Student’s report

On Economics

by Constantine Nikitin

Contents

TOC \o «1-3» \h \z HYPERLINK \l «_Toc527727176» Silicon Valley —
what is that? PAGEREF _Toc527727176 \h 3

HYPERLINK \l «_Toc527727177» Stanford University PAGEREF
_Toc527727177 \h 3

HYPERLINK \l «_Toc527727178» Hewlett Packard — the garage myth
PAGEREF _Toc527727178 \h 5

HYPERLINK \l «_Toc527727179» HP: Foundation and first years PAGEREF
_Toc527727179 \h 5

HYPERLINK \l «_Toc527727180» The rise of HP up to the present
PAGEREF _Toc527727180 \h 6

HYPERLINK \l «_Toc527727181» The HP Way — an example of corporate
culture for a whole industry PAGEREF _Toc527727181 \h 7

HYPERLINK \l «_Toc527727182» HP today. PAGEREF _Toc527727182 \h 7

HYPERLINK \l «_Toc527727183» The rise of Silicon Valley PAGEREF
_Toc527727183 \h 10

HYPERLINK \l «_Toc527727184» Invention of the transistor PAGEREF
_Toc527727184 \h 10

HYPERLINK \l «_Toc527727185» Shockley Semiconductor PAGEREF
_Toc527727185 \h 11

HYPERLINK \l «_Toc527727186» Importance of military funding PAGEREF
_Toc527727186 \h 12

HYPERLINK \l «_Toc527727187» Intel Corp. PAGEREF _Toc527727187 \h
13

HYPERLINK \l «_Toc527727188» Foundation in 1968 PAGEREF
_Toc527727188 \h 13

HYPERLINK \l «_Toc527727189» First products — Moore’s Law PAGEREF
_Toc527727189 \h 13

HYPERLINK \l «_Toc527727190» «Ted» Hoff’s first microprocessor
PAGEREF _Toc527727190 \h 14

HYPERLINK \l «_Toc527727191» Cooperation with IBM in the 1980s
PAGEREF _Toc527727191 \h 15

HYPERLINK \l «_Toc527727192» Intel today PAGEREF _Toc527727192 \h
16

HYPERLINK \l «_Toc527727193» The emergence of the PC industry
PAGEREF _Toc527727193 \h 17

HYPERLINK \l «_Toc527727194» Altair — the first PC PAGEREF
_Toc527727194 \h 18

HYPERLINK \l «_Toc527727195» The first computer shops PAGEREF
_Toc527727195 \h 19

HYPERLINK \l «_Toc527727196» Homebrew Computer Club PAGEREF
_Toc527727196 \h 19

HYPERLINK \l «_Toc527727197» The Apple Story PAGEREF _Toc527727197
\h 19

HYPERLINK \l «_Toc527727198» «Woz» and Jobs — the two «Steves»
PAGEREF _Toc527727198 \h 19

HYPERLINK \l «_Toc527727199» The first Apple PAGEREF _Toc527727199
\h 20

HYPERLINK \l «_Toc527727200» Building up the company PAGEREF
_Toc527727200 \h 21

HYPERLINK \l «_Toc527727201» Apple II — starting the personal
computer boom PAGEREF _Toc527727201 \h 22

HYPERLINK \l «_Toc527727202» Turbulences in the early 1980s PAGEREF
_Toc527727202 \h 23

HYPERLINK \l «_Toc527727203» The Lisa project PAGEREF _Toc527727203
\h 23

HYPERLINK \l «_Toc527727204» The Macintosh revolution PAGEREF
_Toc527727204 \h 24

HYPERLINK \l «_Toc527727205» John Sculley and Steve Jobs PAGEREF
_Toc527727205 \h 25

HYPERLINK \l «_Toc527727206» Apple today. PAGEREF _Toc527727206 \h
27

Silicon Valley — what is that?

This question may have occurred to many people’s minds when they came
across the term Silicon Valley. What hides behind it is mostly unknown
to them, although the revolutionary inventions and developments, which
have been made in this «Valley», affect everyone’s daily life, and it is
hard to imagine our modern civilization without them. Silicon Valley is
the heartland of the microelectronics industry that is based on
semiconductors.

Geographically, it is the northern part of the Santa Clara County, an
area stretching from the south end of the San Francisco Bay Area to San
Jose, limited by the Santa Cruz Mountains in the west and the northern
part of the Diablo Range in the east. It covers a thirty- by ten-mile
strip extending from Menlo Park and Palo Alto, through Los Altos,
Mountain View, Sunnyvale, Cupertino and Santa Clara, down to San Jose.)

The name Silicon Valley was coined in 1971 by Don C. Hoefler, editor of
the Microelectronics News, when he used this term in his magazine as the
title for a series of articles about the semiconductor industry in Santa
Clara County. «Silicon» was chosen because it is the material from which
semiconductor chips are made, which is «the fundamental product of the
local high-technology industries.»)

Silicon Valley saw the «development of the integrated circuit, the
microprocessor, the personal computer and the video game») and has
spawned a lot of high-tech products such as pocket calculators, cordless
telephones, lasers or digital watches.

Looking at our high-tech society in which the PC has become
indispensable — both in business and at home, replacing the good old
typewriter by word processing — the crucial role of Silicon Valley as
the birthplace of the microelectronics and then the PC revolution
becomes even more evident.

Silicon Valley is also seen as a place where many entrepreneurs backed
by venture capital have made the American Dream come true as «Overnight
Millionaires.»

This makes Silicon Valley a philosophy saying that everything which
seems impossible is feasible and that improvements in our society can
take place daily, as Thomas McEnery, the mayor of San Jose, the capital
of the Santa Clara County, puts it.)

Thomas Mahon calls it the «economic and cultural frontier where
successful entrepreneurship and venture capitalism, innovative work
rules and open management styles provide the background» for the perhaps
«most profound […] inquiry ever into the nature o f intelligence»
which might, together with «bioengineering and ‘artificially
intelligent’ software, […] affect our very evolution.»)

On the following pages I would like to convey the image of Silicon
Valley as the nucleus of modern computing, presenting the most important
events, which comprise the developments of the three major companies
Hewlett-Packard, Intel and Apple.

Stanford University

The story of the Silicon Valley starts with Stanford University in Palo
Alto, which has been of fundamental importance in the rise of the
electronics industry in Santa Clara County.

In the 19th century, Spanish settlers, who have been the first white
visitors to California, founded civilian communities and gave them
Spanish names such as San Francisco, Santa Clara or San Jose. They liked
the Mediterranean climate in the Santa Clara Valley, which was very
hospitable. This area came to be used by farmers and ranchers
cultivating orchards, for it provided «some of the world’s finest
farming soil.»)

In 1887, Leland Stanford, a wealthy railroad magnate who owned a large
part of the Pacific Railroad, decided to dedicate a university to his
son’s memory who had died due to a severe disease shortly before he
intended to go to a university.

Leland Stanford and his wife built Leland Stanford Jr. University on
8,800 acres of farmland in Palo Alto and also donated 20 million dollars
to it. The university opened in 1891 and «would in time become one of
the world’s great academic institutions.»)

In 1912, Lee De Forest, who had invented the first vacuum tube, the
three-electrode audion, discovered the amplifying effect of his audion
while working in a Federal Telegraph laboratory in Palo Alto. This was
the beginning of the Electronics Age, and «amateur radio became an
obsession») at Stanford University.

Frederick Terman, who was the progenitor of the initial Silicon Valley
boom, changed the state of this university fundamentally. Today he is
also known as the «godfather of Silicon Valley.») Terman was born in
1900, and as the son of a Stanford professor (who developed the
Stanford-Binet IQ tests) he had grown up on the campus. After his
graduation from Stanford University he decided to go East to the
Massachusetts Institute of Technology (MIT), which was the leading
university in technology then. He studied under Vannevar Bush, who was
one of America’s leading scientists, and was offered a teaching position
at MIT after receiving his doctorate in 1924.

He returned to Palo Alto to visit his family before he intended to start
at MIT, but he was caught by a severe case of tuberculosis, which forced
him to spend one year in bed. This made him finally to decide to stay in
Palo Alto and teach at Stanford University because of the better climate
in California.)

Terman became head of the department of engineering by 1937 and
established a stronger cooperation between Stanford and the surrounding
electronics industry to stop the brain drain caused by many students who
went to the East after graduation, as they did not find a job in
California then.)

The Varian brothers are an example of such cooperation between
university and industry. After graduation they founded a company upon a
product they had developed at the Stanford laboratories. Their company,
Varian Associates, was settled 25 miles from the university and
specialized on radar technology.

After World War II, the Stanford Research Institute (SRI) was founded.
Its aim was to provide the industry with more skilled students and to
increase the number of companies in Santa Clara County.

