SILICON VALLEY "Boomtown"

<v Michael Malone>Silicon Valley is a boomtown, it's just like the California gold rush, the combination fortuitous of the right people in the right place at the right time. And boom, the place happened just sort of took off. There was no planning involved. And just like the gold rush, some people have come and made a killing, but the majority of the people have struggled and if they're lucky, broken even. <v Narrator>The new gold rush started in a narrow valley between the Santa Cruz Mountains and the San Francisco Bay. It's hard to pinpoint when the boom started, but old timers recall that in 1881, a strange new tower was built, this giant light tower aimed to wipe out darkness and combat crime. It became a symbol of the valley's love affair with electricity and technology, local reaction was mixed. Some called it a folly. Drunks climbed it on Saturday nights, and the farmer from the town of Morgan Hill complained that his farm's egg production had declined because his hens could not tell day from night. In 1915, the structure collapsed during a windstorm having rusted from within. Today, a half sized replica stands half forgotten at a local museum, a memento of the area's early flirting with advanced technology, the gold that created this boomtown. The Santa Clara County in the 1930s, a place of rich land and dirt roads. Fifty years later, in the 1980s, the same place home to anywhere between two and three thousand companies. Many of them engaged in high technology research. It's a place of exaggerated peaks and valleys, of cycles of boom and bust, with a history unknown to its inhabitants. The reason? Almost everyone here came from somewhere else and they keep coming during the worst recession the area has ever seen. <v Alan>My name is Alan ?Throer? And I'm from Fresno, California. I moved down here in San Jose about six days ago. I was working for FMC down there and I got laid off my job. So they don't have much jobs back in Fresno. So I had to move to a bigger city or something. So there's a lot of employment down here.

<v Venture Capitalist>I came here from Mexico City for basically two reasons. I'm a venture capitalist and this is the center for venture capital and for biotech. And as far as I'm concerned, this is Florence in the Renaissance. <v Woman from New York>Last year, my husband received a great job offer at a manufacturing company down in San Jose and we discussed it and I found a great job out here also. We moved out here. There's things that we miss about New York, but our career and our future is out in the Silicon Valley. <v Narrator>Why is all this growth happened here? How did this collection of farm towns become such a center for high technology? What combination of people, ideas and opportunity created this new gold rush? Throughout this program, we will hear comments from Michael Malone, a writer and journalist who grew up in the Valley. <v Michael Malone>This area is really two different places, it's Santa Clara Valley, which has been here for thousands of years, is the place of Ohlone Indians and Jesuit missions and orchards. And on top of that is Silicon Valley, the place of high technology companies and entrepreneurs. And Silicon Valley has really only existed since about 1970 when the place was given that name. Before that, Santa Clara Valley had a lot of electronics companies, but they didn't yet reach the critical mass to turn the place into a high tech enclave into Silicon Valley.

<v Narrator>Downtown Palo Alto, a few minutes from Stanford University, one of the first companies to work in electronics Federal Telegraph was founded here in 1909, prompting some to call this 913 Emerson Street, the birthplace of electronics. An ambitious young scientist, Lee de Forest, was hired by Federal. He had invented the vacuum tube and working here in 1912, he discovered that it could be used to amplify electric signals. This opened the way for the development of radio, television, radar and computers. Radio already had a place in the area in 1909, Doc Harold had started the nation's first radio station and began broadcasting regularly from downtown San Jose with his wife as the first disc jockey. Still, the Santa Clara Valley was very much a backwater, with a population of mostly farmers and cannery workers. Fruit trees, especially plums and apricots, covered the valley. Agriculture dominated every aspect of life. <v Clyde Arbuckle, historian>There have been a lot of changes in many respects. In most respects, I prefer the easier life, something the doctors tell you to go out and look for after you made your second million dollars. When I was a boy, they just started the grammar school in 1909. Our valley was orchards of evenings in the spring. When the trees are in blossom, one could stand down at first in Santa Clara Street. I could smell the perfume of those blossoms at times so sweet as to be cloying. Industry heavy industry. The first unit came to this valley in 1907, I think of a Hendee Ironworks that moved from San Francisco to Sunnyvale after the great earthquake of 1906. And as one very bitter native mentioned to me one time during County Fair Week, he said that was the first cell of the malignancy that has metastasized all over our valley. He was bitter.

