By the same author
`
`TURNING JAPANESE
`
`VIRGIN KING
`
`INSIDE
`INTEL
`
`How Andy Grove Built the World's Most
`Successful Chip Company
`
`TIM JACKSON
`
`..
`
`• -HarperCollinsPublishers
`
`IV 2007
`IPR2014-00317
`
`

`

`To Emily Marbach
`
`HarperCollinsPublishers
`77-85 Fulham Palace Road,
`Hammersmith, London W6 8JB
`
`This paperback edition 1998
`
`I 3 5 7 9 8 6 4 2
`
`First published in Great Britain by
`HarperCollinsPubiisher.r 1997
`
`Copyright© Tim Jackson 1997
`
`The Author asserts the moral right to
`be identified as the author of this work
`
`ISBN 0 00 638797 7
`
`Printed and bound in Great Britain by
`Caledonian International Book Manufacturing Ltd, Glasgow
`
`All rights reserved. No part of this publication may be
`reproduced, stored in a retrieval system, or transmitted,
`in any form or by any means, electronic, mechanical,
`photocopying, recording or otherwise, without the prior
`permission of the publishers.
`
`This book is sold subject to the condition that it shall not,
`by way of trade or otherwise, be lent, re-sold, hired out or
`otherwise circulated without the publisher's prior consent
`in any form of binding or cover other than that in which it
`is published and without a similar condition including this
`condition being imposed on the subsequent purchaser.
`
`

`

`9
`
`Public Company
`
`~IFTEEN YEARS AFTER INTEL'S FOUNDATION Andy Grove pub(cid:173)
`lished a book called High Output Management, in which he set out
`many of the lessons he had learned from his experiences with the
`company.
`The book began with a chapter called 'The Basics of Production:
`Delivering a Breakfast'. Grove set his readers a simple problem that
`he'd come across while working as a busboy shortly after his arrival
`in America. 'Your task', he wrote, 'is to serve a breakfast consisting
`of a three-minute soft-boiled egg, buttered toast, and coffee. Your
`job is to prepare and deliver the three items simultaneously, each of
`them fresh and hot.' Within a few pages Grove plunged into the
`complexities of production management, using the breakfast 'factory'
`as an example. Continuous egg-boiling machines, toast-making
`delays, problems with rotten ingredients and rude staff- these and
`many other issues were dealt with as the proprietor of 'Andy's Better
`Breakfasts' learned how to deliver an acceptable hot meal at an attrac(cid:173)
`tive price.
`'Bear in mind', the Intel veteran wrote, 'that in this and in other
`such si~ations.there is a right answer, the one that can give you the
`best delivery tune and product quality at the lowest possible cost.
`To find that right answer, you must develop a clear understanding
`of ~e trade-offs between the various factors - manpower, capacity
`and mventory- and you must reduce the understanding to a quanti(cid:173)
`fiable set of relationships.'
`Not too many people in the restaurant trade could tell you with
`confidence ~e link between th~ number of waiters they employ, the
`number of preces of bread therr toasters can handle every minute,
`and the number of eggs in the cold store at the end of the day. But
`
`PUBLIC COMPANY
`
`· 67
`
`in the infinitely more complex business of chip manufacturing, where
`there are dozens of different steps to making a product, scores of
`people with different skill levels involved, and new production pro(cid:173)
`cesses and machinery being introduced all the time, the job of'reduc(cid:173)
`ing the understanding to a quantifiable set of relationships' is almost
`nightmarishly difficult.
`It was Grove's determination to succeed at this piece of analysis
`that made Intel's first years of production so stressful. Theoretician
`that he was, Grove had no truck with the touchy-feely approaches
`to manufacturing that he believed were common elsewhere in the
`industry. Instead, he wanted to be able to express Intel's production
`lines as a set of equations like those he'd published in his book Physics
`and Technology of Semiconductor Devices. To do this, he needed facts:
`statistics in huge quantities, regularly delivered.
`But this was 1971, not 1991. There was no company Intranet, no
`spreadsheet software - not even any desktop computers. The statistics
`that Grove demanded had to be collected and tabulated largely by
`hand - by people who were having problems enough just getting
`through the day, producing any output at all from the rudimentary
`designs and processes in Intel's fabs.' Most Intel engineers were lucky
`if they got home before midnight in time to see their families. No
`wonder there were stresses.
`T he 1101, Intel's first silicon-gate MOS product, had been hard
`enough. 'We embarked on this new technology ... because of its
`perceived superior characteristics, although nobody was using this
`type of technology at the time,' said Les Vadasz afterwards. 'And the
`damn thing didn't work! Week after week, we just pushed wafers
`through the line with zero yield! We were seriously beginning to
`doubt the correc01ess of our technology direction. But perseverance
`did pay off .. .'
`The problems Intel had with the 1103 were of a different order of
`magnitude. Grove, who admitted to suffering from weeks of sleepless
`nights while trying to get the part into mass production, looked back
`on it as 'almost as much fun as your final exams at college'.
`'I can remember twice a day going out on the line and physically
`counting 110 3 s as the introduction date drew closer,' recalled another
`engineer. 'We almost knew each good unit by name.'
`Others came almost to hate the endless measurements and endless
`
`