Terman wanted companies to settle next to the university. In 1951, he
founded the first high-technology industrial park, the Stanford Research
Park, «where business, academic and government interests could come
together in a synergistic vision of the future.») Portions of this land
would be leased to companies, because the «original Stanford family land
gift forbade the sale of any of its 8,800 acres.») These companies were
offered close contacts to the SRI and could lease land for 99 years at a
fixed price, which they had to pay in advance. The first firm to settle
in this park was Varian Associates leasing land for $4,000 an acre,
which was a good deal as there was no inflation clause in the agreement
making this site today worth several hundred thousand dollars.

More and more firms — among them Hewlett-Packard as one of the first
residents — settled their Research and Development (R&D) departments in
this park, and they were to become the «core of the early explosive
growth of Silicon Valley.») Today, there are m ore than 90 firms
employing over 25,000 people.

During the Korean War the US government placed Stanford with a great
deal of their projects, which made more, and more electronics companies
(among them IBM and Lockheed) open R&D departments in Santa Clara
County.

Due to his prepaid leasing program Terman received more than $18 million
and, moreover, many companies endowed the university with gifts, which
Terman used to hire qualified professors from all over the USA. Thus, he
had created a mechanism which increased the settlement of the
electronics industry.

The successful Stanford Research Park has served as a worldwide model
for a lot of other high-technology parks.)

Hewlett Packard — the garage myth

Hewlett-Packard was one of the first companies to be founded in the
Silicon Valley and has today become the largest one to be seated there.
Its story is typical for this Valley and has had a great impact on many
firms founded later on.

HP: Foundation and first years

Bill Hewlett and David Packard met at Stanford University in 1934. Bill
Hewlett was the «son of the dean of the Stanford Medical School, while
Dave Packard had come to Stanford from Pueblo, Colorado,») and was an
enthusiastic radio ham.

They both were very interested in electronic engineering and spent a lot
of their free time experimenting in Terman’s lab who supported them.
After graduation in 1934, Packard went to Schenectady, New York, where
he worked for General Electric (GE), while Hewlett went on studying at
the MIT. In 1938, Terman called them back to Stanford where they would
earn electrical engineering degrees after their fifth year of study.

During this year they decided to work on a project professor Terman had
suggested to them in his course at university: In the garage next to
their rented apartment in Palo Alto they developed a variable frequency
oscillator, which was much better than existing products but cost only a
«fraction of the existing price ($55 instead of $500).») Terman was very
convinced by this product, so he encouraged them to try to sell it. He
himself loaned them $538 for the production and arranged an additional
loan from a bank in Palo Alto.

The new firm Hewlett-Packard (HP) was founded in 1939, and its first big
sale were eight audio oscillators to Walt Disney Studios, which used
them for the soundtrack of «Fantasia.»)

From now on, they concentrated on highly qualified products and
innovative electronic instruments for engineers and scientists. This
main product line has been kept till today.

By 1942, five years after its foundation, HP already had 60 employees
and reached annual sales of about $1 million. So it became necessary to
construct the first HP-owned building in Palo Alto. The two Stanford
graduates had successfully built up their own company which had been
founded upon an idea during their studies and was to rise from a
«garage-headquartered firm») to a leading company in the world. This
phenomenon was typical for Silicon Valley and would be imitated by many
following companies such as Apple.

The rise of HP up to the present

During World War II the demand for electronic products brought HP many
orders, and the company could grow constantly in the subsequent years.
HP continued to invent new devices such as the high-speed frequency
counter in 1951, which greatly reduced the time required (from 10
minutes to one or two seconds only) to accurately measure high
frequencies. Radio stations used it, for example.

The net revenue went up to $5.5 million in 1951 and the HP workforce was
at 215 employees. So, in 1957, the stocks were offered to the public for
the first time. The additional capital due to the stock offering was
invested to acquire other companies and t o expand globally such as into
the European market. As a consequence, in 1959, the first manufacturing
plant outside Palo Alto was built in Boeblingen, West Germany.

HP entered the Fortune magazine’s list of the top 500 U.S. companies in
1962, and established the HP Laboratories in 1966, which were the
«company’s central research facility») and became one of the world’s
leading electronic research centers.

In the 1970s, the company’s product line was shifted from «electronic
instruments to include computers»), and the world’s first scientific
hand-held calculator (HP-35) was developed in 1972, making the
«engineer’s slide rule obsolete.»)

In the 1980s, HP introduced its LaserJet printer (1985), which became
the company’s successful single product ever, and moved into the top 50
on Fortune 500 listing with net revenues of more than $10 billion
(1988).)

Today, HP has total orders of $16.7 billion and employs more than 92,000
people in the whole world.) Annually, The company spends over 10 percent
of its net revenues in R&D. These investments are fundamental to keep up
with the «state-of-the-art» technology, which uses the most modern
inventions. New products have always played a key role in HP’s growth,
therefore more than half of 1992’s orders were for products introduced
in the past two years.) HP’s more than 18,000 products include
«computers and peripheral products, test and measurement instruments and
computerized test systems, networking products, electronic components,
hand-held calculators, medical electronic equipment, and instruments and
systems for chemical analysis.»)

Bill Hewlett and Dave Packard today rank with America’s richest men
($1.7 and $0.85 billion) and are widely respected, especially in Silicon
Valley where they are viewed as the two «most successful entrepreneurs
in America.») They have spent millions of t heir profits for social
welfare and have established the Hewlett-Foundation.)

Hewlett and Packard have set a pattern of an outstanding company against
which every new high-technology firm «must be measured.»)

The HP Way — an example of corporate culture for a whole industry

From the beginning the two founders have developed a management style,
which had never occurred in a large company before. They coined a new
type of corporate culture, which was to be called «the HP way.»

HP always renounced the «hire and fire» mentality, which meant to employ
many workers for a single big order and to dismiss them afterwards.
Instead, the company offered its employees «almost perfect job
security.») Even in 1974, when the U.S. economy was in a profound crisis
and many people were unemployed, HP avoided layoffs by a four-day
workweek, which was a unique measure in corporate America.

The two founders trusted in the «individual’s own motivation to work»)
and treated their employees as family members; hence the custom to call
each other by the first name — even the two chiefs were only known as
Bill and Dave.

The HP workers were participated in the company with stock options and
were even paid additional premiums when HP was successful — today known
as profit sharing. These measures served to identify the employees with
their work and to encourage them.

Moreover, the HP way included extensive employment benefits such as
scholarships for the employee’s children.

At the end of the 1950s Bill and Dave decided to write down the
company’s objectives, which were to serve as guidelines for «all
decision-making by HP people,») since the company had grown ever larger.
With some changes, those objectives are still valid today. They cover as
follows: «Profit, Customers, Fields of Interest, Growth, Our People,
Management, and Citizenship.») And these objectives are to be achieved
through teamwork.

HP’s strategies nowadays comprise mainly the «Management by Objectives»,
«Management by Wandering around» meaning informal communication within
the company, and «Total Quality Control» which aims at producing highly
qualified products.)

The HP way is seen as model for corporate culture in many countries.

The roots of many subsequent companies are located in HP, e.g. Steve
Wozniak, who worked at HP and later co-founded Apple. This has led to
the establishment of a new corporate culture in Silicon Valley and many
firms have tried to imitate the HP way and ad opted measures such as
stock options, innovative work rules, teamwork, and profit sharing.

HP today.

Business Summary PALO ALTO, Calif., Nov. 13, 2000 — Hewlett-Packard
Company (NYSE: HWP) today reported 17% revenue growth (20% excluding
currency effects) in its fourth fiscal quarter ended Oct. 31, 2000.
Excluding extraordinary other income and restructuring expenses, diluted
earnings per share (EPS) was up 14% from the year-ago quarter.

During the quarter, HP completed its previously announced 2-for-1 split
of its common stock in the form of a stock dividend. Share and per-share
amounts have been adjusted to reflect this split.

Net revenue was $13.3 billion, compared with $11.4 billion in last
year’s fourth quarter. EPS for the quarter was 41 cents on a diluted
basis,(1) excluding investment and divestiture gains and losses, the
effects of stock appreciation rights and balance sheet translation, and
restructuring expenses. Including these items, diluted EPS on a reported
basis was 45 cents per share on approximately 2.05 billion shares of
common stock and equivalents outstanding. This compares with diluted EPS
of 36 cents in the same period last year(2).

«We are pleased that revenue growth is accelerating, but very
disappointed that we missed our EPS growth target this quarter due to
the confluence of a number of issues that we now understand and are
urgently addressing. I accept full responsibility for the shortfall,»
said Carly Fiorina, HP chairman, president and chief executive officer.

«Issues that reduced profitability included margin pressures, adverse
currency effects, higher-than-expected expenses, and business mix. The
good news is that our business is healthy, demand is strong, and we are
making good progress against our strategic objectives as we continue the
hard work of reinventing hp. We are determined to succeed and are not
backing away from our growth targets,» Fiorina said.

HP also announced it has terminated discussions with
PricewaterhouseCoopers (PwC) regarding the potential acquisition of its
consulting business.