<v Narrator>The First World War was good business for the infant electronics industry, as wars have been ever since, even though some radio companies still traveled by horse and mule, the advantages of electronics in the battlefield soon became obvious. It was one of the first signs that warfare and the development of electronics would be closely linked. Companies that manufactured communications equipment such as Federal Telegraph grew quickly. In 1927 in San Francisco, a brilliant young inventor named Philo Farnsworth demonstrated the first television, the whole area was bursting with excitement, much of it caused by radio.

<v Song on newsreel>[Unidentified song from the early 20th century] <v Narrator>A popular professor at Stanford University, Dr. Harris Ryan appointed Radio Ham Frederick Terman to head the newly created Radio Communications Laboratory. Terman's lifelong love for radio, in those days, almost a synonym for electronics was a magnet for the university's most dynamic students. Terman also had the controversial idea of tying scholarship with business and in 1938 in this unassuming garage. Perhaps now the most famous garage in the world, two of Terman's students, William Hewlett and his friend Dave Packard, began building an audio oscillator, a device Hewlett had invented before he joined up with Packard. Their first customer was Walt Disney Studios, which used the audio oscillator for the production of sound for the movie Fantasia. <v Owner of garage>And then we'll get a bus full of tourists from Japan come by in the I guess they've heard about this garage and everybody gets out the bus, takes some pictures and they head on back to wherever they're going next. I sell cut flowers out of it now. So small businessmen trying to get started in the same garage. Maybe it'll be good luck for me to.

<v Narrator>The two founders, partly because of their lack of experience in business, wrote their own company Code of Honor based on respect and trust for their employees. It was a profitable approach and created a positive image for the company. Also in the 1930s in Sunnyvale, naively yet accurately called the City of Destiny, a group of businessmen had been trying to convince the Navy to build an air base. And in 1933, Moffett Field opened with huge hangars to house airships. This may have been a short lived technology, but the opening of Moffett Field was another step in laying the foundation for Silicon Valley. Then from the physics department at Stanford came big Russell Varian, an eccentric thinker and theoretician with socialist ideals. While growing up in Palo Alto, he dreamed up inventions and challenged his younger brother Sigurd to build them. Sig had mechanical aptitude and turned down a college education to become a barnstorming pilot. He would take farmers up to the skies for five dollars or a place to sleep and a hamburger. Later as a Pan American Airways pilot in Central America, one of his biggest problems was flying without good navigational aids. He convinced Russell to help him build a blind flying device. They enlisted the help of physics professor Bill Hanson, a former classmate of Russell Varian. And with the support of Stanford University, they set about inventing the klystron tube a crucial piece of technology in the development of radar. <v Emery Rogers, former Varian and HP executive>Russ and Sig were certainly among the most unusual people that I ever encountered in my life, Russ Varian, and remarkably enough, very seldom if ever used mathematics to to explain an idea. He was able to visualize a physical phenomenon rather than to have to record it all in elaborate mathematical form. They complemented each other perfectly at the origin of the klystron because Russ dreamed up the idea and Sig led the charge for converting it into a workable device.

<v Narrator>During the war against Japan and earlier in the Battle of Britain, the klystron tube proved decisive <v Man on newsreel>Below and beyond lies the Japanese mainland and somewhere beyond that. The target. Before you now is the radar scope a small circular screen giving x ray like vision to the mysterious 11th member of the crew, the radar operator. Data taken from the Electronic Wonder Instruments is converted to precision and pinpoint bombing. <v Radar operator on newsreel>One seven degrees, right?

<v Narrator>Regarding the technological innovations of the war, many scientists said the atomic bomb only ended the war. Radar won it. During the war, the San Francisco area had become the passageway for thousands of enlisted men on their way to the Pacific theater. They liked what they saw in the area and after the war, they came back ready to settle down. Many had had up to the minute training in the technical arts of electronics and communications. <v Doug Engelbart, computer scientist>I was in high school when this war started and I heard about an interesting radio radar program the Navy had. And radar was so secret and all sound very romantic. So I ended up getting into that program. So I had a years training and pretty good training in practical electronics. A lot of people trained in radio and operations as well as maintenance. And then the GI Bill had a huge impact, too, because those people could come back and go to school and if they were interested, follow it up. <v Narrator>Enrollment swelled that the Valley's universities, Stanford, Santa Clara and San Jose State. One of the most popular fields was engineering. The small electronics firms that had started in the valley benefited from the war not only because of the infusion of talent, but also because of defense contracts and the intense electronics research. After the war, the Varian brothers had decided to form a company to market the result of their inventions. IBM was in dire need of engineers and tried to hire them in California. Recruiters returned to New York consistently empty handed, unable to convince young engineers and technicians to move back east. A West Coast location was needed and San Jose was chosen because the company already had a small card manufacturing plant in a former laundry in downtown San Jose. Minutes away, a Russian immigrant named Alexander Poniatoff had started a company to develop the brand new technology of magnetic tape recording Ampex. Many great inventions would come out of here, including the first video tape recorder. With so many companies starting near Stanford, Fred Terman's efforts to create a community of technical scholars were beginning to pay off. His dream was to turn part of this land into a new kind of home for business and research.