`

`68
`
`· INNOVATION
`
`tiny changes they had to make both to the design of the chip itself
`and to the process used to build it, in an attempt to find a 'sweet
`spot' that would deliver reasonable yields. So heartily did they come
`to hate the troublesome 1103 that they referred to the job of getting
`it into mass production as 'turd polishing'.
`The hourly paid people who worked on the production lines,
`mostly young women, could be offered the incentive of cash -
`delivered in crisp dollar bills at the end of every week, because Grove
`believed in the animal trainer's principle of making the reward
`immediately and visibly linked to the good performance that had
`earned it. They could be told to watch Betty or Jane, who seemed
`to be producing a higher percentage of usable parts, and imitate
`exactly what she did. They could be forbidden to wear make-up in
`the fab area, and they could be forced to tie up their hair behind a
`cap, and wear gloves, booties, a 'bunny suit' and safety glasses. They
`could be ordered to pick up wafers with a vacuum wand instead of
`with tweezers, to make sure that no physical contact took place
`which could break off microscopic chunks of material that would
`contaminate the processes further down the line.
`But professional engineers were less unthinking than hourly paid
`line workers in their acceptance of orders from above. They would
`do what they were told if they could see a good reason for it, but
`not otherwise. As John Reed's reaction to a hostile performance
`review had shown, criticism that was too harsh could easily be coun(cid:173)
`ter-productive. So in 1971 Grove was caught between a rock and a
`hard place. On the one hand, he was answerable to Noyce and Moore
`as operations manager for getting prototypes into production at
`reasonable quality, cost and speed; on the other, there was a limit to
`how hard he could drive the engineers beneath him to meet his goals.
`When the pressure built up, it was in meetings between manufac(cid:173)
`turing and marketing that the safety-valve would blow. Bob Graham,
`who had had time to go fishing so often in his first year at Intel, was
`n'ow banging the table regularly, complaining that his customers in
`the computer business weren't getting the parts they had been
`promised, and demanding to know why Grove had not met this
`production forecast or that yield projection. More frustratingly still,
`he would also complain when Grove delivered parts that he had not
`asked for. Graham had adopted the sales slogan of 'Intel Delivers'
`
`P U B L I C C 0 M P AN Y
`
`· 69
`
`for use outside the company. He was damned if he was going to let
`Grove get away with failing to deliver to him.
`On one occasion Graham was put in a particularly embarrassing
`position. Intel's japanese distributor had a number of customers wait(cid:173)
`ing for matching sets of memory chips and the drivers that were
`needed to make them work. What Grove actually shipped to Japan
`was a number of incomplete sets. When an incomplete consignment
`arrived at Yokohama, the distributor sent Graham an angry telex:
`'HAVE RECEIVED MUSKETS STOP AWAIT BULLETS AND POWDER
`
`STOP'.
`After a series of furious confrontations, in which Graham taxed
`Grove with sending parts that he couldn't sell and failing to send
`parts that he had promised to sell, a compromise was brokered by
`Moore. In the company's internal financials, Grove's organization
`would receive credit only for boxed stock that was delivered in
`accordance with the production forecast. Any parts Grove produced
`that Graham had not been forewarned about would come 'free'.
`What made the disputes particularly bitter was that Graham and
`Grove were of exactly equal status. They were founder-employees,
`though not fow1der stockholders. Both of them had been given stock
`options along with every other In~el hire, but Noyce and Moore
`never even offered to sell them a chunk of shares at the outset. The
`pair also received promotion at the same time: when they were at a
`conference together in Tokyo, a congratulatory telex arrived from
`Noyce informing them that their job titles had been raised to vice(cid:173)
`president.
`From where Graham sat, it was clear that Grove knew how to
`take orders from Bob Noyce and how to ask advice from Gordon
`Moore; and he knew how to keep the people who reported to him
`in line. But Grove seemed unable to work cooperatively with a man(cid:173)
`ager who was one of his peers. Graham resented what he saw as
`Grove's constant attempts to expand his own empire by ordering
`Graham's sales and marketing people around - and sometimes by
`trying to force Graham himself to take his advice.
`'I'm not that kind of person,' Graham recalled afterwards. 'You
`can't tell me what to do. You can tell me what you'd like me to do.
`You can tell me what you're going to do. But you can't tell me what
`to do unless I agree to it ... [Yet] Andy's tendency was to tell you
`
`