Fiorina said, «We are disappointed that we have not been able to reach a
mutually acceptable agreement to acquire PwC’s consulting business. This
is a high-quality operation, and we believe the strategic logic
underlying this acquisition is compelling. However, given the current
market environment, we are no longer confident that we can satisfy our
value creation and employee retention objectives — and I am unwilling
to subject the HP organization to the continuing distraction of pursuing
this acquisition any further. We remain committed to aggressively
growing our consulting capabilities, organically and possibly by
acquisition, and are open to other business arrangements to achieve our
goals.»

Business Summary

Net revenue in the United States was $6.0 billion, an increase of 13%
from the year-ago quarter. Revenue from outside the U.S. rose 20% (26%
in local currency) to $7.3 billion. In Europe, revenue was $4.5 billion,
an increase of 15% (27% in local currency). In Asia Pacific, revenue was
$1.9 billion, an increase of 36% (34% in local currency). In Latin
America, revenue increased 11% to $0.6 billion.

Imaging and Printing Systems

The imaging and printing systems segment — laser and inkjet printing,
and imaging devices and associated supplies — grew 6% in revenue year
over year (9% in local currency) against a very strong quarter last
year. Internet printing and a migration to color are driving strategy
and growth. Strong sales of supplies, scanners, all-in-one (AiO)
products, and consumer imaging devices, as well as overall strength in
Europe and Asia, partially offset softness in the U.S. business printing
market and continuing price erosion in inkjet printers.

Nearly 12 million printing and scanning devices were shipped during the
quarter. HP’s color LaserJet market share continues to grow and new
products began shipping in October. Imaging revenues grew 31% over the
year-ago period, driven by strong performances in all product lines:
AiOs up 31%, scanners up 12% and digital cameras and printers up 137%.
AiO units were up 53% and PhotoSmart printer units were up 208%.
Supplies revenues grew 15% against a strong quarter last year.

Operating margin was 13.4%, up from 13.2% last year.

Computing Systems

The computing systems segment — a broad range of Internet
infrastructure systems and solutions for businesses and consumers,
including workstations, desktops, notebooks, mobile devices, UNIX(R) and
PC servers, storage and software solutions — grew 29% in revenue year
over year (32% in local currency) with strong performances across all
product categories.

UNIX server revenues rose 23% year over year, with orders up 43%, driven
by excellent performance in low- and mid-range servers. Superdome, HP’s
new high-end server introduced this quarter, is achieving
stronger-than-expected market acceptance, and volume shipments remain on
schedule for January. NetServer revenues were up 20%. Enterprise storage
revenues were up 40% with the HP Surestore E Disk Array XP512, HP’s
flagship enterprise storage product, up 90% in revenues with strong
backlog. Software revenues (excluding VeriFone) were up 18%, but down
sequentially with strong order backlog at the end of the quarter.
OpenView revenues were up 29% with orders up 60%. PC revenues were up
40%, with home PC revenues up 62%, notebooks up 164%, workstations up
11%, and commercial desktops up 8%.

Operating margin was 3.7%, up from 3.2% last year, but down sequentially
from 7.3% in the third quarter primarily due to margin pressures, higher
expenses and mix changes.

IT Services

The IT services segment — hardware and software services, along with
mission-critical, outsourcing, consulting and customer financing
services — grew 15% in revenue year over year (18% in local currency).
HP’s consulting business achieved in 46% revenue growth, with
substantial new hires broadening and deepening the organization’s
capabilities.

Operating margin was 7.4%, essentially flat with 7.5% last year.

Costs and Expenses

Cost of goods sold this quarter was 72.5% of net revenue, up from 71.3%
in the year-ago period. Expenses grew 15%. After adjusting for currency,
expense growth was 17%. Operating expenses, as reported, were 20.3% of
net revenue. This compares with 20.7% in the comparable period last
year.

Asset Management

Return on assets for the quarter was 10.5% compared with 9.8% in the
comparable quarter last year. Inventory was 11.7% of revenue compared
with 11.5% in last year’s fourth fiscal quarter. Trade receivables were
13.1% of revenue compared with 14.1% in the prior year period. Net
property, plant and equipment was 9.2% of revenue compared with 10.2% in
the year-ago quarter.

Full-year Review

Net revenue increased 15% to $48.8 billion. Net revenue in the United
States rose 14% to $21.6 billion, while revenue from outside the United
States increased 16% to $27.2 billion.

Net earnings from continuing operations were $3.6 billion, an increase
of 15%, compared with $3.1 billion in fiscal 1999. Net earnings per
share were $1.73 on a diluted basis, up 16% from $1.49 last year.

Outlook for FY 2001

For the 2001 fiscal year ending Oct. 31, 2001, HP expects to achieve
revenue growth in the range of 15 to 17%, compared to 15% in FY 2000.
Gross margin percentage in FY 2001 is expected to be in the range of
27.5 to 28.5%, compared to 28.5% in FY 2000, with improvements beginning
in the 2nd quarter. Total operating expenses in FY 2001 are expected to
be approximately 10 to 12% above FY 2000. Tax rate is expected to remain
constant at approximately 23%.

The forward-looking statements in this Outlook are based on current
expectations and are subject to risks, uncertainties and assumptions
described under the sub-heading «Forward-Looking Statements.» Actual
results may differ materially from the expectations expressed above.
These statements do not include the potential impact of any mergers,
acquisitions or other business combinations that may be completed after
Oct. 31, 2000.

HP will be discussing its fourth quarter results and its 2001 outlook on
a conference call today, beginning at 6 a.m. (PST). A live Webcast of
the conference call will be available at
http://www.hp.com/hpinfo/investor/quarters/2000/q4webcast.html. A replay
of the Webcast will be available at the same Web site shortly after the
call and will remain available through 4:30 p.m. PST on Nov. 22, 2000.

The rise of Silicon Valley

Hewlett-Packard was Silicon Valley’s first large firm and due to its
success one of the area’s most admired electronics firms.

While HP was important for the initial growth of the area and at first
was based on electronic devices, the actual Silicon Valley fever was
launched in the mid-1950s with Shockley and Fairchild, and other
semiconductor firms, and went on to the microelectronics revolution and
the development of the first PCs in the mid-1970s, continuing till
today.

Invention of the transistor

One major event was crucial for this whole development. It was the
invention of the transistor that revolutionized the world of
electronics.

By the 1940s, the switching units in computers were mechanical relays,
which were then replaced by vacuum tubes. But these vacuum tubes soon
turned out to have some critical disadvantages, which impeded the
further progress in computing technology. In contrast, transistors were
much better. They could perform everything the vacuum tubes did, but
«required much less current, did not generate as much heat, and were
much smaller») than vacuum tubes.

The use of vacuum tubes, which could not be made as small as
transistors, had meant that the computers were very large and drew a lot
of power. For example the famous American ENIAC, built in 1946 and
consisting of more than 18,000 vacuum tubes, had a total weight of 30
tons, filled a whole room of 500 square meters and consumed 150 KW per
hour. The breathtaking development in computers can be seen, when
comparing the ENIAC with today’s laptops which are portable with about 5
kg, are battery driven and run some 100,000 times faster.)

This development was launched by the transistor (short for «transfer
resistance») invention in 1947 by William Shockley and his colleagues
John Bardeen and Walter Brattain. This «major invention of the century»)
was made at the Bell Labs in Murray Hill, New Jersey, which are the «R&D
arm of the American Telephone and Telegraph Company (AT&T).») And in
1956, the three scientists received the Nobel Prize in Physics for their
invention that had «more significance than the mere obsolescence of
another bit of technology.»)

The transistor is a «switch — or, more precisely, an electronic «gate,»
opening and closing to allow the passage of current.») Transistors are
solid-state and are based on semiconductors such as silicon. The
crystals of these elements show properties, which are between those of
conductors and insulators, so they are called semiconductors. The
peculiarity of semiconductor crystals is that they can be made «to act
as a conductor for electrical current passing through it in one
direction») only, by adding impurities or «doping» them — for instance,
«adding small amounts of boron of phosphorus.»)

Shockley Semiconductor

In 1955, William Shockley, co-inventor of the transistor, decided to
start his own company, Shockley Semiconductor, to build transistors,
after leaving the Bell Labs. The new firm was seated in Palo Alto in
Santa Clara County, California, where he had grown up. Shockley man aged
to hire eight of the best scientists from the East Coast, who were
attracted by his scientific reputation. These talented young men — «the
cream of electronics research» — represented the «greatest collection of
electronics genius ever assembled». Their names were: Julius Blank,
Victor Grinich, Eugene Kleiner, Jean Hoerni, Jay Last, Gordon Moore,
Robert Noyce and Sheldon Roberts.)

But however brilliant Shockley was, who was called a «marvelous
intuitive problem solver» and a «tremendous generator of ideas» by
Robert Noyce, it soon turned out that he was «hard as hell to work
with», as his style was «oppressive» and he «didn’t have trust and faith
in other individuals.»)

When Shockley refused the suggestions of his eight engineers who wanted
to concentrate on silicon transistors, while their boss pursued research
on four-layer diodes, they decided to quit and start their own firm in
1957.