<v Michael Malone>Perhaps the most important thing Fred Terman ever did besides teaching these bright young kids about electronics was to create a setting for the companies that his students had founded, a kind of almost a new Athens, an Arcadian sort of setting where it was like a large campus where you had companies and you had Stanford University. All in these beautiful rolling hills in a very relaxed academic environment,

<v Narrator>The Stanford Industrial Park, 600 acres of university property were leased to qualified companies engaged in scientific research. Its first two tenants, of course, were Varian Associates and Hewlett-Packard. Ironically, this new Athen's will ultimately prove too expensive in land values to attract the kind of startup companies that later came to symbolize Silicon Valley. Throughout the 50s, the area's calm way of life and moderate climate attracted many giant corporations who settled in the small towns up and down the valley. <v Song>[Chuck Berry's "Promised Land"]

<v Narrator>In 1956, a new missile plant opened in Sunnyvale, a division of a big aircraft company started by two area natives, Alan and Malcolm Lockheed, pioneer aviators of the early 1980s. Thanks to military contracts, Lockheed Missiles and Space soon became and still remains the valley's largest employer, with about 26000 workers. By the late 50s before the world had ever heard of Silicon Valley, all the pieces were falling into place. An industrial base, a young population collaboration between industry and universities. Plenty of space and a new invention. The transistor was about to migrate to California. Some called this the real beginning of Silicon Valley. Invented in 1947 at Bell Laboratories in New Jersey, the transistor would soon replace the cumbersome vacuum tube. Bulky and fragile, tubes were showing their limitations. ENIAC, considered the world's first electronic computer, was a good example. It was developed during World War Two and contained over 18000 vacuum tubes, constantly overheating, wasting power and burning out. The problem was so critical that soldiers provided with grocery baskets full of spare tubes were constantly at work. It also weighed 30 tons. Transistors would make it and numerous other electronic systems much smaller and lighter. They were made of semiconductors, newly developed materials that gave their name to an entire industry. <v Man on newsreel>These are transistors, as you probably know. This is the larger size here for power tubes. These little fellows here will do the job that this tube here will do.

<v Narrator>In 1956, the three physicists responsible for the invention of the transistor, Walter Brattain, John Bardeen and project leader William Shockley, were awarded the Nobel Prize. Shockley was lecturing at Stanford, having been invited by Fred Terman two years earlier. He decided to open his own transistor factory. From big companies and universities around the country, Shockley recruited the brightest young engineers and scientists he could find. He called it his Ph.D. production line. <v Robert Noyce, vice-chairman for Intel>Why did I come out to Shockley? I suppose that it's because he was well known as the father of transistors. I was interested in transistors, but he goes farther than that too. All Iowans wind up in California if they meet their dream. And I had never been to California before. I came out to interview for this trip, for that job with Shockley. And I was dedicated to taking it so much so that I bought a house before I had a job offer. <v Gordon Moore, C.E.O. of Intel>And Shockley is a unique individual. He has physical intuition that unexcelled and one of my colleagues accused him of being able to see electrons. He had such a good idea what was going to happen, but he had some unusual ideas of motivating people. And over a period of time, those led to some dissension in the organization.

<v Narrator>Well, for all its brainpower, Shockley's company couldn't manage to get products out the door. Eventually, eight of the young employees became disenchanted and left. George Morrow, who later started his own computer company, worked for Shockley as a technician. <v Gordon Moore, C.E.O. of Intel>Those people that left, they were looked on as traitors. I've had a couple of them tell me that was no fun working for Shockley. It's a shame that he wasn't a warmer human being. You had to worship him from afar. You couldn't get next to him. I don't know why. I have a tremendous admiration for him. But I can't I could never talk to him. None of us could talk to him. We all don't know he made you feel uncomfortable. <v Narrator>If Dr. Shockley's company had problems before the desertions, it didn't get any better afterwards. His company changed hands several times. He continued teaching at Stanford and developed controversial and unpopular theories on genetics. It would take him years to recover from the shock of the 8 traitors' departure.

