists in future Silicon Valley startup operations, even though the term “venture capital” did not yet exist. The bankers helped the young technologists develop a business strategy, determine their funding requirements, and find investors. In return, Coyle’s and Rock’s firm took both a financial stake in the new company and a board seat from which they could influence the outcome of their investment. Coyle and Rock found only one investor to back only one company, whereas modern venture capitalists organize a pool of outside investors to back a number of startups of the financiers’ choosing, but the Northern California roots of venture capital—the pairing of brains and dollars—were established with the founding of Fairchild Semiconductor.

  After the signing, the entire group went to Rickey’s for a celebration. The flowing champagne and rousing toasts recalled the festivities, held in the same room less than a year before, surrounding Shockley’s Nobel Prize. The focus now, however, was on the future, as Richard Hodgson firmly reminded them when he leaned in close and whispered loudly enough for them all to hear, “I hope to hell you guys know what you’re doing. Because if you don’t, I’m going to lose my job.”23

  EVEN BEFORE THE PAPERS HAD BEEN SIGNED, Hodgson, who had been named chair of Fairchild Semiconductor, had asked Noyce to serve as general manager of the new company. Since Hodgson and the rest of the Camera and Instrument executive team would remain in New York, the general manager would organize Semiconductor’s launch and manage operations thereafter. The general manager would also serve as Semiconductor’s public face and its link to Camera and Instrument management.

  Noyce was tempted, but he feared himself ill prepared to oversee an entire company. Moreover, the prospect of having the final say over the many employees he could imagine one day working for Fairchild Semiconductor frightened him. He was, in a very real sense, afraid of his own ability to influence people—a fear with roots in a domestic incident that occurred shortly before he left Philadelphia. A refrigerator salesman had convinced him and Betty to try an icebox for a free week-long trial, promising no obligation and no problems should they decide not to keep it. At the end of the week, when the salesman appeared at their front door, saying “of course you want to buy the refrigerator,” Noyce told him they had decided they did not want it, and he should take it back.

  “No? Was there a problem?”

  “No. We just don’t want it.”

  The salesman seemed distraught, “But you must, you see the features …”

  “I’m not buying it. Take it back.”

  After a few more minutes of this, the man loaded the refrigerator on his truck and left. Several days later, Noyce read in the paper that the salesman had killed himself. Noyce could not shake his sense of responsibility for the suicide and vowed to avoid other situations in which saying “no” might drive someone to such distress.24

  Noyce did not share this story with Hodgson, of course. He simply told him that he would prefer heading R&D to running the company. At least in the lab, Noyce thought to himself, the right answers can be found in a book.

  Hodgson accepted Noyce’s choice but nonetheless treated him as the de facto general manager while conducting the search for a permanent hire. Hodgson communicated almost exclusively through Noyce and advanced him $3,000 “to cover necessary expenditures in setting up the semiconductor operation until such time as the Corporation is formally organized.” Through Noyce, Hodgson offered the new company use of Camera and Instrument’s surplus shop equipment and assured the founders that Fairchild Semiconductor employees would be covered under the larger company’s benefits. Noyce earned more than the other founders, and he alone among them held a seat on the board of Fairchild Semiconductor (though not on Camera and Instrument’s board).25

  The press release issued by Fairchild Camera and Instrument referred to “Noyce and his seven researchers.” It quoted Noyce at length but referred to the other seven founders simply as “associated with Dr. Noyce in the founding of the new company.” The attention to Noyce did not go unnoticed. Although most of the founders recognized that they had invited Noyce to join them explicitly to lead and provide credibility for the group, others—particularly Last, Hoerni, and Roberts, who catalyzed the defection from Shockley—found it hard to sit in the shadow of a man who had joined the operation at the last possible moment. “Bob was more of a politician than we were,” complained one. The problem, according to another founder, was simple: “If [Noyce] climbed in the boat, he would always be captain.” When Jay Last took charge of typing up the employee list, he put all the founders in alphabetical order—except Noyce, whom he deliberately put at the end of the list as a reminder of who had, and who had not, started this all.26

  Excitement and anticipation usually overrode jealousy, however. Until they could find a building, they worked in each other’s houses, planning, talking to suppliers, trying to find an office, and making lists of the employees at Shockley whom they would like to join Fairchild Semiconductor. A small group of founders was working in Vic Grinich’s garage when news broke that the Soviets had launched the world’s first orbiting satellite, a small, beeping ball called Sputnik whose signal Noyce and other amateur radio buffs could hear on their home sets. Sputnik would prove a godsend to the young men’s fortunes, for it sent the United States military, already investigating the uses of silicon transistors, into a frenzy for smaller, higher-performing electronic components for missiles and satellites. On that October 4, though, the Sputnik announcement brought only anxiety to the founders of the country’s newest electronics firm. If the Soviets could launch a satellite into orbit, they could loft a nuclear warhead and aim it at an American city. As media reactions climbed towards hysteria, President Eisenhower announced that an American satellite would circle the earth by y
ear’s end. The space race began in earnest.27

  THE SAME MONTH, Fairchild Semiconductor signed a two-year, $42,000 lease on a building at 844 Charleston Road (later named a California historic landmark, thanks to the activities that transpired there). The building, little more than a 15,000-square-foot empty shell, sat near the southern border of Palo Alto, not far from Shockley Labs. The space seemed huge to the young men, who had turned down a building twice the size because they were certain they could never fill it. They worked hard to rein in their excitement as they began moving into the facility in November 1957. One minute they would be horsing around the building like kids, or installing the cabinets Jay Last had bought at Sears, and the next they were talking to plumbers and electricians about their water and power needs or carefully moving lab tables and equipment from one area to another until they settled on the configuration they thought best.28

  The search for a general manager led the founders to Tom Bay, a former physics professor who had also worked as a sales manager for Fairchild Camera and Instrument in the early 1950s. A handsome, hard-drinking sophisticate, Bay was dapper, witty, and smart, down to his wing-tipped toes. Although it had been years since he worked with Hodgson, Bay’s competence and obvious intelligence had impressed the Fairchild executive enough to recommend the group of eight consider him for their general manager—a puzzling suggestion since Bay was the first to admit that he “didn’t know bupkis about transistors.” Clearly, though, Noyce, who interviewed him, thought Bay would have no trouble learning about the tiny devices. Bay was granted a small bit of stock and joined Fairchild Semiconductor in December 1957, as the head of marketing.29

  INCIDENTS IN THE NEXT FEW WEEKS portended the importance of Fairchild Semiconductor to its parent company’s future. In January 1958, Camera and Instrument received word that the US Air Force had cancelled the company’s contract developing B-58 bomber reconnaissance cameras. This contract, which once provided the firm with more than half of its sales, had fallen victim to the military’s new desire for digital electronic reconnaissance systems. “Photo reconnaissance systems as we know it is [sic] a thing of the past,” Carter told the board.30