SEMICONDUCTOR HISTORY The story of Silicon Valley – How it began, how it boomed, and where it’s headed

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The recent passing of Intel co-founder and semiconductor pioneer Gordon Moore has brought Silicon Valley back into the news cycle. Moore was instrumental in the development of the US tech industry and helped establish Silicon Valley as a hub of IT innovation. We explore the fascinating history of Silicon Valley and look at where this high-tech hotspot might be headed in the future.

Gordon Moore, one of the major pioneers of the semiconductor and IT industry recently passed away. On March 24^th, 2023, Moore died peacefully at the age of 94 at his home in Hawaii. Moore was perhaps most well-known for starting Intel in 1968 alongside Robert Noyce and serving as executive vice president and CEO for almost two decades. However, Gordon Moore was also a key figure in the development of semiconductor technology and played a major role in the establishment of Silicon Valley as a hub for innovation in the US.

Today, Silicon Valley is home to more than 30 multinational companies that regularly appear in the Forbes Fortune 1000 list. 85 billionaires live in Silicon Valley as do an estimated 163,000 millionaires. Homebase to world-leading IT giants and thousands of IT start-ups, the very words Silicon Valley are synonymous with cutting-edge high-tech. But how did this once-unassuming part of the San Francisco Bay Area become one of the focal points of the modern digital age?

The early years of Silicon Valley

The area that we now know as Silicon Valley is part of the Santa Clara Valley situated just southeast of San Francisco in Northern California. Up until the 1890s, the Santa Clara Valley was renowned for its fruit orchards, producing mostly cherries, pears, apricots, and French plums. The plums were harvested, dried, and processed into prunes, and then exported. In fact, the Santa Clara Valley was once responsible for 30 % of the world’s prune supply.

The bucolic atmosphere of the Santa Clara Valley didn’t last long into the 20^th century, however. Railway tycoon Leland Stanford lived in Santa Clara Valley and founded Stanford University there in 1891. Despite a shaky start, Stanford University shot to prominence in 1909 when then university president David Starr Jordan invested in the development of the audion tube by Lee de Forrest. de Forrest’s invention was a vacuum tube that could amplify a weak electric signal. It heralded the start of a revolution in electrical products and was used in a huge variety of goods, from telephone services to radios to adding machines. The seeds of Silicon Valley had been planted.

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Many historians attribute the start of the growth of Silicon Valley to another prominent Stanford University figure, Frederick Terman. After a decade of turning the electrical engineering department of Stanford into a world-class research facility, Terman became frustrated upon seeing students leave the Santa Clara Valley area as soon as they had graduated. To encourage graduates to stay in the Valley, Terman invested heavily in businesses that would base themselves in the area and employ talented young people. One such business was the original start-up, an electrical company started in a garage by Stanford alumni William Hewlett and David Packard, Hewlett-Packard.

By the 1940s, the Santa Clara Valley was home to many engineering and aerospace companies that provided crucial wartime services making radios, radars, and electrical equipment for the US government. Although the roots were starting to take hold, Silicon Valley wouldn’t flourish in its own right until the 1950s with the establishment of an industrial park and the arrival of one unique electrical engineering company.

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The arrival of Shockley Semiconductor and the birth of Silicon Valley

In 1951, Frederick Terman again proved himself to be a visionary when he established the Stanford Industrial Park. The Park was a collaboration between Stanford University and the City of Palo Alto. With 660 acres dedicated to research labs, offices, and manufacturing facilities, the Stanford Industrial Park was truly the start of Silicon Valley as we now know it.

The beginning of Silicon Valley as an epicenter of innovation began in 1955 with the arrival of the Shockley Semiconductors Laboratory. Founder William Shockley was one of the inventors of the point-contact transistor in the Bell Laboratory operated by AT&T. Shockley, however, was not named in the patent. Famed for his hot temper, Shockley resented this so much that he left AT&T and formed his own company, Shockley Semiconductors Laboratory.

Shockley Semiconductors Laboratory made its base in Mountain View in the Santa Clara Valley. Shockley set about recruiting the most talented engineers he could find. Among them were two exceptionally gifted young men, Gordon Moore and Robert Noyce. Shockley’s volatile temper made him incredibly difficult to work with. A group of engineers including Moore and Noyce disagreed with Shockley about what type of material to make semiconductors out of. The group advocated for the more heat-resistant silicon, while Shockley was adamant that germanium was the better choice. Eight of Shockley’s team, known as the Traitorous Eight, left the company in 1957 and formed Fairchild Semiconductor.

A year later, Noyce and his team would invent the integrated circuit (IC), which was also independently developed at the same time by Texas Instrument's Jack Kilby. The integrated circuit was perhaps the most important technological invention of our times and marked the dawn of the digital era. Silicon Valley was born and along with it the age of modern computing.

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The space race and the rise of the US tech industry

The late 1950s saw the US and the then USSR engaged in a heated race to see who could first develop the technology to put a human being on the moon. In a humiliating defeat for America, the USSR took an early lead in the space race with the launch of the Sputnik satellite. This prompted President Eisenhower to create both the National Aeronautics and Space Administration (NASA) and the Advanced Research Projects Agency (DARPA).