<v Michael Malone>The traitorous 8. That's what Shockley called these eight bright young man, they were very young. They were most under under 30 years old. And that's been the unfortunate moniker they've been stuck with ever since. I think, looking back, you might call them the prudent 8 because probably the smartest, most strategic thing they could have done was to walk out on Shockley, go out and find some money and start their own company. <v Narrator>A mile down the road from Shockley's lab, the group of eight started Fairchild Semiconductor in 1957 with the hope of becoming millionaires <v Regis McKenna>When the traitorous eight pulled out from Shockley, you know, led by Bob Noyce and Gordon Moore and Jean Hoerni and the others, they formed Fairchild Semiconductor with venture capital. And in fact, it was that kind of act of rebellion that says, I don't like things where they are. I am going to go and form my own company in our own culture and using outside venture money to grow that. That one act in Silicon Valley spawned hundreds of other companies,

<v Man on newsreel>1957 year of space and Sputnik dogs. Laika, first space traveler was ready for the takeoff. And here it is. <v Narrator>The launching of the Sputnik, a Soviet scientific and technological triumph threw the United States into a frenzy, <v Man on newsreel>A shocked America attempted to launch a grapefruit sized satellite on the Vanguard rocket with disastrous results. <v Narrator>Despite the near hysteria that this caused, the United States clearly had the lead in the production of computers, electronic instruments and electronic components. The competition between the superpowers took a break in October of 1959. In a short lived thawing of the Cold War, Soviet Premier Nikita Khrushchev toured the United States. In recognition of the growing influence of electronics, the Soviet leader visited the IBM plant in San Jose. Apparently, he was most impressed by the cafeteria and still upset over not having been allowed to go to Disneyland. Cold War fears persisted, fueling the arms race and with it the new competition in space, the transistor began showing its limitations. Computer guidance for rockets to the moon, for example, would need to have 10 million electronic components. The conventional transistor, tiny as it was, was still not small enough for such large quantities. The next step would be taken both in Texas and at Fairchild Semiconductor. In March of 1959, the successor to the transistor, the integrated circuit, was introduced and virtually ignored. Few understood its full impact. What consequences it would have. The chip had been developed by Jack Kilby, an engineer at Texas Instruments, Bob Noyce, unaware of Kilby's invention, came up with a similar but more practical design. And in 1976, both received the National Medal of Science.

<v Robert Noyce, vice-chairman for Intel>The integrated circuit was really sort of a natural outcome of the technology that we're working on. We're doing diffusion of transistors on old wafers and then cutting them up into little pieces, putting fine wires on them, shipping them off to a customer who proceeded to put them all back right back together again. And I think sometimes that laziness is the mother of invention, not only necessity. It seemed to me that there was an awful lot of work for accomplishing something that we could accomplish in a much simpler fashion, just by interconnecting all those transistors together on the silicon wafer to begin with. And that was the basic motivation. There was a lot of talk at the time about various projects to miniaturize military equipment. So the need for miniaturized military equipment was very much in your mind. So that was another motivation as well.

<v Song>[The Shirelle's "Will You Still Love Me Tomorrow"]

<v Narrator>The integrated circuits, because of their minute size, became vital components in almost every new weapons system in the beginning, they were many times as expensive as circuits built using the older style individual transistors. But for the military, price was almost no object. <v Marshall Cox, former executive of Fairchild>They had the kind of budgets to pay for a simple gate, one hundred and fifty dollars each that you could have made using discrete devices for three dollars. Probably that same product that sold for one hundred and fifty dollars in 1963 in nineteen sixty five, sold for thirty six cents at a thousand. <v Narrator>The semiconductor industry is a lot like a publishing house. If they print only one copy of a book, it will be very expensive. But if it is a best seller, individual cost can be driven down. In that sense, the military paid for the hardcover books, allowing Fairchild and other semiconductor companies to publish the paperbacks. <v Marshall Cox, former executive of Fairchild>I think Fairchild is the origin truly of Silicon Valley, and without the military sponsorship of Fairchild early transistors and discretes, there therefore would not have been the success at Fairchild and therefore not the success of Silicon Valley.

