Andrew Grove – Leading the Commoditization of the Microprocessor at Intel

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In 1957 Grove immigrated to the United States, a poor immigrant from Budapest, Hungary who barely escaped Nazi occupation. A decade later he managed the launch of Intel, the chipmaker that would help invent the Personal Computer (PC) industry.

He was Intel’s President in 1979 and CEO in 1987. He served as Chairman of the Board from 1997 to 2005.

While he was CEO of Intel from 1987 to 1998, market capitalization increased from $4.3 billion to $197.6 billion, a compound annual growth rate of 42% and a total increase of almost 4,500%. Starting with an investment of less than $3 million in 1968, Grove was instrumental in making Intel one of the great success stories of entrepreneurial capitalism.

On March 21, 2016 Andrew S. Grove passed away on at the age of 79.

Understanding Strategic Inflection Points

Grove was one of the most influential figures in technology and business, writing best-selling books and widely cited articles. In Only the Paranoid Survive, Grove defined “strategic inflection points” as major changes in the competitive environment that can threaten a company’s livelihood if not addressed effectively.

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He said that it is easy to miss the potential of new technologies and the impact of new competition that springs from these inflection points.

Grove played a critical role in the decision to move Intel’s focus from memory chips to microprocessors and led the firm’s transformation into a widely recognized consumer brand.

Grove and co-founder Gordon Moore, in the wake of the disruptive processor chip, literally saved Intel with one question.

Grove asked, “If we had to start all over, would we start with the DRAM chips?”

Moore said “No,” and they successfully transitioned Intel from DRAM chips to microprocessor chips.

Birth of Silicon Valley, “Moore’s Law” and Intel Corporation

The invention of the transistor is often called one of the greatest inventions of the twentieth century. John Bardeen, Walter Brattain, and William Shockley demonstrated their first transistor at AT&T’s Bell Labs in New Jersey on December 23, 1947. They would later win the Nobel Prize in 1956.

Their transistor was desperately needed. The nation’s growing hunger for telephone services was eating AT&T alive. Their operating system relied on vacuum tubes; they realized that if demand continued to grow, they would have to hire half the nation as operators.

The invention of the transistor reduced the size of computers considerably. But it was the invention of the microprocessor, a single piece of silicon etched with thousands of transistors, that launched the introduction of reliable, low-cost electronic computers into the economy.

In 1955, Arnold O. Beckman was contacted by Shockley, who had been one of Beckman’s students at Caltech. As a professor Beckman founded Beckman Instruments in 1935 with the invention of the “acidimeter,” which he first produced for a former classmate at a Southern California citrus processing plant. Designed to measure acidity levels in lemon juice, the acidimeter turned out to be a forerunner of the modern pH meter. Growers needed to know the acidity of the fruit in order to determine the best time to pick the fruit.

Beckman was interested in using semiconductors for his instruments. In 1956, with an investment by Beckman, Shockley founded the Shockley Semiconductor Laboratory in Mountain View, California, a city near Palo Alto and Sand Hill Road, as a subsidiary of Beckman Instruments, but under Shockley’s direction.

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Despite his brilliance as a physicist Shockley was a disaster as a business manager. Eventually, Shockley’s core team could not stand it anymore.

The renegade engineers–nicknamed the “Traitorous Eight” decided to leave and form a new venture. The eight were Julius Blank, Victor Grinich, Jean Hoerni, Eugene Kleiner, Jay Last, Gordon Moore, Robert Noyce, and Sheldon Roberts.

They contacted the New York investment banking firm of Hayden, Stone & Company because Kleiner’s father had an account there.

They asked the bank to help them find a corporation interested in hiring the group of them to help establish a semiconductor operation, preferably, on the San Francisco Peninsula. This attracted the attention of Arthur Rock, an analyst at the investment bank.

Rock in turn introduced them to Sherman Fairchild, who at that time was IBM’s largest shareholder. Fairchild was interested in redirecting his camera company towards the field of electronics and data processing. Together they created Fairchild Semiconductor in Palo Alto in 1957, the first venture to work solely with silicon.

Over the years, the employees who left Fairchild Semiconductor, or known as “Fairchildren,” helped to create the semiconductor industry. Between 1966 and 1969, no less than 27 new chip ventures were formed by Fairchild émigrés.

If venture capital is the engine that runs Silicon Valley, then Arthur Rock may be its James Watt–the guy who figured out how to harness steam. He once said, “I want to build great companies. That’s how I get my kicks. I look for people who want the same thing.”