These two departments were dedicated to developing new technologies, whatever the cost. Any company that could prove itself worthy would be granted almost unlimited funding. In the early 1960s, DARPA was funding more than 70 % of all computer technology research in the US. Many of the newly established firms in Silicon Valley jumped at the chance and soon the area was the center for the development of the US ballistic missile program, as well as technology used in military satellites, tracking systems, and microelectronics for advanced weapons systems.

Fairchild Semiconductor was one of the companies that leveraged these military contracts to transform itself from a small electrical engineering company into a tech giant. Around this time Moore famously came up with what is now known as Moore’s Law, the theory that the number of transistors on an integrated circuit would double every two years.

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Silicon Valley becomes the epicenter of US tech innovation

During the 1960s, Silicon Valley came into its own. The cold war and the space race created an increased demand for integrated circuits. The Apollo program saw NASA sourcing an estimated 60 % of all its integrated circuits from the Santa Clara Valley area. In 1964 alone, NASA purchased 100,000 integrated circuits from Fairchild Semiconductor. One-fifth of all military contracts and 44 % of NASA contracts went to companies based in the Santa Clara Valley. By 1965, the Stanford Industrial Park was home to 40 companies employing more than 11,400 people.

The end of the Sixties saw two milestones in computing history: In 1969, Stanford University established one of the four nodes used in the ARPAnet. The ARPAnet was an experimental computer network program funded by DARPA and formed the basis of what we now know as the Internet.

Another revolutionary point was reached in 1968 when Robert Noyce and Gordon Moore left Fairchild Semiconductor to form Intel. Within three years Intel would produce the world’s first microprocessors, heralding an explosion of advances in technology that has continued unabated for more than 40 years.

The term Silicon Valley was coined by journalist Don Hoefler in a 1971 article for the trade magazine Electronic News. Soon after, Silicon Valley became the accepted name for the Santa Clara Valley area.

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Silicon Valley during the boom and bust years

The availability of easy, relatively risk-free funding from the US government and military spurred innovation and a new way of approaching business in Silicon Valley. In addition to the influx of government funds, two venture capital firms were founded in Silicon Valley in 1972: Kleiner Perkins and Sequoia Capital. These companies are still major venture capital firms today.

During the 1970s and the 1980s, IT giants were created in Silicon Valley. This list includes icons such as Apple and Microsoft as well as Atari, Oracle, Adobe, Sun Microsystems, and Cisco. The 1981 IPO of Apple generated US$1.3 billion and spurred a massive influx of venture capital. Now, Silicon Valley has more venture capital companies than anywhere else on the globe.

Silicon Valley’s success and the frantic pace of technological advancement that it brought about also caused concern. For a period in the mid-80s, the area was referred to as the Valley of Death, a reference to the fear that robotics and computers were going to replace the need for human workers.

Throughout the 1980s Silicon Valley had become incredibly prosperous and the wild success continued into the 1990s. The advent of the Internet age was slow to catch on initially, but by the mid-1990s the dot-com era had arrived, and investors went on a feeding frenzy. The reckless spending reached a climax in 2000 when the dot-com crash wiped out US$1.755 trillion worth of value in the stocks of internet companies.

While some analysts speculate that Silicon Valley has never fully recovered from the dot-com crash, the investment mania did help to produce many of the technologies that form the backbone of the modern world wide web.

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Silicon Valley – How it is now, and what the future might hold

Are the dizzying heights of Silicon Valley’s golden era over? Certainly, the wild days of Silicon Valley’s boom years are gone. The IT sector is now struggling with increased inflation, a lack of trust in tech firms, and the aftermath of the COVID-19 pandemic.

Although the pandemic saw an increase in the demand for tech services, the rise of remote working caused many IT professionals to move away from the Santa Clara Valley. It’s not hard to see why living in Silicon Valley is difficult for anyone not making six-figure salaries. The wealth gap in Silicon Valley is higher than anywhere else in the US and housing affordability is a major concern for low-level workers across all sectors.

Inflation has slowed investment significantly. Many leading tech companies have cut staff and frozen new hires. The recent disastrous collapse of the 40-year-old Silicon Valley Bank and the refusal of a government bailout could hamper the development of start-up firms in the area in the medium- to long term.

The dramatic collapse of hyped tech unicorns such as WeWork and Theranos, the crisis in cryptocurrency markets, and chaotic management at major tech firms like Meta and Twitter have caused investors and the public to lose faith in IT companies. The release of the generative AI software ChatGPT has been criticized as premature and caused speculation that it will overload the internet with fake content, disrupt industries, and wipe out millions of jobs, spurring renewed distrust in Big Tech firms and reintroducing the concept of a Silicon Valley as Death Valley.

Will Silicon Valley survive as a center of innovation? Analysts argue that no other place on the planet has such a culture of entrepreneurism and innovation. While Silicon Valley may be at the end of a boom cycle, it certainly is not completely bust yet. Professor Margaret O’Mara author of ‘The Code: Silicon Valley and the Remaking of America’ was quoted in the Guardian newspaper as saying, “It may be the end of an era for Silicon Valley, but it is unlikely to be the end of Silicon Valley.”

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