<v Narrator>Fairchild soon became the technology leader in Silicon Valley with annual sales of one hundred and thirty million dollars. By 1965, semiconductors, the key industry to the rise of Silicon Valley, was in place and defense consumed 70 percent of the country's production of chips. American industry had never been in better shape. Then the Solid-State descended on faraway lands. High tech's alliance with the military began exacting its price, students in the area protested loudly, rejecting the war. The prestigious engineering department at Stanford had many problems with its students <v Song>[Buffalo Springfield's "Stop Children What's That Sound"]

<v Narrator>And in 1969, it banned all classified military research. Idealism had become the philosophy of much of the youth, and the states no longer solid were polarized. <v Song>[Jefferson Airplane's "Somebody to Love"] <v Narrator>If two world wars and the Korean conflict had propelled the use of electronics, Vietnam came to symbolize high technology warfare. In 1968, Dave Packard became deputy secretary of defense for the Nixon administration. It was further confirmation of the strategic role that the electronics industry had assumed. <v Song>[Aretha Franklin's "Respect"]. <v Narrator>At a scientific think tank called SRI, the Stanford Research Institute, Doug Engelbart was 20 years ahead of his time developing technology that is only now becoming familiar in computers such as the Apple Macintosh. Early in his career, he dreamed of a computer that one could talk with constantly, like a fast and flexible working partner. <v Doug Engelbart on newsreel>If in your office, you as an intellectual worker were supplied with a computer display backed up by a computer that was alive for you all day and was instantly responsible, responsive, instantly responsive to every action you had, how much value could you derive from that?

<v Narrator>In 1968, after years of hard work, Engelbart, Bill English and a crew of dedicated researchers were ready to share with the world the fruits of their labor. A packed auditorium in San Francisco saw these images transmitted from SRI in Menlo Park and shown on a giant video screen. Stewart Brand, originator of the Whole Earth Catalog, was working in the demonstration. <v Stewart Brand>I think the main things that Engelbart's group introduced were a really strong one to one feeling between the user and the computer, and this was done by way of a number of tools which he developed the most, I suppose conspicuous namable of those is the mouse, the thing that allows you to move your hand around and therefore move your point of sort of intelligence around on the screen. The notion that you would do things with both hands and sort of, as you would say, fly through the information is something that's really still arriving. The mouse was part of that. And the idea of a keyboard that you could use with one hand was part of that. <v Doug Engelbart, computer scientist>The difference between what you can just go by now and that era's immense, so there wasn't any simple way we could show the stuff we were doing up there. The world had never seen a mouse or heard from it. So that was the debut of the mouse, the interactive styles that were being used to date were mostly with typewriter terminals. Displays were only used very infrequently and the interaction speeds that were contemplated for the computer use in general was much lower than what we were doing. And we had what today is becoming known as hypertext and doing and structuring and moving around very, very rapidly.

<v Doug Engelbart on newsreel>So look what else we can do in here. I've got this file that's structured. If I want to see what's in there, I can walk down. The high ?inaudible? levels and sea are returned, but there's another thing I can do. There's a route I said I have here. So here, I'm afraid I'll need a different picture of you. So here's what I do with a picture growing capability. It's a slight map, but I start from work. And here's the route I seem to have to go to to pick up all the materials. And that's my plan for getting home tonight. <v Stewart Brand>For a lot of people in the audience. It was a sense of a whole new world opening up of possibility, not only of things they could do, but of consequence, that this was something that would make computers really accessible to anybody and therefore everybody, and therefore the world would not be the same now. And so there was a lot of excitement.

<v Narrator>Doug Engelbart could stand as a symbol for many of the Valley's brilliant engineers who toil in obscurity but make up much of its real wealth. Even the satisfaction of seeing their ideas adopted can take a long time. <v Doug Engelbart, computer scientist>We didn't realize at the time that even a decade later it was still would still have been something very unique. And I was very disappointed in the months that followed that I just thought that lots of people would start doing similar work because they would see that point. This is the way things are going to go. And it didn't. And then when they did start doing similar work, they the mouse was thrown away. That's considered too too complicated. The keys, that was too complicated, structured files. Well, no, that's not the way to do it. You know, just many, many things were just said. No, no. And so then it was another bunch of years until just the last few years that many of those things are starting to come out. <v Stewart Brand>I think there's a real reason why there is not an enormous, overwhelming thing that just swept him away on people's shoulders or something like that, which was that it was real news. It was real deep new news. And that takes a while to sink in. It's like when you say something really good in a conversation or real, it kind of goes quiet and you wonder said something terribly wrong. But it probably means that you said something terribly good. Everybody's sort of adjusting to it. And I think that's what happened in those first two conferences, is it just took a while to sink in. And that's because you really reached out. And of course, he's been thinking about that stuff for a number of years at that point and wanted everybody else to catch up to him in the course of two hours. And that just doesn't happen when you're that far out.

