SILICON VALLEY

SILICON VALLEY, located around Santa Clara and San Jose, California, is the home of many key U.S. corporations that specialize in advanced electronic and information technologies. First called "Silicon Valley" in 1971 by a local newsletter writer, Donald C. Hoefler, the "Valley" became the center of newly developing technologies that many believed would revolutionize computers, telecommunications, manufacturing procedures, warfare, and even U.S. society itself. The name came to symbolize a type of high-risk business characterized by rapid success or failure, extensive job mobility, and informal behavior, traits thought by some to be the wave of the future. The location of such high-tech research, development, and manufacturing in a formerly agricultural area—once known as the "prune capital of America"—grew mainly from its proximity to Stanford University in nearby Palo Alto. Stanford, a research-oriented institution with active departments in engineering and electronics, decided in 1951 to establish a "research park," a place where companies could build facilities and conduct research in cooperation with the university, the first such enterprise in the country.

If there was a single founder of Silicon Valley it was William Shockley, an English-born physicist who worked on early concepts of the transistor at Bell Laboratories before World War II and who went on to become the director of Bell's Transistor Physics Research Group. A restless person whose inquisitive mind and entrepreneurial aspirations did not find satisfaction in the larger corporation, he became a visiting professor at the California Institute of Technology in 1954. The following year he founded Shockley Semiconductor Laboratories just south of Palo Alto in the north end of Silicon Valley. Shockley's business acumen did not equal his skills in science and engineering, however, and in 1957 eight of his engineers defected to create Fairchild Semiconductor, supported by Fairchild Camera and Instrument.

Their departure established a pattern of job mobility that came to characterize careers in Silicon Valley in particular and in the electronics companies in general, with employees shunning ties of corporate loyalty in favor of personal fulfillment and financial reward. Reinforcingthis pattern, Robert Noyce, Gordon Moore, and Andrew Grove left Fairchild Semiconductor in 1968 to establish Intel. Another Fairchild employee, W. J. Sanders III, founded Advanced Micro Devices soon thereafter. In the early 1970s one survey found forty-one companies in Silicon Valley headed by former Fairchild employees. This pattern continued into the 1980s with such companies as National Semiconductor, Atari, Apple Computer, LSI Logic, and Cypress Semiconductor having all or part of their origins in Silicon Valley.

To many observers the California location was central to the success and, later, the problems of Silicon Valley. The popular image of California, with its promise of individual and professional renewal, played a part, as did the cultural climate of the 1960s, which criticized large organizations for suppressing personal expression. The moderate climate of Silicon Valley, combined with a pool of educated talent from California universities and a largely nonunion workforce, attracted investors and corporations alike. Publicity about Silicon Valley in the 1970s generated discussion about new opportunities for U.S. industry, especially in electronics. In this respect the Valley represented a significant demographic change in American society: a shift in political and economic power from the older industrialized Northeast and Midwest to the Pacific Coast. The rise of Silicon Valley occurred at a time when major changes in financial markets and the availability of capital were affecting many established electronics companies.

During the 1950s and early 1960s, much of the valley relied on military contracts, but this dependence declined as commercial and then personal markets for computers emerged. Investors hoping for a very high rate of return increasingly were willing to risk supporting the new electronics companies even though as many as 25 percent of them failed within a few years. Demand for capital increased as the size of electronic components, such as memory chips, decreased. Hand in hand with smaller components developed the need for more sophisticated and costly technologies in manufacturing. By the late 1980s companies estimated that they needed as much as $1 billion to establish a manufacturing facility for the latest generation of semiconductors. Observers of investment practices and corporate strategies began to worry that this reliance on venture capital had created a pattern in U.S. business that stressed short-term profits rather than longer-term concerns about product development and competition from foreign corporations. Silicon Valley's success and the boost it gave to California's image and economy led such states as Oregon, Michigan, Texas, Colorado, New York, and Minnesota to invite or promote advanced electronic firms. In the 1990s, however, companies in Silicon Valley remained the major indicator of the health of the industry.

Products such as memory and logic chips, micro-processors, and custom-made circuits are expensive to manufacture, subject to price-cutting in the market, and have a short product life (sometimes two years or less) before the next generation appears. Their sale depends on the health of important segments of U.S. industry, including computers, telecommunications systems, automobiles, and military contractors. Silicon Valley and its counterparts elsewhere in the United States thus are subject to cycles of boom and bust. The latter occurred in 1984–1986, when many of the valley's companies found themselves with surplus products after a drop in the U.S. personal computer market. Companies had to lay off workers and some went out of business.