Within several months Shockley had to shut down his firm, since he had
lost his engineers, whom he called traitors and they are now known as
«the Traitorous Eight».

Although Shockley was not very successful with his firm in Palo Alto, he
«deserves credit for starting the entrepreneurial chain-reaction that
launched the semiconductor industry in Silicon Valley,») since he had
brought together excellent scientists there like Robert Noyce without
whom there might never have been a Silicon Valley on the San Francisco
Peninsula at all. Or as M. Malone calls it, «Shockley put the last stone
in place in the construction of Silicon Valley.»)

The father of one of those young men who left Shockley had contacts to a
New York investment firm, which sent a young executive named Arthur Rock
to secure financing for their new enterprise. Rock asked a lot of
companies, if they were interested in backing this project, but has not
been successful so far. The concept of investing money in new technology
ventures was largely unknown then, and indeed the term «venture capital»
itself wouldn’t be coined until 1965″) — by Arthur Rock, who should
become Silicon Valley’s first and most famous venture capitalist later
on.

Finally, due to Rock’s efforts, the «Traitorous Eight» managed to obtain
financial support from industrialist Sherman Fairchild to start
Fairchild Semiconductor in 1957.

Fairchild Semiconductor was developed by Shockley’s firm, and as the
«still existing granddaddy of them all») has itself spawned scores of
other companies in Silicon Valley: Most semiconductor firms’ roots can
be traced back to Fairchild. The most famous ones of them are National
Semiconductor, Intel, Advanced Micro Devices (AMD); and many well-known
Valley leaders have worked at Fairchild, e.g. Charlie Sporck (National
Semiconductor), Jerry Sanders (AMD’s founder), Jean Hoerni, and last but
not least Robert Noyce, who is considered the «Mayor of Silicon Valley»)
due to his overwhelming success.

Robert Noyce was born in southwestern Iowa in 1927. His father was a
preacher in the Congregational Church and thus was «perpetually on the
move to new congregations, his family in tow.») When the Noyces decided
to stay at the college town of Grinnell, Iowa, for a longer period of
time after many years of moving, this place meant stability in young
Bob’s life and thus would become his first and only real home, which he
would later regard as important for his eventual success.

After high school, Robert studied at Grinnell College. His physics
professor had been in contact with John Bardeen (one of the three
inventors of the transistor) and obtained two of the first transistors
in 1948, which he presented his students, including Bob Noyce. This
aroused young Robert’s interest in semiconductors and transistors, which
made him try to learn everything he could get about this fascinating
field of solid-state physics.

Having graduated from Grinnell College he continued his studies at «the
premier school of science on the East Coast, MIT,») where he met famous
scientists like Shockley. He received his doctorate, and decided to work
at Philco until 1955, when he was invited by William Shockley to join a
new firm named «Shockley Semiconductor» in Santa Clara County — together
with seven other splendid scientists.

When the so-called «Shockley Eight» started a new venture with Fairchild
Semiconductor, Robert Noyce began «his own transformation from engineer
to business manager:») He was chosen to lead the new company as he
seemed the best to do this job.

Fairchild Semiconductor focused on building a marketable silicon
transistor applying a new manufacturing process called «mesa». Despite
being the smallest company in electronics business then, it attracted
public attention, particularly in 1958, when «Big Blue» — as dominant
IBM is nicknamed — ordered the «first-ever mesa silicon transistors»)
for memory drivers in its computers.

This order contributed to the early success of Fairchild Semiconductor,
and indicated the beginning of a long relationship between IBM and
Silicon Valley.

Importance of military funding

Before switching over to the events at Intel, the aspect of military
funding is to be dealt with, since it has played an important role in
the early days of Silicon Valley.

During World War II, after the Japanese attack at Pearl Harbor in 1942,
a great deal of the U.S. military forces and of the military production
was moved to California. Within a few years, California — formerly an
agricultural state — became a booming industrial state and the military
center of the USA.)

After the war, in the time of the Cold War and the arms race, the Korean
conflict, the «missile gap» and the space program, the Pentagon kept
ordering high-technology products from the armament factories in
California. Many companies established R&D departments and production
facilities in Santa Clara County near Stanford University, which
provided them with bright engineers and scientists, and were largely
supported by the Pentagon’s demand for electronic high-tech products.

Examples for such firms are FMC, GTE, Varian Associates, Westinghouse,
and finally Lockheed, which opened its R&D department in the Stanford
Research Park in 1956, and started Lockheed Missiles and Space Company
(LMSC) in Sunnyvale. Lockheed’s move to Northern California was crucial
for the developments in Santa Clara County; today the company is Silicon
Valley’s largest employer with more than 24,000 people.)

Military funding for high-tech products was responsible for the early
growth of Silicon Valley in the 1950s and 1960s. The U.S. Department of
Defense was the biggest buyer of these products, e.g. its purchases
represented about 70 percent of the total production of ICs in 1965.)

While this share in chip demands has dropped to 8 percent today, the
Pentagon remains the biggest supporter of new technologies and accounts
for most of the purchases of the latest developments.

Intel Corp.

After the transistor and the integrated circuit, the invention of the
microprocessor in the early 1970s represents the next step towards the
modern way of computing, providing the basis for the subsequent personal
computer revolution.

It was at Intel where the first microprocessor was designed —
representing the key to modern personal computers. With its logic and
memory chips, the company provides the basic components for
microcomputers. Intel is regarded as Silicon Valley’s flagship and its
most successful semiconductor company, owing its worldwide leading role
to a perpetually high spending on research and development (R&D).

Foundation in 1968

It all started in 1968, when Bob Noyce resigned as head of Fairchild
Semiconductor taking along Gordon Moore and Andy Grove, to embark on a
new venture. They had decided to leave the company, because they wanted
«to regain the satisfaction of research and development in a small,
growing company,») since Fairchild had become big with lots of
bureaucracy work to be done. Gordon Moore had belonged to the famous
Shockley Eight and was in charge of the R&D team at Fairchild. Andy
Grove, a young Hungarian emigre, who had earned a doctorate in chemical
engineering at U.C. Berkeley, had joined Fairchild in the early 1960s.

Intel (short for Integrated Electronics), a typical Fairchild spin-off,
was financially backed by venture capital from Arthur Rock, who had been
in contact with Noyce since 1957. The company was founded upon the idea
of integrating many transistors on a chip of silicon, after Noyce had
developed a new photochemical process. The three engineers initially
focused on building the first semiconductor chips used for computer
memory, which should replace the dominant memory storage technology at
the time, called «magnetic core». Intel’s task was to drive down the
cost per bit by increasing the capacity of memory chips dramatically.

First products — Moore’s Law

Within a year, Intel developed its first product — the 3101 Schottky
bipolar 64-bit static random access memory (SRAM), which was followed
soon after by the 1101. This chip (1101) was a 256-bit SRAM and had been
developed on Intel’s new «silicon gate metal -oxide semiconductor (MOS)
process,» which should become the «industry’s process technology of
choice.») With the first two products, the young company started with 12
employees and net revenues of $2,672 in 1968, had already gained the
technological lead in the field of memory chips.

Intel’s first really successful product was the 1103 dynamic random
access memory (DRAM), which was manufactured in the MOS process.
Introduced in 1970, this chip was the «first merchant market LSI
(large-scale integrated) DRAM,» and received broad acceptance because it
was superior to magnetic core memories. So, by the end of 1971, the 1103
became «the world’s largest-selling semiconductor device» and provided
the capital for Intel’s early growth.)

Until today, semiconductors have «adhered to Moore’s Law,» which has
been framed by the «cofounder of Fairchild and Intel» when the first
commercial DRAMs appeared in the early 1970s. This law predicts that the
price per bit (the smallest unit of memory) drops by 30 percent every
year. It implies that you will receive 30 percent more power
(speed/capacity) at the same price, or that the «price of a certain
power is 30 percent less.»)

Moore’s Law applies to both memory chips and microprocessors, and shows
the unprecedented rapid progress in microelectronics. This «astonishing
ratio» has never occurred in «the history of manufacturing» before.
Applied to automobiles, it means that «a Cadillac would have a top speed
of 500 miles per hour, get two hundred miles to a gallon of gas and cost
less than a dollar» — almost incredible.)

1971 was a crucial year at Intel. The company’s revenues surpassed
operating expenses for the first time, and the company went public,
raising $6.8 million.

Moreover, the company introduced a new memory chip — the first erasable,
programmable read only memory (EPROM). Invented by Intel’s Dov Frohman,
the new memory could store data permanently like already existing ROMs,
but besides could be erased simply by a beam of ultraviolet light and be
used again. The EPROM was initially viewed as a «prototyping device» for
R&D. The invention of the microprocessor in the same year, however,
showed the real significance of the EPROM, which could be used by
original equipment manufacturer (OEM) customers (they build the
end-products) to store microprocessor programs in a «flexible and
low-cost way.» The «unexpected synergy» between the EPROM and the
microprocessor resulted in a growing market for both chips and
contributed a great deal to Intel’s early success.)