`

`70
`
`· INNOVATION
`
`PUBLIC COMPANY
`
`• 71
`
`what the ads ought to be like and what ought to be in them,
`when they ought to run, how much they ought to cost and who
`the reps ought to be. He was delving into areas where he had no
`expertise.'
`To make matters worse, Grove had a strong tongue. For Noyce
`and Moore, both brought up in God-fearing households where curs(cid:173)
`ing was very much frowned upon, it was little more than a tease when
`Grove got up from the meeting table and announced his intention to
`'go for a piss'. But Graham's resentment burned red-hot when Grove
`told him day after day that he was a 'stupid sonofabitch' or a ' bastard'
`or a 'dumb shit'.
`Grove also knew how to make the best of a disability. In his early
`years at Intel, the hearing problem he suffered from required him
`to wear an ungainly hearing-aid that wrapped around his ears and
`over his crown like a pair of headphones. Just at the point when he
`was being told something he did not want to hear , the device would
`seem to fail - and Grove would interrupt loudly, bellowing 'Huh?
`Huh?' H e was also able to use the device as a weapon of battle.
`When a speaker at a meeting was running over his allotted time or
`straying from the point, Grove would take the hearing-aid off his
`head and, with an eloquent gesture that said more than any complaint
`or expression of boredom, thump it down on the table to indicate
`that he would listen no further.
`The last straw for Graham was a dispute over something apparently
`trivial: the data sheets on its products that Intel sent to engineers,
`providing technical specifications and performance information.
`When the 1103 chip was ready to ship, Graham discovered that the
`bipolar driver circuits that went with the 1103 wouldn't work with
`the chip over the full temperature range that the memory chip itself
`could tolerate. He immediately took up the problem with Grove.
`'I could not get Andy to understand that the operating range over
`which the memory would work, the drivers needed to work too.'
`' Soon it became clear that modifying the drivers to make them
`more tolerant of extremes of temperature would be technically
`unmanageable: it would raise the cost and make the devices clunkier.
`Graham then decided to aim for the next best thing. He told Grove
`that if the drivers and the memory chip would not work together
`across the memory chip's full temperature range, then the data sheets
`
`would simply have to be frank about the narrower temperature range
`in which they worked.
`Grove disagreed. Few customers would care about the issue, he
`said, since their computers were already adequately air-conditioned
`and they would be unlikely to test the performance of the Intel parts
`below freezing or close to boiling point. Even if they did, the prob(cid:173)
`lems with temperature range would never be visible to the outside
`world. Tested on their own, the drivers worked across the full range;
`it was only when running together with the r 1 03 that their range
`narrowed.
`Graham insisted that the honest thing to do was to make the
`problem clear on the data sheets. He wanted to eliminate even the
`tiniest risk that Intel might have to compensate a customer who
`discovered that its engineers had been misinformed. But Grove would
`not be moved.
`Day by day the dispute escalated, until finally it reached the point
`where the two men were no longer on speaking terms. Noyce was
`called in to adjudicate. Late one morning he ordered Graham to
`publish the data sheets as Grove had specified.
`'Bob, we can't do this,' Graham replied.
`'Do it anyway,' snarled the Intel founder.
`Thirty minutes later Graha'm was sitting at a restaurant table facing
`his wife, Nan. He had got into the habit of calling her and inviting
`her out to lunch when the internal battles got too much for him, so
`she knew that this morning there must have been a bad one.
`Graham looked into his drink. 'Nan,' he said, 'I'm not working at
`Intel any more.'
`His wife's eyes filled with tears as she recalled the pressure they
`had been under during recent months, and realized that it would
`now all be behind them. 'T hank God!' she said.
`On his way from the confrontation with Noyce to his lunch date
`with his wife, Graham had cleared his desk. He wasn't fired; he had
`simply been presented with an ultimatum: either leave or publish the
`data sheet the way Grove wanted. At that moment he'd recalled that
`it was precisely in order to get away from issues of politics and style
`that he had left Fairchild. If Intel, for all its fine words, was going
`to revert to the characteristics of his old employer that had so dis(cid:173)
`mayed him, then he wanted no further part in the venture.
`
`