Foreign competition, especially from Japan, caused perhaps the greatest problems for Silicon Valley. Business and political leaders debated whether or not trade policy needed to defend the interests of U.S. electronics firms more aggressively and whether U.S. companies should receive government funding to make them more competitive in the international market. Silicon Valley had begun to worry about Japanese competition by the late 1970s. In 1981, U.S. companies controlled 51.4 percent of the world's semiconductor market; Japan's share was 35.5 percent. Within seven years the figures had virtually reversed themselves, with Japan at 51 percent and the United States 36.5 percent. U.S. companies charged their Japanese counterparts with dumping semiconductors onto the U.S. market at low prices to undercut U.S. manufacturers while Japan kept much of its home market closed. The Semiconductor Industry Association, which represented many companies in Silicon Valley, urged bilateral agreements to open Japan's market. The first of these was signed in 1986, and a second followed in 1992. By the early 1990s it appeared that U.S. industry had started to recover some of the ground lost to Japan. A boom cycle began in the mid-1990s with the emergence of the Internet and electronic commerce, sending technology stocks skyward and leading to the rapid rise of new businesses in the software and electronics industries.

Several factors reduced the lure of Silicon Valley as the center of the electronics and computer industry, among them new technologies, the ascent of successful electronic-component manufacturing elsewhere in the United States, and foreign competition. People learned that the manufacturing of electronic components was not as environ-mentally clean or safe as some thought, and the growth of the Valley led to traffic congestion and air pollution. Silicon Valley remained a center of research, development, and manufacturing in the electronics industry, however, and the rise of the Internet-based "dot.coms" of the mid-and late 1990s reenergized the area's symbolic role as a frontier of industrial and social organization and sent property values soaring. When technology stocks began to implode in early 2001, however, massive layoffs swept through Silicon Valley, again casting a shadow over the the area's immediate future and underlining the region's dependence on a sector of the economy that seems to be particularly susceptible to boom-and-bust cycles.

BIBLIOGRAPHY

Findlay, John M. Magic Lands: Western Cityscapes and American Culture after 1940. Berkeley: University of California Press, 1992.

Forester, Tom. High-Tech Society: The Story of the Information Technology Revolution. Cambridge, Mass.: MIT Press, 1987.

Saxby, Stephen. The Age of Information: The Past Development and Future Significance of Computing and Communications. New York: New York University Press, 1990.

Teitelman, Robert. Profits of Science: The American Marriage of Business and Technology. New York: Basic Books, 1994.

Kenneth B.Moss/c. w.

See alsoComputers and Computer Industry ; Demography and Demographic Trends ; Electricity and Electronics ; Japan, Relations with .

SILICON VALLEY: THE COMPUTER REVOLUTIONIZES AMERICA

A New Day

During the 1970s and 1980s, many people made fortunes in the computer business. Beyond the importance of individual fortunes, the computer and the various industries that produced computers and related materials dramatically changed American society. The desktop and the laptop computers made it possible for individuals working a wide variety of environments to accomplish tasks that before required substantially more resources.

Mainframe

The computer industry in the United States is only about forty years old. Originally the computer industry was dominated by IBM, or International Business Machines. During the 1960s the phrase "IBM and the seven dwarfs" was used to describe the computer industry because of IBM's dominance. During the 1960s both RCA and General Electric tried to enter the computer business only to fail. RCA finally wrote off $300 million in losses in 1970. IBM specialized in manufacturing mainframe computers, the computers that were as big as a room—sometimes larger—and required specially trained employees to program and enter data into the computers through punch cards. Indeed, IBM intended for those computers to last for decades and to make most of the profit not through the initial sale but through servicing the mainframe. To escape from IBM's virtual monopoly, many American companies, such as Honey-well, began buying Japanese systems. The government frowned upon IBM's dominance of the market and the Justice Department brought an antimonopoly suit against IBM to promote competitiveness in the industry. The Justice Department intended to break IBM up into a set of little IBMs. The suit, costing millions of dollars, dragged on for more than a decade before it was settled in 1982. Under the agreement IBM ended its practice of discouraging customers from buying competitive systems. IBM also agreed to provide competitors with technical specifications since IBM products often set the standard in the industry. Significantly, IBM also agreed to unbundle its software, that is, IBM would sell software as separate items rather than making software part of the price of the computer. This opened the door for dramatic growth in the software business. The agreement was reached after the computer industry had undergone revolutionary changes. The Defense Department also funded research and development in the industry, resulting in some significant breakthroughs in computer speed.