«Ted» Hoff’s first microprocessor

The invention of the microprocessor marked a turning point in Intel’s
history. This development «changed not only the future of the company,
but much of the industrial world.»)

The story to this technological breakthrough began in 1969, when a
Japanese calculator manufacturer called Busicomp asked Intel to design a
set of chips for a family of programmable calculators. Marcian «Ted»
Hoff, a young and «very bright ex-Stanford research associate») who had
joined Intel as employee number 12, was charged with this project.
However, he did not like the Japanese design calling for 12 custom chips
— each of them was assigned a distinct task. Hoff thought designing so
many different chip s would make the calculators as expensive as
minicomputers such as DEC’s PDP-8, although they could merely be used
for calculation. His idea was to develop a four-chip set with a
general-purpose logic device as its center, which could be programmed by
inst ructions stored on a semiconductor memory chip. This was the theory
behind the first microprocessor.

With the help of new employee Stan Mazor, Hoff perfected the design of
what would be the 4004 arithmetic chip. After Busicomp had accepted
Hoff’s chip set, Frederico Faggin, one of the best chip design experts,
who had been hired recently, began transforming the design into silicon.
The 4004 microprocessor, a 4-bit chip (processes 4 bits — a string of
four ones or zeroes — of information at a time), contained 2300 MOS
transistors, and was as powerful as the legendary first electronic
computer, ENIAC.

Soon after the first 4004s had been delivered to Busicomp, Intel
realized the market potential of the chip, and successfully renegotiated
with the Japanese to regain the exclusive rights, which had been sold to
Busicomp.

In November 1971, Intel introduced the 4004 to the public in an
Electronic News ad. It announced not just a new product, but «a new era
of integrated electronics […], a micro programmable computer on a
chip.») The microprocessor is — as Gordon Moore call s it — «one of the
most revolutionary products in the history of mankind,») and ranks as
one of 12 milestones of American technology in a survey of U.S. News and
World Report in 1982. This chip is the actual computer itself: It is the
central processing u nit (CPU) — the computer’s brains. The
microprocessor made possible the microcomputer, which is «as big as it
is only to accommodate us.» For «we’d have a hard time getting
information into or out of a microprocessor without a keyboard, a
printer and a terminal,» as Th.Mahon puts it.)

However significant Hoff’s invention, nevertheless, it was hardly
noticed in the public until early 1973. The microprocessor had its own
instruction set and was to be programmed in order to execute specific
tasks. So Ted Hoff had to inform the public and t he engineers about the
capabilities of the new device and how to program it.

Cooperation with IBM in the 1980s

Intel’s measures in the late 1970s as a reaction to increasing
competition from other chip manufacturers paid off greatly and resulted
in a remarkable technological lead against its competitors. The most
significant consequence, which was a landmark in the company’s
development, was IBM’s decision to rely on the Intel 8088 microprocessor
for its PCs in 1980.

IBM (short for International Business Machines) has been the world’s
leading company in the big mainframe computers since the 1950s. Due to
its dominance, it was often compared with a giant and referred to as
«Big Blue.» Surprisingly, it was not before 198 1 (the PC revolution had
already been on for a few years) that IBM introduced its own Personal
Computer.

Because of IBM’s dominance and worldwide reputation, its PCs soon became
industry standard and penetrated the office market: other established
computer companies followed and introduced their own PCs — the so-called
«clones» — which were compatible to IBM’ s models. To maintain
compatibility, all these manufacturers were forced to rely on Intel’s
microprocessors, which thus were bootstrapped to industry standard, too.

As well as for Intel, the CPU manufacturer, IBM’s decision has been
crucial for a company in the software field: Microsoft’s (Redmond,
Washington) MS-DOS was chosen as the IBM PC’s operating system and
became industry standard. It is essential to every IBM compatible PC.
Microsoft, a small company in 1980, grew explosively, and is today’s
superior software giant.

At the beginning of the 1980s, IBM was concerned about Intel’s ability
to keep investing in R&D and therefore decided to support Intel by
buying $250 million (=12%) of the company’s stock. This endorsed Intel’s
position, and, in 1987, IBM sold the last of its shares in a strong
Intel.

Intel today

Annual report 2000

Today, Intel supplies the computing and communications industries with
chips, boards and systems building blocks that are the «ingredients» of
computers, servers, and networking and communications products. Industry
members to create advanced computing and communications systems use
these products. Intel’s mission is to be the preeminent building block
supplier to the worldwide Internet economy.

HYPERLINK
«http://www.intel.com/intel/annual00/leaving.htm?url=http://www.intel.co
m/intel/product/index.htm» Microprocessors , also called central
processing units (CPUs) or chips, are frequently described as the
«brains» of a computer, because they control the central processing of
data in personal computers (PCs), servers, workstations and other
computers. Intel offers microprocessors optimized for each segment of
the computing market:

HYPERLINK
«http://www.intel.com/intel/annual00/leaving.htm?url=http://www.intel.co
m/pentiumiii/xeon/home.htm» Intel® Pentium® III Xeon™ processors for
mid-range to high-end servers and workstations

HYPERLINK
«http://www.intel.com/intel/annual00/leaving.htm?url=http://www.intel.co
m/pentium4/index.htm» Intel® Pentium® 4 and HYPERLINK
«http://www.intel.com/intel/annual00/leaving.htm?url=http://www.intel.co
m/pentiumiii/index.htm» Pentium® III processors for entry-level
servers and workstations and performance desktop PCs

HYPERLINK
«http://www.intel.com/intel/annual00/leaving.htm?url=http://www.intel.co
m/home/celeron/index.htm» Intel® Celeron™ processors for value PC
systems

HYPERLINK
«http://www.intel.com/intel/annual00/leaving.htm?url=http://www.intel.co
m/mobile/processors/pentiumIII.htm» Mobile Pentium® III processors for
performance in mobile PC systems

HYPERLINK
«http://www.intel.com/intel/annual00/leaving.htm?url=http://www.intel.co
m/design/chipsets/index.htm» Chipsets perform essential logic
functions surrounding the CPU in computers, and support and extend the
graphics, video and other capabilities of many Intel processor-based
systems.

HYPERLINK
«http://www.intel.com/intel/annual00/leaving.htm?url=http://www.intel.co
m/design/motherbd/» Motherboards combine Intel microprocessors and
chipsets to form the basic subsystem of a PC or server.

HYPERLINK
«http://www.intel.com/intel/annual00/leaving.htm?url=http://www.intel.co
m/eBusiness/home.htm» e-Business solutions enable services and channel
programs to accelerate integration and deployment of Intel
Architecture-based systems and products.

HYPERLINK
«http://www.intel.com/intel/annual00/leaving.htm?url=http://www.intel.co
m/wireless/» These products are component-level hardware and software
focusing on digital cellular communications and other applications
needing both low-power processing and high performance. These products
are used in mobile phones, handheld devices, two-way pagers and many
other products. For these markets, Intel offers Intel® Flash memory,
application processors based on the Intel® StrongARM processor core, and
base band chipsets for cellular phones and other wireless devices.

HYPERLINK
«http://www.intel.com/intel/annual00/leaving.htm?url=http://www.intel.co
m/network/» Communications building blocks for next-generation
networks and Internet data centers are offered at various levels of
integration. These products are used in communications servers, network
appliances and computer telephony integration equipment.

Component-level building blocks include communications silicon such as
network processors and other board-level components, software and
embedded control chips. These products are integrated in communications
hardware such as hubs, routers, switches and servers for local and wide
area networking applications. Embedded control chips are also used in
laser printers, imaging, automotive systems and other applications.

These products and services include e-Commerce data center services as
well as connected peripherals.

Intel’s major customers include:

(OEMs) of computer systems, cellular phone and handheld computing
devices, telecommunications and networking communications equipment, and
peripherals.

including individuals, large and small businesses, and Internet
service providers—who buy Intel’s PC enhancements, business
communications products and networking products through reseller,
retail, e-Business and OEM channels.

including makers of a wide range of industrial and communications
equipment.

The emergence of the PC industry

Until the early 1970s, computers were huge machines — from the largest
ones, the supercomputers, to mainframes and minicomputers — and were
mainly used for scientific research in universities and in military
institutions, and for business calculations in major companies.
Surprisingly, when the first microprocessors appeared, none of the
established companies such as IBM, DEC or HP had the idea to build
small, personal computers. They just did not see any market for them and
could not imagine what those machines should be needed for. None of
these large companies anticipated the possibilities of PCs, which are
today used in almost every office, in the home, in the school, on
airplanes, etc. and can act as typewriters, calculators, accounting
systems, telecommunications instruments, libraries, tutors, toys and
many the like.

So, it was the hobbyists, single electronics wizards who liked tinkering
with electronic devices that constructed their own computers as the
first PCs. These «computer nuts» ignited the «fire in the valley;») they
launched the personal computer revolution in Silicon Valley «out of
their own fascination with the technology. The personal computer arose
from a spirit of sharing «hard-won technical information» with other
computer freaks who developed their devices for the fun of tinkering
around in this fascinating field of electronics. Some of these
frequently young hobbyists found themselves almost overnight as
millionaires, after they had sold their devices in a newly founded firm.

