Before Google, Apple, and Intel: The Real Silicon Valley

Editor’s note: This article is part of an occasional series on the connection between investment in universities and economic growth. Jay Schalin’s paper “State Investment in Universities: Rethinking the Economic Impact” includes an appendix summarizing the history of three key high-tech areas, Silicon Valley, Massachusetts’ Route 128, and North Carolina’s Research Triangle Park. This article is adapted from the Silicon Valley discussion. See below for additional Pope Center articles on economic growth. 

There are many public misconceptions about how the huge northern California electronics industry began. Silicon Valley exploded into the national consciousness with the hi-tech boom of the 1980s, and many younger people associate its beginnings with the founding of Apple Computer in 1977. Others believe that it began with semiconductor inventor Robert Shockley’s move to the West Coast in the 1950s and the subsequent founding of Fairchild Semiconductor by his former employees in 1957.

People with even deeper knowledge of the area and the industry suggest that the Valley owes its existence largely to the efforts of Stanford University’s Frederick Terman, who, as head of the Electrical Engineering Department in the 1930s, ‘40s and ‘50s, was instrumental in attracting top-flight technical talent to the Palo Alto area and urged his top graduate students to turn their research into entrepreneurial concerns. (The best known and most successful of his pupils were William Hewlett and David Packard, who started their vacuum tube business in 1939).

But the real seeds of the San Francisco Bay’s electronics industry were planted well before Terman ascended to the department chair. By that time, there was already a cluster of private firms manufacturing the vacuum tubes, and these were as important to the electronics industry of the mid-twentieth century as semiconductors are today. While some of these companies were founded by Stanford alumni, the university was perhaps more passenger than driver in the early years.

According to Christophe Lecuyer’s 2005 book Making Silicon Valley, the key factor in the start of the Valley was San Francisco’s maritime tradition. The city was the most vibrant commercial seaport on the West Coast, and the surrounding area had several military bases. From May 13, 1897, when Marconi sent the first-ever wireless message over open seas, one of the most important applications for radio waves was ocean-going communications. With many mariners in the area, both civilian and military, an intrinsic interest in radios followed, and the San Francisco Bay rapidly became home to a large community of hobbyists. Lecuyer said that by the mid-1920s, the area had ten percent of all the amateur radio operators in the country, and one of two national publications for radio hobbyists was published there.

Local hobbyists started many of the first electronics firms in the area, including Cyrill Elwell of Federal Telegraph (1909), Fred Eitel and Jack McCullough of Eitel and McCullough (1934 ), Charles Litton of Litton Engineering Laboratories  (1932), and Ralph Heintz  of Heintz and Kaufman (1921). Other major radio manufacturing firms were nearby: the San Francisco-based companies Kolster Radio Corporation and  Remler, and Napa-based Magnovox. Television pioneer Philo Farnsworth also conducted his most important research in a San Francisco laboratory during the 1920s.

Still, Stanford, as the main college in the southern Bay area, educated many of the promising local electronics enthusiasts, including Elwell, Litton, and Heintz. Once Terman—also a radio hobbyist who grew up near the Stanford campus as the son of a professor and a close friend of many of the industrialists—gained influence in the school’s engineering department, the symbiotic relationship between Stanford and the electronics industry grew. Throughout his Stanford career, he sought to bring the most gifted students to the Palo Alto campus, and once they were there, he encouraged them to develop their talents to the fullest by remaining in graduate school and taking their discoveries into the private sector as entrepreneurs.

Perhaps the most notable shared endeavor between Stanford and industry in the first half of the 20th century was the discovery of the “klystron,” says C. Stewart Gillmor, in his 2004 book Fred Terman at Stanford. A klystron is a complex form of vacuum tube, discovered by the Varian brothers, Russell and Sigurd, and physics professor William Hansen.

The Varians had a rudimentary laboratory in the socialist utopian community of Halcyon near San Luis Obispo, where they were studying the use of microwaves to detect airplanes in flight. Russell Varian had roomed with William Hansen (another close friend of Terman) when they studied physics together at Stanford. Hansen went on to join the faculty as a physics professor and specialist in electromagnetic waves—his research was crucial to the Varians’ own. To further the cooperation, Stanford named the Varians as salaried “research associates” in the physics department and provided them with lab space and materials. “In exchange, the Varian brothers signed over to Stanford any patent rights and one-half of the royalties from devices that might emerge from their work on aircraft warning systems,” according to Gillmor.

The company formed to put the klystrons into production, Varian Associates, blossomed with the coming world war, as did most of the Bay area tube manufacturers. Military purchases of electronic equipment and research funding was government’s main involvement with the early growth of Silicon Valley.

The event that put the “silicon” in Silicon Valley was also random, as recounted by Leslie Berlin in the 2005 book The Man Behind the Microchip. It began with a bitter quarrel between the primary inventors of the semi-conductor at Bell Laboratories in New Jersey, John Bardeen and Walter Bratton, and their supervisor William Shockley. When Shockley left Bell Labs in 1954, he looked to California. He grew up not far from Palo Alto and was strongly attached to his mother who still resided there.

After a year teaching at the California Institute of Technology (his alma mater) and a year working at the Pentagon in Washington, D.C., Shockley knew that Bell Labs and its manufacturing wing, Western Electric, would not aggressively push the development of semiconductors, and struck out on his own. He quickly found a financial backer in another Cal Tech alumnus, Arnold Beckman, the wealthy founder of Beckman Instruments in Fullerton, California. Although Beckman wanted the new Shockley Semiconductor Laboratories division of Beckman Instruments located in the Los Angeles area, Shockley insisted on the Bay area, not only for personal reasons, but because the area was alive and humming with the activity of the already existing electronics firms, mostly due to the military buildup during the Cold War.

Shockley recruited top talent from across the country for his enterprise, located in a Quonset hut five miles south of Stanford’s campus on the Palo Alto-Mountainside border. One of his first decisions was to produce the semiconductors out of silicon instead of germanium (the original material), largely because of the former’s abundance and therefore low cost.

It didn’t take long for Shockley’s prickly personality to grate on his workers, however. In 1957, eight top researchers broke away, with backing from IBM heir and inventor Sherman Fairchild. The new company, Fairchild Semiconductors, rapidly gained industry leadership in the production of silicon transistors under the leadership of Robert Noyce. Internal management problems at Fairchild’s home office in New York led many of the founders to spin off other companies, mostly notably Intel, formed by Noyce and Gordon Moore.

Soon the area surrounding Palo Alto became known as Silicon Valley for its dominance of the semiconductor-based computer industry. And it was only natural that, when Steven Jobs and Steve Wozniak turned their hobby building computers into a Fortune 500 company called Apple Computers, it would happen there.

Other recent Pope Center articles about universities and economic growth:

A Conversation on Innovation with a “Master Inventor” by Jay Schalin

The Quest for Economic Growth by Jane S. Shaw

Magic Elixir for Growth or Economic Snake Oil? by Jay Schalin

True Believers by Jay Schalin