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podcast transcript
In 1957, eight young engineers left one of America’s most important laboratories, helping create the modern technology industry.
The break with the Nobel Prize-winning physicist sparked a chain reaction of innovation, investment and entrepreneurship that transformed a sleepy corner of California into Silicon Valley.
The companies they founded and the people they inspired have shaped everything from computers to smartphones, and their influence is still felt today.
Learn more about the Eight Traitors and the birth of Silicon Valley in this episode of Everything Everywhere Daily.
Silicon Valley is generally defined as the area south of San Francisco and generally coincides with the Santa Clara Valley. These include cities such as Mountain View, Sunnyvale, Palo Alto, Cupertino, and Santa Clara.
It has become a global center for the technology industry, giving birth to companies worth trillions of dollars.
I believe you all know the companies located in Silicon Valley. But have you ever wondered why the tech industry is located there and not somewhere else?
Silicon Valley is not a place with natural resources, nor is it so named because it is a place where silicon is mined.
Silicon Valley got where it is because of a series of decisions by several early technology pioneers.
If you go back very far, you can trace the origins of Silicon Valley to a man named William Shockley.
William Shockley was a physicist and inventor best known for co-inventing the transistor with John Bardeen and Walter Brattain at Bell Labs in 1947. The three were awarded the 1956 Nobel Prize in Physics for their work.
In 1956, the same year he won the Nobel Prize, he founded Shockley Semiconductor Laboratory in Mountain View, California. The choice for Mountain View was pretty simple. His mother lived near Palo Alto, and he wanted to be close to her after returning from the East Coast.
At the same time, he also recognized that the area had important advantages for electronics research, including its proximity to Stanford University.
Shockley Semiconductor Laboratory has captured the attention of some of the most keen young people in the country. Among them were Robert Noyce, Gordon Moore, Julius Blank, Victor Grinich, Jean Hoerni, Eugene Kleiner, Jay Last, and Sheldon Roberts. These eight people were talented, ambitious, and eager to do serious work in the emerging semiconductor industry.
Shockley was undoubtedly a brilliant engineer, but by all accounts he was a truly terrible person to work with.
He was a paranoid, dismissive, and mercurial boss. Shockley constantly second-guessed his employees, insisted on polygraph tests when he suspected internal sabotage, and redirected the company’s research in ways that made little technical sense to his employees.
In particular, he wanted to pursue a device called the four-layer diode, while his staff wanted to focus on silicon transistors, which they believed had much greater commercial potential.
Within a year there was enough for eight people.
In 1957, they made a decision that was almost unheard of at the time. They all quit together.
Corporate loyalty was a deeply entrenched value in postwar America, and leaving one’s employer carried a real social stigma, not to mention orchestrating a departure from the group. Shockley called them the “Traitorous Eight” and the name stuck.
But leaving Shockley turned out to be one of the most important decisions in American business history.
Leaving was one thing. Starting a new company was another. In the 1950s, the idea of venture capital as we know it today barely existed. Banks were reluctant to lend to young engineers without a product or proven business experience.
Eugene Kleiner wrote a letter to Hayden Stone, his father’s investment banker in New York. The letter landed on the desk of a young colleague, Arthur Rock, and he immediately knew what he was looking at.
Rock flew to California, met eight men and convinced them they were worthy of sponsorship. The challenge was finding an established company willing to fund an independent research department. This was essentially something that had never been done before.
Rock and his colleague Bud Coyle approached about 30 companies before Sherman Fairchild of Fairchild Camera and Instrument Corporation agreed to invest $1.5 million. In return, Fairchild received the option to acquire the new company outright. The deal was structured so that the eight founders would receive equity, a novel arrangement at the time.
The result was Fairchild Semiconductor, founded in 1957.
Fairchild Semiconductor moved quickly. The company developed a commercially viable silicon transistor within its first year. Robert Noyce and Jean Hoerni made groundbreaking advances that changed everything: planar processes and integrated circuits based on them.
Integrated circuits place multiple transistors on a single piece of silicon connected by thin metal paths. Instead of piecing together dozens of individual components by hand, engineers can now build complex chips directly from chip to chip.
This was the basic technology of the modern electronics industry. Everything that came after it – personal computers, cell phones, the Internet – all trace their lineage to that innovation.
Fairchild became the world’s most important semiconductor company in the late 1950s and 1960s, and it did so in the Santa Clara Valley.
The company also did something culturally significant. Fairchild operated in an informal, collaborative atmosphere as a direct response to Shockley’s toxic management style.