Before dealing with the story of Apple, which is typical of Silicon
Valley and responsible for the breakthrough of the personal computer,
some information about the first PC and the emergence of the PC industry
shall be given.

Altair — the first PC

Altair is often regarded as the first personal computer, although it was
one of those switches and lights computers — programming is done by
arranging a set of switches in a special order, and the results appear
as different combinations of lights. In other words, such a machine is a
genuine computer, but absolutely useless, as Steve Wozniak, one of the
PC pioneers, put it.)

After the first microprocessors had come onto the market, Ed Roberts, an
engineer at MITS, a small calculator company in Texas, decided to build
a kit computer, which he intended to sell to hobbyists. He chose Intel’s
8080 as the CPU for his computer, since this chip was the most advanced
and powerful at the time. As Roberts wanted to sell his computer for
less than $500 and the official price for the 8080 was already at $360,
he contacted Intel and could finally receive the chip for only $75
apiece.

By the end of 1974, Roberts finished his computer, which was named
Altair. When the Altair was introduced on the cover of the January 1975
issue of Popular Electronics as the first personal computer, which would
go for $397 only, the market response was in credible. The low price was
the actual sensation, because it was largely known that the price for
the Intel 8080 CPU powering the Altair was already at $360. So many
hobbyists, engineers and programmers who had keenly waited for their own
personal computer, which they could experiment on at home, welcomed the
new product and ordered «their» Altair on the spot.

Roberts had never expected such a great response and his small firm was
flooded by those immediate orders (more than 4000). He boosted up the
production, but still could not meet the huge demand. The Altair was a
success at first, and Roberts sold many of them.

However, he had increased production at the expense of quality and
further refinement of his computer, so the Altair brought along a lot of
trouble and was finally supplanted by other computers, which were
superior.

Nevertheless, the Altair as the first successful microcomputer,
contributed a lot to the PC revolution, since it encouraged other people
to build personal computers (e.g. IMSAI, Apple).

The first computer shops

During this time, the mid-1970s, the first computer shops came into
existence. Pioneering in this field was Paul Terrell who came to the
idea of running such a shop, after the Altair had been put onto the
market. His first Byte Shop opened in Mountain View (located in the
heart of Silicon Valley) by the end of 1975.

Initially, Terrell sold the Altair and accessory products such as
additional memory boards and other devices, which came onto the market.
With the arising microcomputer industry, he could offer his customers —
mainly hobbyists and engineers — more and more products, and his shop
became a success. Other Byte Shops were opened and Terrell’s computer
shop chain expanded beyond the Silicon Valley. The computer shops
provided its customers with a variety of devices around the computer and
also with service and help.

The Altair was shipped as a kit computer and was to be assembled first,
and then it was still not difficult to work with it. The hobbyists
helped each other with advice. It was this spirit of sharing solutions
and the common interest in microcomputers that led to the foundation of
the first computer club.

Homebrew Computer Club

The legendary Homebrew Computer Club was the first of its kind, and
provided an early impetus for the development of the microcomputer
industry in Silicon Valley. Its first meeting in March 1975 was held in
one of its members’ garage in Menlo Park in Santa Clara County. The
Homebrew members were engineers and computer enthusiasts who discussed
about the Altair and other technical topics. The club attracted many
hobbyists and was attended by nearly 750 people one year after its
foundation. The Homebrew Computer Club had its own philosophy. People
meet, because they were interested in computers and liked tinkering with
them, but not for commercial reasons — at least in its early times. Its
members «exchanged information about all aspects of micro computing
technology») and talked about devices they had designed. From its ranks
came the founders of many microcomputer companies — for example Bob
Marsh, Adam Osborne, or Steve Jobs and Steven Wozniak — the famous Apple
founders.

The Homebrew Computer Club is the place where the roots of many Silicon
Valley microcomputer companies are located. It has «spawned a revolution
in micro processing») and represents an «important step in the
development of a multi-billion dollar industry.

The Apple Story

Apple provides one of Silicon Valley’s most famous stories. It shows
features that are typical for most start-up firms in the valley,
however, it is unique and its early success and its contribution to the
personal computer are unmatched.

«Woz» and Jobs — the two «Steves»

Apple’s history starts with the story of two young and exceptional
people who began building a computer in their garage and «launched the
microcomputer revolution,») changing our daily life in many respects.

The Apple story is the story of the two «Steves». Stephen G. Wozniak was
a typical Silicon Valley child. Born in 1950, he had grown up with the
electronics industry in Silicon Valley, and had been intrigued by
electronics from the start, since his father w as an electronics
engineer. Wozniak, known to his friends as «Woz», was bright and was an
electronics genius. At the age of 13, he won the highest award at a
local science fair for his addition-subtraction machine. His electronics
teacher at Homestead High School recognized Woz’s outstanding talent and
arranged a job for him at a local company, where Steve could work with
computers once a week. It was there that Wozniak saw the capabilities of
a computer (it was the DEC PDP-8 minicomputer) and studying the manual,
it became his dream to have a computer of his own one-day. He designed
computers on paper. Many other students who grew up in Silicon Valley
shared this dream.

In 1971, Wozniak built his first computer with his high-school friend
Bill Fernandez. This computer (they called it Cream Soda Computer) was
developed in his friend’s garage and had «switches and lights just as
the Altair would have more than three years later.»)

Bill introduced Woz to a friend of his named Steven P. Jobs. Jobs was
born in 1955, and his foster parents were — unlike most other people in
Silicon Valley — blue-collar workers. However, growing up in an
environment full of electronics, Steve came in con tact with this
fascinating technology and was caught by it.

Jobs was a loner and his character can be described as brash, very
ambitious and unshakably self-confident. With his directness and his
persistency he persuaded most people. He had the ability to convey his
notions and vision to other people quite well. An d he was not afraid to
talk to famous people and did never stop talking to them until they gave
in and did what he wanted. His traits could already be observed in his
adolescence, for instance when he — at the age of thirteen — called
famous Bill Hewlett, president of HP, and asked him for spare parts he
needed for his frequency counter.

Although Steve Jobs was five years younger than Wozniak, «the two got
along at once.» Apart from their common fascination with electronics,
they «shared a certain intensity.» Whereas Woz was intense in digging
«deeper into an intellectual problem than anyone else,» Jobs’s intensity
was in ambition. Moreover, both were genuine pranksters, and often they
fooled others with their technical knowledge.)

When they heard of «phone-phreaking» — making free long-distance
telephone calls with a device called «blue box» — the two started their
first business venture, building those blue boxes.

In 1972, Steve Jobs went to Reed College in Oregon; however, there he
became more interested in Eastern religions, dropped out a year later
and returned to Silicon Valley, where he took a job with Atari (a young
video game company) until he had saved enough money to go on a trip to
India for some months. Then he went back to California and to his work
at Atari.

After attending three different colleges, Wozniak had begun work for
Hewlett-Packard in summer 1973. When Atari planned to develop a new game
called «Breakout,» Jobs boasted he could design it in only four days —
quicker and better than anyone else. Jobs t old his friend Woz about it,
and the two designed the game in record time, working four nights and
days, and were paid the promised $700 for it. This experience showed
them that they could work together on a tough project and succeed.

The first Apple

When the Homebrew Computer Club came into existence, Wozniak began
attending its meetings. As he later would recall, Homebrew was a
revelation for him and changed his life. He met people who «shared his
love for computers») and learned from them as well a s he encouraged
them with his technical expertise. Others brought along their Altairs,
which Wozniak was interested in but could not afford. He realized this
computer resembled the Cream Soda Computer he had built some time ago.

Soon after, Chuck Peddle at MOS Tech released his new 6502
microprocessor chip for only $20, which was a sensation compared to the
usual price of $400 for those chips then. Suddenly, Woz saw his chance
and decided to write the first BASIC for it, which was the most spread
programming language. After finishing with the BASIC, he made a computer
for it to run on. The other hobbyists at Homebrew were impressed by
Wozniak’s kit, which actually was a board with chips and interfaces for
a keyboard and a video monitor.

Steve Jobs saw the opportunity of this machine, which they named Apple,
and finally persuaded Wozniak to start a company in April 1976. The two
raised the money for the prototype model with a printed circuit board by
selling Jobs’ VW microbus and Wozniak’s HP calculators. With the Apple
I, Steve Wozniak had designed a «technological wonder») and made his
dream of owning a computer come true. His friend Steve Jobs played the
role of a salesman and his ambitious promotion made the Apple I «a star
in the tight world of computer freaks.»)

The breakthrough for the two Steves came in July, when Paul Terrell
ordered 50 Apples for his Byte Shop, however on condition the computers
were fully assembled in a case and equipped with a cassette interface to
enable external data storage.

Jobs could «obtain net 30 days credit») for the parts they needed for
their computer. Working hard in Jobs parents’ garage, they managed to
construct the 50 Apples within those 30 days.