<v Narrator>Shaky the robot was another project developed at the Stanford Research Institute under a team led by Dr. Charles Rosen. Like Doug Engelbart's work, this early research in robotics and artificial intelligence would take a decade to become really practical. Ironically, the long term funding needed for this and many other peaceful looking projects of the time came from ARPA, the Advanced Research Projects Agency of the Department of Defense. <v Stewart Brand>One of the people in Engelbart's group, Dave Evans, put it to me. As you said, we're using defense money or using war money to make the tools of peace. And that's how they saw how it, that's how their funders at the Department of Defense saw it. And I think it's the truth. Sort out the goods or bads. It's the case. And I think any kind of blinking the case, you know, pretending that somehow computer science happened just with these teenagers in garages is a joke.

<v Narrator>The young men of Fairchild, almost all in their 20s or 30s, have made their company hugely successful. By the late 60s, some were wanting a bigger share of the wealth. Others were unhappy with the way the company was being run. And they began leaving, forming many new semiconductor companies in the valley. <v Song>[Beach Boys' "God Only Knows"]. <v Narrator>Robert Noyce and Gordon Moore left to found Intel. Charles Sporck to National Semiconductor. Jerry Sanders to AMD. And the scattering of talent continued. Some called this the birth of the modern Silicon Valley. Writer Don Heffler gave it its name. <v Don Heffler>I didn't coin the term. The term had been used on a very limited basis by some users. Who, when they would be traveling out here would say, well, I've got to get a trip out to Silicon Valley, but it was a very much an inside term. So I hung USA on the end. And I wrote this series called Silicon Valley USA. And just like that, the whole thing took off.

<v Narrator>The Valley was one of the fastest growing areas in the country. High tech industry continued to diversify and different kinds of companies were being started by these mostly young engineers turned to businessmen. <v Regis McKenna>The people who have come to Silicon Valley are representative of the the American culture as it's existed for 200 years. Charlie Sporck was from upstate New York and the son of a grocery store. His parents ran a grocery store. Bob Noyce is the son of an Iowa minister. Jerry Sanders is one of 12 children from the south side of Chicago. You know, if you look at the backgrounds of the people, they come from the traditional values of America. And I think the hard work culture of Silicon Valley grew out of that. It didn't come because of Silicon Valley or because of the the whole drive, I think is a lot of people said for wealth it came because the values that were brought here from other places <v Narrator>At the end of the 60s, the valley's greatest accomplishment, the chip, was still obscure and unknown in the mind of the public at large. But very soon that would change.

<v Michael Malone>If the integrated circuit is the most important invention in Silicon Valley history, then the personal computer is its most far reaching application. What's amazing about the PC is that it brings the fruits of the technological revolution to the average person, brings it to all mankind. What you have with the personal computer is the equivalent of the warehouse sized computers of 40 years ago on the individual's desk. That's an amazing thing. <v Narrator>Champagne celebrations mark the notable successes at Intel. In the early 70s, the small Santa Clara company had become the new technology leader in the valley, supplanting Fairchild. Soon it would celebrate something as remarkable as the chip. It all started when Busicom, a Japanese calculator firm or did a whole variety of chip designs for a new line of calculators. <v Gordon Moore, C.E.O. of Intel>We decided we couldn't begin to take on that large a custom design. We just didn't have a large enough engineering staff to design that many products. But one of the people looking at it, the head of our Systems Research Group, Ted Hoff, understood computers reasonably well, having done his graduate work and postdoctoral work, in fact, in computers. And he pointed out, by using a general purpose computer architecture, we could realize this large number of Japanese calculators with one design that was programed to do different things and that this general purpose computer was about the complexity of the memory chips we were making in terms of the number of transistors it would take. So it was probably possible within the technology we had.

<v Narrator>A hardworking team, Ted Hoff, Frederico Faggin and Stan Mazor developed what came to be known as the microprocessor, the first one was made up of 2300 transistors. It measured one eighth of an inch wide by one sixth of an inch long and it had the computing power of old ENIAC. Competitors such as Dialog, Texas Instruments and others were soon selling their own versions of the microprocessor. Chips began their way to the streets, first came pocket calculators introduced in 1971 and digital watches, then the first ever video game Pong made by Atari, a small company started in 1972 by Nolan Bushnell, a young engineer working at Ampex. Atari became the fastest growing company in the history of American business, and it was very unconventional. <v Peter Nelson, former executive of Atari>It was funky in a way because the engineers and the programmers had come around in Levi's and T-shirts and play guitars. The programmers in the the video, the home video game division, had a room with a piano and they could play a guitar and do a lot. But that was part of the because some of them would work 20 hours or 24 hours and they'd have to go out and take a break and then go back in and and work further on this kind of thing. One of the industrial design areas actually had built in beds and the kitchen so people could could basically stay up, stay there for three and four days, which they did.