Down the road from Mountain View in Santa Clara two of the “Fairchildren,” Robert Noyce and Gordon Moore, started Intel Corporation in 1968. And Arthur Rock funded them with $2.5 million.

Commoditization of the Microprocessor at Intel

Grove studied chemical engineering at the City College of New York, completing his Ph.D at the University of California at Berkeley in 1963. After graduation, he was hired by Moore at Fairchild Semiconductor as a researcher and rose to assistant head of R&D under Moore. When Noyce and Moore left Fairchild to found Intel in 1968, Grove was their first hire.

Employee number 12 arrived at Intel in 1971. His name was Marcian Edward “Ted” Hoff. His first job was to design a set of chips that would go into a calculator for Busacom, a Japanese company. But he wanted to put all the circuitry on a single integrated circuit and then program it.

Hoff’s device was launched as Intel’s first 8088 microprocessor chip in 1975. It proved to be “a Magna Carta moment in the world of technology.”

Although Intel created the world’s first commercial microprocessor chip in 1971, it was not until the success of the PC that this became its primary business. During the 1990s, Intel invested heavily in new microprocessor designs fostering the rapid growth of the computer industry.

Intel’s Pentium launched in 1993 had 3.1 million transistors. Intel’s first chip with a billion transistors arrived in 2007.

Likewise, the price of computing power fell by 99.9 percent in a single generation, and computers were delivering 66,000 times more power per dollar spent than the computers of 1975 did.

Gordon Moore predicted this commoditization in a paper he wrote in 1965. Moore stated that the speed and the power of computer chips had been doubling about every eighteen months. What “Moore’s Law” means is that a computer twenty years from now will be able to calculate in thirty seconds what the average computer today would take an entire year to complete. In forty years, a computer would be able to calculate in thirty seconds what today’s computer would take a million years to complete.

Moore put it another way, “If the automotive industry paralleled those same advances in value and efficiency, the cars we drive today would cruise at a million miles per hour, cost about five dollars, and we’d be getting close to 250,000 miles to the gallon.”

As a historical note, the public announcement of the transistor’s invention in 1947 was buried deep in The New York Times in a weekly column called “The News of Radio.” There, it was suggested that the device “might be used to develop better hearing aids for the deaf, but nothing more.”

Grove’s “Intel Culture” Shapes the World of Business

At Intel Grove had to make the transition from technologist to manager. He had no choice but to lead the launch of the new company. Employees one and two, Noyce and Moore, were older than Grove. They were established and well-off financially. Besides, neither of them liked business management at all.

Facing this, Grove became more than a talented engineer. As biographer Richard S. Tedlow puts it, Grove became “one of the master managers in the history of American business.”

Tedlow spent several years researching and interviewing Grove, to the point of inhabiting a small cubicle in Intel’s headquarters. His book, Andy Grove: The Life and Times of an American was published by Harvard Business School in 1996.

From Tedlow: Grove created “Intel culture.” If you look at some of the principles by which he ran that company, you can see that in an upside-down way, he learned them in Hungary. Everything Intel was, Grove’s experience in Hungary was not.

From current Intel Chariman Andy Bryant: “Andy approached corporate strategy and leadership in ways that continue to influence prominent thinkers and companies around the world. He combined the analytic approach of a scientist with an ability to engage others in honest and deep conversation, which sustained Intel’s success over a period that saw the rise of the personal computer, the Internet and Silicon Valley.”

Under Grove’s leadership, Intel became the model for Silicon Valley. Silicon Valley became the model for the world.

From Strategic Inflection to “Man of the Year”

Grove played a critical role in the decision to move Intel’s focus from memory chips to microprocessors and led the firm’s transformation into a widely recognized consumer brand. Under his leadership, Intel produced the chips, including the 386 and Pentium, that helped usher in the PC era. The company also increased annual revenues from $1.9 billion to more than $26 billion. In 1997 Time magazine named Andy Grove “Man of the Year.”

Tedlow noted, Grove was astonished by America. Nobody ever held against him the fact that he is an immigrant. Nor was he held back because he is of Jewish origin. When he graduated first in his engineering class at the City College of New York in 1960, he was quoted in The New York Times to the effect that “Friends told me that all I needed was ability. Americans don’t know how lucky they are.”

SOURCES: Roadmap To Entrepreneurial Success, Intel Corporation

Images: Intel Corporation, Amazon.com, WikiPedia