The Apple I was continuously refined by Wozniak, and its sales made the
young company known, partly because the company’s name appeared on top
of computer lists, which were published by electronics magazines in
alphabetical order.

Building up the company

While the first Apple was being sold, Steve Wozniak had already begun
work on another computer, the Apple II. This machine would have several
special features which had not appeared in any microcomputer before and
would make it «the milestone product that would usher in the age of the
personal computer.»)

Jobs and Wozniak sensed the market potential their new computer would
have, but realized they did not have the necessary capital for
constructing the machines. So they tried to sell their computer to
several established companies such as Atari, HP and MOS Tech, which,
however, rejected. Looking out for some venture capital to produce the
new computers by themselves, Steve Jobs met with Mike Markkula, who had
been a marketing manager at Fairchild and Intel.

Markkula was at the age of 38, but had already retired, since he had
made a fortune of many million dollars by his stock option at Intel. He
visited Jobs’s garage and became interested in their project. Markkula,
the former marketing wizard at Intel, thought it «made sense to provide
computing power to individuals in the home and workplace» and offered to
help them «draw up a business plan.») Finally, he decided to join the
two Steves. He offered $250,000 of his own money and his marketing
expertise for on e third of the company, which was incorporated as Apple
Computer in January 1977. Markkula’s decision marked the turning point
in Apple’s history; he took care of the business side and arranged all
the things necessary to create a successful company. Markkula’s know-how
was crucial for Apple, since Woz and Jobs did not have any business
expertise. This knowledge is very important for new firms. A lot of
other start-ups in Silicon Valley failed as their founders were only
engineers, who lost control over their enterprises when they could not
meet the skyrocketing demand for their products.

In 1977, Markkula hired Mike Scott, who had worked for product marketing
at Fairchild, as the company’s president, because he felt Apple needed
an experienced person to run the company.

Jobs, who wanted only the best for his company, also persuaded Regis
McKenna, who ran the biggest and most influential agency in Silicon
Valley, to do public relations and advertising for Apple. McKenna, who
worked for successful Intel and many other companies, brought Apple
legitimacy and, among other things, designed the famous Apple logo.
Another important contribution was the fact that he made Apple the first
company to advertise personal computers in consumer magazines to «get
national attention» and » popularize this idea of low-cost computers.»)

Steve Jobs’s persistency had persuaded Wozniak, the electronics genius
who designed the machine, McKenna, and Markkula, the business expert.
Jobs himself was the driving force that brought the key components
together to build up a successful company.

Apple II — starting the personal computer boom

In April 1977, the Apple II was introduced to the public at the West
coast Computer Faire (market), where Apple had rented the largest booth
just opposite the entrance. Wozniak’s «technological wonder») was a
great success and the first orders were already made. The Apple II was
the «first true personal computer.») It was the first microcomputer able
to generate color graphics and the first with BASIC in ROM and included
a keyboard, power supply and an attractive lightweight and beige plastic
case, which would become standard for subsequent PCs. The Apple II was
more sophisticated than any microcomputer before, and represented a
machine, which could be worked with effectively. Steve Wozniak had put
all his «engineering savvy») into it, and had created a computer he
would like to own.

The Apple II was given a rapturous welcome in the public. In 1977, the
company sold more than 4,000 computers, which were priced at $1,300, and
grew rapidly.

Programs and data for the Apple II were stored on cassette tapes. But
this common way of storage turned out to be quite unreliable and
awkward. Mike Markkula saw the future in floppy disks, which had been
developed by IBM in the early 1970s, and asked Wozniak to design a disk
drive for the Apple II. Woz took the challenge and finished in record
time (only one month). His final design was brilliant: he developed a
new technique («self-sync») and created the fastest minifloppy disk
drive. It was shipped in June 1978 and proved vital for Apple’s further
growth. It made possible the development of serious software such as
word processors and data base packages,») which increased the practical
use of the computer decisively.

In 1979, Daniel Fylstra, a programmer from Boston, released VisiCalc for
the Apple II. This spreadsheet was a novelty in computer software. It
relieved business calculations considerably and could be used to do
financial forecasting. It was the first application that made personal
computers a practical tool for people who do not know how to write their
own programs. VisiCalc was very successful and contributed to the
skyrocketing sales of the Apple II.

The same year, marketing wizard Mike Markkula made another important
decision for Apple future growth. His idea was to create a new market in
the field of education and schools. The Apple Education Foundation was
established, which granted complete Apple systems equipped with learning
software to schools. This market should account for a major part of the
company’s sales in the subsequent years, since Apple II soon became the
most popular machine for students.

Turbulences in the early 1980s

The successful stock sale provided Apple with an «extravagant amount of
capital ($1 billion),» which could be spent on developing the «company’s
next computer generation.») This time, however, was quite turbulent for
Apple and was marked by crises and inner power struggles.

Designing on Apple III began in 1978. This computer was to be the
successor to Wozniak’s Apple II, and was finally introduced to the
public in 1981. But it was not successful — a «disaster» or «fiasco,»)
since it had too many faults and did not work properly. Nevertheless,
the company was without any financial troubles, since sales of the Apple
II continued to increase rapidly.

Concurrently, Steve Jobs became the company’s visionary and thought
about the next computer generation. Such a visionary is a «person who
has both the vision and the willingness to put everything on the line,
including his career, to further that vision. Jobs became a perfect
visionary and convinced everyone around him with his vision.

In 1979, he and some other Apple employees visited the Xerox PARC (Palo
Alto Research Center), which was known for its advanced research in
computing. What they saw was revolutionary and had never appeared on any
personal computer before. The «environment of the screen was graphically
based» with icons (representing files or programs), with a mouse for
pointing and moving at them, windows and pull-down menus. Thus, the user
could «interact easily with the computer […] without ever typing a
single letter.

Jobs was quite impressed and wanted to transfer this concept on a new PC
called Lisa, which was intended for the business world. Steve, however,
came up with ever-new ideas for the designers of this project. He
«created chaos because he would get an idea, start a project, then
change his mind two or three times, until people were doing a kind of
random walk, continually scrapping and starting over.»)

Markkula and Scott were concerned about the further progress of Lisa.
So, in the course of a reorganization of the company, they decided to
put John Couch, a former software designer at HP, in a charge of the
Lisa project. Jobs was made chairman of the boa rd to represent Apple in
the public. However, Steve was shocked that he was taken the chance to
fulfill his vision, and relations between him and Scott deteriorated.

In February 1981, Wozniak, the technological brains behind the Apple I
and II, crashed his four-seated airplane. He hit his head badly and
suffered from a case of temporary amnesia. For some time, he retired
from the company and he finished his undergraduate degree at U.C.
Berkeley.

The company had grown rapidly to 2,000 employees, and some of them had
joined Apple in the hope of a safe job. Setting an example, president
Mike Scott laid off 42 people on a day which came to be called «Black
Wednesday». Apple was shocked since some of t hose people seemed to have
been chosen arbitrarily. Scott’s management style became more and more
disliked, and finally Mike Markkula decided to fire Scott and took over
his position until a new president was found.

The Lisa project

Meanwhile, Steve Jobs had discovered his new project. Soon he had taken
control of the Macintosh project, which had been started by Jeff Raskin
in 1979 to design a small and handy personal computer. Steve dedicated
all his power to the Macintosh, which was to be a smaller and cheaper
Lisa and was to revolutionize the way of computing.

The company was now separated into three divisions, Apple II, Lisa and
Macintosh, which began competing against each other — particularly
between the latter two.

Lisa was developed by a number of experienced engineers and programmers
who had been recruited from HP, DEC and Xerox. This project was «the
most professional operation ever mounted at Apple») and was in contrast
to Steve’s bunch of young hackers at Macintosh.

When Lisa was introduced to the public in August 1983, it was «ahead of
its time:») Lisa was easy to use because of the mouse, graphical
interface and windows, and had additional features such as multitasking.
Though is was first welcomed by the press as revolutionary, Lisa failed.
One problem was Steve’s «lack of self-discipline:») When introducing
Lisa he talked about «his» Macintosh which would come out soon and with
features like Lisa but cost only a fraction ($2,000 instead of $10,000
for Lisa). The other strategic mistake was the announcement that the two
computers were not compatible. So it is no wonder many people waited
until the Macintosh would come.

Finally, Lisa, which was intended for the business market at its price
of $10,000, lacked the ability to communicate with other computers — a
fact which was decisive for this market.

In the meantime, IBM had entered the personal computer market with its
first IBM PC in 1981, and already dominated a large part of it. Its
first PC «wasn’t an earth-shattering machine technically») and was much
harder to use than the forthcoming Apple machines. But the fact that it
was built by IBM was enough to make it successful, and many software
companies wrote applications for it. Apple had bravely run a full-page
ad saying «Welcome IBM, Seriously», but it soon seemed to have lost the
battle. Nevertheless, IBM’s entry brought Apple a lot of publicity as
the only real competition to Big Blue.

Thus, Lisa was not very successful and the second failure after the
Apple III. Still, Apple’s sales increased — only because of the
successful Apple II. But the company needed a successor, and all its
hopes were now placed in the Macintosh.