Ideas moved freely, engineers were respected, and the work itself felt important. That culture later became the template for how Silicon Valley companies viewed themselves.
Fairchild’s success brought trouble. They were so good at training talented people that they went on to leave the company and start their own companies. Fairchild’s spin-offs, eventually nicknamed “Fairchildren”, were enormous in number and influence.
But the most significant spin-off occurred in 1968 when Robert Noyce and Gordon Moore left to start a new company. They were soon joined by Andy Grove.
The new company was called Intel.
The founding of Intel was itself a landmark moment in venture capital history. Arthur Rock, who helped close the Fairchild deal 10 years ago, raised $2.5 million for Intel in just two days. The speed and ease of the fundraiser reflected how mature the financial ecosystem for technology startups has become.
Intel started out manufacturing memory chips, but in 1971 it produced the 4004, widely considered the first commercial microprocessor. There is a complete CPU on a single chip.
The implications were enormous. If integrated circuits were the key to making electronics smaller and cheaper, microprocessors were the key to making them programmable. This transformed computers from room-sized institutional machines to ones that could eventually be placed on a desk, in a pocket, or driven in a car.
Gordon Moore wrote in 1965, before Intel even existed, that the number of transistors on a chip would roughly double every two years and their cost would fall. Moore’s Law has accurately described the trajectory of the semiconductor industry for decades, a topic I covered in a previous episode.
Advanced Micro Devices, better known as AMD, was founded in 1969 by Jerry Sanders and several colleagues previously at Fairchild Semiconductor. Sanders was Fairchild’s director of worldwide marketing.
Eugene Kleiner moved into venture capital and co-founded Kleiner Perkins, one of the most influential venture capital firms in Silicon Valley history. The company later funded companies such as Amazon, Electronic Arts, Netscape, Sun Microsystems, America Online, and Google.
In many ways, the modern startup investment model stems directly from the environment created by Traitorous Eight and Fairchild Semiconductor.
Stanford University also played a role. This was especially the case through Frederick Terman, dean of the College of Engineering, who actively encouraged students and faculty to start companies and worked to build relationships between the university and local industry.
The culture Terman developed helped deepen the pool of engineers in emerging clusters of companies by keeping talent in the Bay Area rather than being drawn to the East Coast.
Physical geography was also important. The Santa Clara Valley, which was farmland until the 1940s, became a place where spinoffs beget spinoffs, engineers moved between companies transferring knowledge, and proximity enabled informal collaboration.
That geographical concentration was nourishing in itself. The company wanted to be there because the talent was there, and the talent went there because the company was there.
According to some research, more than 400 companies are directly or indirectly traced to Fairchild Semiconductor.
In fact, because the exchange between companies in Silicon Valley is so large, it is difficult to track it beyond a certain point. Companies without founders who worked at Fairchild Semiconductor, such as Apple and Nvidia, only exist because they were created within the ecosystem established by Fairchild.
As for Fairchild Semiconductor itself, it eventually lost relevance in the 1970s as more and more employees left for other companies. The remaining engineers felt that management did not fully understand the fast-moving semiconductor business or the culture developing in California, even though they largely created it.
Bureaucracy is growing, innovation is slowing, and key people continue to leave. By the 1970s, competitors including Intel, Texas Instruments, Motorola, and AMD had surpassed them.
The company changed hands several times. In 1987, it was acquired by National Semiconductor. Then, in 1997, National spun off Fairchild into an independent company under the name Fairchild Semiconductor.
The final chapter came in 2016 when ON Semiconductor acquired Fairchild Semiconductor for approximately $2.4 billion. ON Semiconductor was later rebranded as Onsemi.
The last of the eight traitors, Gordon Moore, passed away in 2023. Robert Noyce passed away in 1990, and is still revered as one of the fathers of the modern semiconductor industry. Their names are engraved in the history of technology, on university buildings, in awards given by engineering societies, and in just about every device with a chip.
One interesting thing is that William Shockley, the man credited with starting it all, had little to do with the creation of Silicon Valley other than inventing the transistor in the 1940s and being a bad boss.
Because the region contains thousands of public and private companies, there is no exact official figure for the total value of all companies in Silicon Valley. But their combined value is enormous, and the combined market capitalization of the major companies and their estimated private value would likely exceed $20 trillion today.
The Traitorous Eight made the brave and somewhat ugly decision to break away from their difficult boss and try something on their own. The consequences of that decision reshaped the entire world economy, even though they could not have known it.
The chips in your cell phone, the processor in your laptop, the architecture of the Internet – they all originated from a group of young engineers who didn’t like their boss.