<v Narrator>In 1977 Atari started five years earlier with 500 dollars, was bought by Warner Communications for 28 million, making Nolan Bushnell enormously wealthy almost overnight. Atari continued its climb, surpassing two billion dollars a year in sales. But the speed of the growth in the video games market had been too explosive to last and one day [explosion on screen]. There were many casualties and a lot of ill feelings in 1983, Atari had conducted the largest layoff in Valley history, almost 3000 jobs when the company shifted its manufacturing to Asia. <v Woman who lost her job>I'm angry towards the company because it's not like they had to they didn't have to get rid of our jobs, it was because, you know, like they say, you know, cheaper over here, you know, it's easier to to build over here and there, you know, but they could have work something out with this. They could have given us some kind of option, but they made no effort. They just cut us off.

<v Narrator>In a little over 10 years, Atari went from nothing to two billion dollars to almost ruining Warner Communications, the speed of its rise and fall was astonishing, something that had never been seen before in American business. A freeway overpass in south San Jose stood unfinished for several years, almost as a warning about even more uncertain times ahead. But in the heady days of the late 70s, a serious downturn seemed inconceivable. Backroom hobbyists, fresh and naïve as ever, were developing prototypes of the home computer, the video game's more serious cousin. By and large, these enthusiasts did not work for the existing computer giants and had less rigid notions about what a computer was. Many of them met at the Homebrew Computer Club in a classroom at Stanford. <v Steve Wozniak, co-founder Apple Computer>These guys would get up and talk about every rumor going on and every new chip and how this revolution was taking place, a revolution in electronics. And there was a large anarchistic element. We didn't really even- every meeting, our leader would say the Homebrew Computer Club, which does not officially exist. And everyone would applaud because we didn't want to. We were just there enjoying what we enjoyed in life. And we didn't want to think of ourselves as a political organization. Politics was a bad word. So there was a lot of this kind of revolutionary thing with a lot of the local barrier radicals, you know, like the like to get groups together. And then there were a lot of the technical people who were into the changes in technology and how we were a part of it, even though at our companies were generally the fringe element. We had the jeans and the holes and we generally were not the managers and leaders. But, boy, just a clever design on its own had value.

<v George Morrow, founder of Morrow Designs>Now, at the time that the microcomputer industry started, it was a time when there was a lot of social ferment. In and around the Bay Area, there was a lot of counterculture people, people who they, a lot of street capitalists, you know, people selling belts and beads in the streets in Berkeley. There was this same kind of group in in the technical side of them, <v Narrator>The young people who had gone to college in the 60s and had protested the Vietnam War, became the unconventional thinkers of the Homebrew Computer Club and some of the main players in the creation of a whole new industry.

<v George Morrow, founder of Morrow Designs>The atmosphere, everything was right. You had cheap semiconductors. You had a people that would look at things differently than what the conventional person was. And that's what the technology needed then. And then you had a ready customer base. We used to advertise products in mail orders, magazine magazines, do an ad in the mail order magazine about a product that didn't exist or there was no nothing more than on paper, maybe not even prototypes working yet people would send in money for cash to buy the product. We would use that cash to go out and buy parts and then start delivering product, which was perfect because there was no need for banks or for venture capitalists. Our customers did all of our financing for us. Was wonderful, but this meant that you had to have a tremendous pent up need. Or at least a feeling of need. <v Narrator>By this time, many were wondering how long the established giants would seem to just sit and watch.

<v Doug Engelbart, computer scientist>There's a huge camp, a huge portion of the computer literate world that that it's almost like it has an Iron Curtain around it. And these are all the thousands of people that are immersed inside IBM's big data processing world. They have a culture that's very advanced for the kinds of large data problems that they deal with. And inside of that world, the perceptions about the other things computers can do had just been much slower to evolve than you know, than I think, for instance, a Silicon Valley general perception is way ahead of the IBM world general perception. <v George Morrow, founder of Morrow Designs>They didn't know what was happening. My God, we're going to lose all our computing power to these nuts running around with these desktop computers. So IBM gave them a desktop computer so that they could get things back under control. <v Narrator>In 1981, IBM's version of a microcomputer was introduced, the PC for personal computer, as if all previous personal computers had not existed. And in a strange sort of way, it was true. For many businesses, IBM's arrival meant that the technology was being validated. Apple welcomed IBM's arrival, but a chapter was being closed in Silicon Valley. The birth child of those long haired anarchists from the Homebrew Computer Club had been appropriated by the computer establishment. Another technological jump would be needed to breathe new life into the valley.