`

`72
`
`·
`
`INNOVATION
`
`PUBLIC COMPANY
`
`• 73
`
`For Noyce and Moore, the decision was tough but straightforward.
`It had increasingly become clear that Intel was too small a company
`for both Graham and Grove. They would therefore have to choose
`which one to lose. Whatever the rights and wrongs of the specific
`dispute that had precipitated the decision, Grove was clearly more
`vital to Intel's success then Graham. The marketing vice-president
`was talented, experienced, focused, well-connected and energetic.
`But the operations vice-president was more than that. He was a figure
`of towering intellect, an obsessive chaser of details, a fearless fighter
`who would allow no personal friendships or loyalties to get in the
`way of what he believed to be best for the company. He also possessed
`willpower, self-discipline and determination in quantities that were
`given only to one person in a million.
`If Noyce and Moore wanted their young company to fulfil all
`their ambitions, they could not rely on their own combination of
`inspiration and scientific insight. It was inevitable that tough de(cid:173)
`cisions lay ahead. Research projects would have to be axed. Talented
`engineers would have to be fired. Requests for pay rises would have to
`be refused. Troops would have to be marshalled to drive imitators and
`competitors from the market. Noyce and Moore could not do these
`things on their own; in many cases, they shrank from the force that was
`needed. They needed a really tough manager. And neither of them had
`ever come across anyone tougher than Andy Grove.
`There was just one aspect of the Graham affair that was surprising.
`Bob Graham and Gordon Moore had been great friends. Not only
`had they fished together, Graham and his wife often went to have
`dinner with 'Gordon and Betty', ana Graham considered Moore his
`most important mentor inside the company. But after Graham's
`encounter with Noyce, Gordon Moore was nowhere to be found.
`Graham was of course too proud to ask him to intervene. Staying
`out of the dispute altogether, Moore had nothing to do with the
`· negotiation of the departing vice-president's severance terms. From
`the moment of Graham's fateful conversation with Bob Noyce, he
`neither saw Gordon Moore nor spoke to him for the next five years.
`The departure of Bob Graham marked a turning point in the
`structure of Intel's leadership. Although Bob Noyce and Gordon
`Moore were still CEO and executive vice-president, while Grove was
`merely one of three other vice-presidents, it was clear that the power
`
`of daily decision-making was passing~ess than three years after the
`company's foundation - into Grove's hands. It would be another
`fifteen years before Grove received the title of chief executive, but
`from 1971 onwards he was to be the dominant influence over the
`company and its culture.
`
`Shortly after Bob Graham left Intel the company began preparations
`for an initial public offering. There were just enough weeks left
`before the IPO for the company to hire in a talented new marketing
`vice-president whose name could appear in place of Graham's on
`the prospectus.
`A headhunter hired to carry out a search came up with a number