Microcomputers

During the 1980s there was an explosion in the sale and development of microcomputers. These personal computers, based on microprocessors, eventually made the mainframe all but obsolete and caught IBM off guard. Apple first introduced the easy-to-use personal computer in the 1970s and was soon followed into the business by start-up companies. IBM was slow to follow the market. When IBM did enter the market the company did so in a big way, using the corporation's vast resources and name recognition to dominate the personal computer market temporarily. Initially, IBM did not manufacture computers but bought computers from other manufacturers and then applied the IBM name to them. It was this temporary dominance that led to the term IBM clone to describe computers that operated from IBM's Disk Operating System (DOS) rather than the Apple and Macintosh operating systems.

The Personal Computer

IBM made record profits during the early 1980s but failed to lay the groundwork for future success. IBM managers, who were reluctant to enter the microcomputer business in the first place, turned their attention to personal computers and ignored the $4-billion per-year mainframe business. When IBM began losing market share in the personal computer business IBM found itself in considerable trouble by the late 1980s. For the most part IBM slippage was the result of poor planning. The selling of software is a prime example of IBM not planning well. IBM spent millions of dollars developing bad software even as the upstart Microsoft Corporation sold its DOS system on IBM computers. Eventually Microsoft would dominate the software business. By the early 1990s IBM had lost $75 billion in assets.

The Soul of the New Machine

During the 1980s the entrepreneurial spirit was still alive in the computer industry. Many of the upstarts of the late 1960s and 1970s faced the same problems that IBM did as the companies matured and took on more bureaucrats. Apple, the company that had done so much to pioneer the field of personal computers, was also in trouble. Although Apple had introduced the technically innovative Macintosh, Steve Jobs and Steve Wozniak, the founders of Apple, found themselves on the opposite side of office politics. Wozniak left the company and eventually Jobs also left the company, leaving Apple under the control of John Scully, a business executive brought into Apple's management to improve the company's management structure. Jobs then founded NEXT, a company that built sophisticated scholar workstations that were marketed to universities. Often people with brilliant technical vision lacked the skills, or the interest, to build a company that would last for generations or even for years. Still, the American computer industry did well—despite IBM's troubles—both at home and in international markets. Throughout the 1980s the United States ran a balance of trade surplus in computers, although it declined from $7 billion in 1981 to $3 billion in 1987. In the 1980s people founded both hardware and software companies. Fred Gibbons founded the Software Publishing Corporation in 1981, and by 1985 he had 6 percent of the $400 billion software business. The Intel Corporation, founded in 1968 by Andrew Grove, Gordon Moore, and Robert Noyce, remained a leading developer and manufacturer of microprocessors throughout the decade. J. Reid Anderson's Verbatim Corporation did well selling magnetic storage media, including floppy disks. The Hewlett-Packard Company, founded in 1939, proved it could still be innovative when it introduced the laptop computer in 1984. Two factors have helped to defend computer markets against assault. The American computer industry is well balanced between entrepreneurs with vision and technological dreams who start companies with a big splash and large well-financed firms such as IBM, Digital Equipment, and Hewlett-Packard. These companies had the staying power and the size needed to exert influence over the structure of the industry

Sources:

Paul Carroll, Big Blues: The Unmaking of IBM (New York: Crown, 1993);

Michael L. Dertouzos, Richard K. Lester, and Robert M. Solow, Made in America: Regaining the Productive Edge (New York: Harper & Row Perennial Library, 1989);

Irvin Farman, Tandy's Money Machine: How Charles Tandy Built Radio Shack Into the World's Largest Electronics Chain (Chicago: Mobium Press, 1992);

Robert Slater, Portraits in Silicon (Cambridge: Massachusetts Institute of Technology Press, 1987).

Silicon Valley an industrial region, approximately 20 mi (32 km) long, in the Santa Clara Valley between Palo Alto and San Jose, mainly in Santa Clara and San Mateo counties, W central Calif., where many computer manufacturing and design companies are located. Computer-software and other high-technology industries are also there. The name derives from high-purity silicon used in making the semiconductors used in computers.

Silicon Valley, California/USA A name given to an industrial area in the San Jose and Santa Clara valleys because of the presence of many electronics enterprises. Silicon is the basic material of semiconductors.

Silicon Valley a name given to an area between San Jose and Palo Alto in Santa Clara County, California, USA, noted for its computing and electronics industries.

Silicon Valley A name used for a part of west California, south of San Francisco, that contains a large number of computer and software companies.

Silicon Valley An area in California south-west of San Francisco famed for the quality and quantity of IT products.