The Macintosh revolution

The Macintosh was to fulfill Steve Jobs’ vision of «computer to the
people». He created a personal computer, which was easy to use and at a
low cost. Steve thought of a tool for all people to broaden their mind —
a revolution towards the modern way of computing.

His Macintosh team was made up of teenagers and self-taught hackers —
«idiot savants, passionate plodders and inspired amateurs» — who «loved
to cut code.») They followed his vision and passionately designed this
outstanding computer. Jobs continuously drove his team to ever-greater
feats. He «kept thinking up crazier things, or more aggressive goals if
they were doing good, or if they were achieving their goals he wanted
them to do more. He couldn’t just stop, he had to push you to the
edge.») Steve «gave impossible tasks, never acknowledging that they were
impossible,») he «doesn’t have any boundaries, […] because he has
always been able to do anything he wanted» due to «his early success.»)
As a consequence, people usually worked 80 hours a week or more for
their project.

Steve’s most brilliant hackers were Andy Hertzfeld, Bill Atkinson and
Burrell Smith. The Macintosh was equipped with Motorola’s 68000 CPU, a
3.5-inch floppy disk drive, a detachable keyboard, and the amount of
space it took up from the desk should not be larger then a telephone
book (this meant a revolution in size). The computer was meant to be an
open system, and software applications were to be programmed by other
companies, the work of which was supported by a standard modular
toolbox. This box made sure that all applications were easy to use and
appeared in a standardized way. As well as other fundamental software
the standard toolbox was available from the computer’s ROM (Read Only
Memory).

Influenced by robotics assembly lines in Japan, Steve decided to «build
the most advanced assembly plant in the world») for the production of
the Macintosh. It was fully automated and the labor component accounted
for only one percent of the total cost.

Simultaneously to feverish efforts to finish the Macintosh, Apple
succeeded in finding a new president. Thanks to Steve’s visionary powers
of persuasion, John Sculley, top manager at PepsiCo, finally agreed to
join Apple in April 1983.

The introduction of the Macintosh, which was Steve’s revolutionary
machine to change the world, was dated to January 1984 and was to be
accompanied by a massive ad campaign in the media. Chiat/Day agency was
asked to create a commercial referring to the fact that 1984 was the
year of Orwell’s famous novel. They produced the sixty-second ad, which
was really exceptional, and proposed running it only once — during the
Super Bowl, the most watched television event of the year.

It would be a million dollar minute, which was to capture public
attention. Macintosh was presented as a milestone product that would
revolutionize the way of computing, breaking IBM’s, the «Big Brother’s»
dominance and conformity it was about to establish by its IBM PCs.

When the commercial was broadcast, it reached 46.4 percent of America’s
households. People were stunned about this outrageous ad, which was
«unlike anything they had seen before.») Suddenly, millions of people
knew something called Macintosh. The «commercial sparked widespread
controversy»), and won the highest advertising awards (more than 30).

The Macintosh (priced at $2,495) was a success from the start. Steve
Jobs, the visionary, compared it to Graham Bell’s invention of the
telephone a hundred years ago. It was the «most approachable») and
sophisticated personal computer of the time, which ushered in a new era
of easy computing with a graphical interface and mouse. This feature
would be taken over by many software companies in the subsequent years,
particularly by big Microsoft, which developed Windows. This graphical
user interface, which ha s been established as the industry standard
today, is quite similar to Macintosh’s and makes possible the easy use
of IBM PCs.

In the first 100 days, an industry record of more than 70,000 Macintosh
computers were shipped — a number that went up to the total of 250,000
sold units by the end of the year.

John Sculley and Steve Jobs

Despite the astonishing figures of sold Macintosh computers and a boost
in sales to more than $1.5 billion in 1984 (up 55% from 1983),) Apple
soon fell into its most severe crisis, which would only be overcome by
Sculley’s hard measures and led to the firing of its visionary Steve
Jobs.

John Sculley had been vice-president at PepsiCo where he had
successfully made Pepsi the number one brand in the Cola Wars. Actually,
there was no reason for him, one of America’s top managers with a secure
and highly paid position at PepsiCo, to join a bunch of young computer
nerds at the West coast. The reason why he finally agreed yet is Steve
Jobs who impressed him by his visionary ideas and asked him a question
to which he did have no answer: «Do you want to spend the rest of your
life selling sugared water or do you want a chance to change the
world?») This question told him that his «entire life was at a critical
crossroads.»)

Sculley and Jobs became close friends. They could «complete each other’s
sentences» because they «were on the same wavelength.») The «dynamic
duo», as they were called in an issue of Business Week in October 1983,
was esteemed highly in the press and contributed significantly to
Apple’s good reputation in the public at the time.

The downfall came soon, however, when their largely overestimated
expectations of the Macintosh sales could not be met. In their euphoria
about the revolutionary Mac, they thought they would ship 80,000 units
by the end of 1984, and had produced them in advance. When the reality
brought «merely» 20,000 with a falling tendency, the crisis was evident.
Reasons for that decline were that the Macintosh was not as «perfect» as
expected — with its 128 KByte RAM (they were then mounted to 512 KB) it
was not powerful enough, and there were hardly any software applications
available yet. Moreover, at the 1985 annual meeting, Jobs and Sculley
neglected the fact that 70 percent of the company’s sales were still due
to the Apple II, whereas the Macintosh accounted for only 30 percent.
Many sophisticated Apple II designers were annoyed and left the company.

Steve Jobs became more and more angry and aggressive because of the
continuing drop in Macintosh sales (merely 2,500 units in March 1985).)
He blamed everyone for it, except for himself. Steve just did not see
that the «problem was with him.») In the end, he blamed even Sculley for
the crisis and wanted to lead the company himself. But this seemed
impossible to everyone else: «Steve was a big thinker, an inspirational
motivator, but not a day-to-day manager. What was sad was that he could
not see it.»)

When Sculley was informed that Jobs intended to remove him insidiously
from the company, he was quite concerned, but then decided to choose the
company’s welfare over his friendship to its visionary co-founder.
Supported by Markkula and the other members of the board, in May 1985,
he dismissed Steve from his positions as the vice-president and as the
leader of the Macintosh division; Jobs did not have any managerial power
anymore.

Steve Jobs was quite depressed and made trips to Europe and the Soviet
Union. Finally, he decided to leave Apple in December 1985, and sold all
his Apple shares. He took along some of the best employees to start his
new venture — NeXT. He intended to design a workstation for the
university sector. In February 1987, billionaire Ross Perot invested $20
million for 16 percent of NeXT. The new computer was introduced to the
public in October 1988, priced at $6,000.

At Apple, John Sculley took several measures to save the company, which
had become chaotic. In the course of a major reorganization he dismissed
1,200 employees (20% of the total workforce) and put the broken parts of
the company together to form one unified Apple. His restructuring saved
a lot of costs and consolidated the company.

1986 was Apple’s worst year with a decline in net sales from $1.92
(1985) to $1.90 billion. Gradually, Sculley could persuade software
companies, which had turned away from Apple, to write applications for
the Macintosh.

Apple found its new market in desktop publishing (DTP), for which the
Macintosh was predestined. By the time, the Macintosh became a serious
tool for the business market and its sales increased again.

Until today, Apple has grown steadily and now reaches net sales of more
than $7 billion. Although the Macintosh lost the battle against Big
Blue, today it is a successful product and was sold over 2.5 million
times worldwide in 1992. Apple remains the second-biggest personal
computer manufacturer after IBM and has released innovative products
such as QuickTime, an easy to use multimedia software combining sound,
video and animation. Its latest development is Newton, a personal
digital assistant (PDA), which serves as an electronic notepad and
«integrates advanced hand-writing recognition, communication and
data-management technologies.»)

Apple today.

CUPERTINO, California—December 5, 2000—Apple® today announced that it
has experienced significantly slower than expected sales during October
and November, which will result in revenues and earnings for its quarter
ending December 30, 2000 being substantially below expectations.

The company expects to report revenue of about $1 billion and a net
loss, excluding investment gains, of between $225 and $250 million.

The $600 million revenue shortfall from previous expectations is due to
lower than expected channel sell-through across all geographies and
unplanned sales promotions and pricing actions. The net loss is the
result of the revenue shortfall and cancellation charges related to
decreases in forecasted component purchases for current products.

“The swift industry-wide decline in PC sales will result in Apple’s
first non-profitable quarter in three years,” said Apple’s CEO Steve
Jobs. “We’re not happy about it, and plan to return to sustained
profitability next quarter. We are committed to reducing our channel
inventories to normal levels by the end of this quarter, and remain very
excited about the new products and programs Apple will be rolling out in
2001.”

“In light of the lower results anticipated for the December quarter, we
now expect revenues for fiscal 2001 to be in the $6 to $6.5 billion
range,” said Apple’s CFO Fred Anderson.

PAGE 17

Kyiv Shevchenko University

Chemistry Department

Kyiv, 2001

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