<v Michael Malone>Silicon Valley may be dead already. We just don't know it. The corpse is still so pretty that we don't know if it's not breathing. There's no way of knowing. You can't go out to the garages of Silicon Valley and see what's going on out there, go into the back labs. So maybe there won't be another great product that sets the valley going one more time on another cycle of boom. Or maybe the greatest invention in Silicon Valley's history is sitting on a bench somewhere in some back lab or on a kitchen table. And we don't know it's there. And one of these days, it's going to burst on the scene and make everything that happened in this town prelude. <v Narrator>In 1986, George Morrow's computer company went bankrupt and was auctioned off. Now he divides his days between his collection of 70000 big band records and his drafting table, hoping and planning for a new wave of technological innovation,

<v Auctioneer>[Auctioneer auctioning off rapdily] <v Narrator>in the history of Silicon Valley seems to be a pattern of boom and bust and repeating cycles. No one has been able to predict when the next boom will begin, how long it will last, or even if there will be another one <v Auctioneer>[More auctioneering] <v Narrator>Technological innovation by itself will sell only for so long. <v George Morrow, founder of Morrow Designs>We are used to presenting solutions and having people run at us and find the problem that the solution fits the way I've tried to describe it sometimes. Here is a bunch of guys. There's this big fence, maybe twenty five feet, pretty strong. There are all these wild animals on the other side, customers. And we create these products and we throw them over the fence. And every once in a while we find a group of animals that go into frenzy feeding over these products. Hey, come on over this way. Let's throw some over here, God, they're really eating. So we sit there and throw a product over until finally we probably kill all of the animals that are trying to eat it. And then after they're all dead, we wonder what happened. <v Narrator>Many in the valley, wary now have the explosive ups and downs have adopted more conservative business methods, fewer risks and a more cautious introduction of new technology. The question now is, can Silicon Valley be conservative without losing its vitality? In 1986, a severe recession hit almost every company in the valley, small ones went bankrupt like Morrow Designs. A demand lower than expected for their products forced larger and more durable corporations such as Hewlett-Packard and Varian to tighten their belts. Even IBM was feeling the effects of heavy competition, but no companies were as hard hit as the ones that make the chips themselves. Intel, National Semiconductor, AMD and many others were bleeding profusely, partly because of Japanese competition. To add insult to injury, in October of 1986, Fujitsu made an offer to buy the mother company, Fairchild. Was this the end of Silicon Valley?

<v Stewart Brand>Silicon Valley will live forever as an idea, but as a primary economic event. Those days are behind us. The things that happens with success is that it gets imitated, so there's Silicon Valley's all over the map and increasingly all over the world. Silicon Valley and itself, I don't think we'll fail. It's got a great infrastructure, as they say, of people, of apparatus, of history, of all the rest of it, what it has to deal with there's lots more competition.

<v Regis McKenna>Actually, today we have more and various types of technologies in Silicon Valley we've ever seen before. What happens is that new technologies arise out of the merger of several technologies, not just something that kind of moves along the spectrum, but you will find that, for example, biotechnology and computer science is beginning to merge. You begin to see communications technology and computers begin to merge. You'll see, you know, various types of techniques of developing automated software and automation, moving together with hardware. So what's going to happen is that you now have more than ever the opportunity to develop because of this great diversity that has evolved over the last 20 years. Silicon Valley has got the mythic high ground and it'll maintain that indefinitely that's that's a point in history now. And people will always be attracted to it, you know, decades after it's the main event even. <v Narrator>Silicon Valley will continue to grow, if only because many of the United States defense requirements are currently filled by high technology. Much of it developed here. For companies oriented towards the consumer market, the battle ahead will be tough. Atari games, a fraction of its former size, has launched new products and hopes for a resurgence of the demand that made it grow the most.

<v Commercial>Gauntlet, the most fun a quarter can buy. <v Narrator>Nolan Bushnell continues his efforts to duplicate Atari's success, this time with Axlon, an electronics toy manufacturer. And Doug Engelbart, the brilliant and unassuming computer pioneer, has seen the world move steadily towards his vision, in his mind brighter every day. And if anybody remembers the 1915 collapse of the light tower, it didn't have to happen. It only fell because it had rusted from within.