`of names, of whom the most promising was Ed Gel bach, an intolerant
`but charismatic figure who ran the national sales operation for Texas
`Instruments, and was suffering homesickness for the beaches of Cali(cid:173)
`fornia. Asked by the search agent whether he would consider a move
`from TI to another firm, Gelbach replied that he had no interest in
`joining any other company - unless it was Intel.
`Gelbach seemed a perfect match, but Noyce and Moore were
`determined to avoid a repeat of the Graham episode. Before hiring
`him, they handed the candidate over to Grove, making it clear that
`since Grove would have to g.et along with the new vice-president of
`sales and marketing, he might as well have a veto over his appoint(cid:173)
`ment. The outcome of the meeting was that Gelbach and Grove
`came to an accommodation, and the TI manager agreed to join Intel.
`By midsummer 1971 Ed Gelbach was back in California with his
`feet under the desk. Every bit the expert negotiator, he exacted a
`price from Intel that was fully commensurate with his talents -
`including options to buy 2o,ooo shares, almost 1% of the company,
`at $5 apiece. Since it was clear that Grove did not believe that sales
`or marketing really mattered, he also took care that he would have
`the powers and the budgets to carry out his responsibilities.
`When the IPO took place in October 1971, there were few sur(cid:173)
`prises in the prospectus. Gelbach's name appeared in the manage(cid:173)
`ment section above Grove's. Many of the backers who had put up
`the money to fund Intel's creation were revealed as members of the
`Traitorous Eight, the crew that had left Shockley's operation en masse
`to set up Fairchild in 1957. The company's two biggest shareholders
`
`

`

`74
`
`· INNOVATION
`
`were still Noyce and Moore, with a combined holding of over 37%
`worth nearly $zorn at the flotation price of $2 3·50. Although the
`prospectus showed that both men were paying themselves less than
`$p,ooo a year, neither of the two founders was proposing to sell a
`single share from their holdings. Both men clearly believed that Intel
`still had far to go.
`
`10
`
`Second Source
`
`IT WAS A SYMPTOM of the technological knowhow Bob Noyce and
`Gordon Moore had assembled at Intel that the company was able to
`break one of the cardinal rules of the electronics industry. That rule
`was: you shouldn't try to develop a new circuit design and a new
`manufacturing process at the same time.
`Jerry Sanders and his colleagues at AMD, based ten minutes' drive
`away from Intel in the town of Sunnyvale, had no such luxury. While
`Grove and Moore could claim formidable knowledge of both the
`physics and chemistry of silicon wafers, the team Sanders had
`assembled had no more insight into these matters than the average
`group of engineers and salesmen in the electronics industry. For
`AMD, the technological risks of trying to innovate on all fronts at
`once would have been too great.
`There was also a financial issue. When you brought out an entirely
`new product, the customers you were trying to sell it to were all
`manufacturers of one kind or another - usually computer companies.
`They wouldn't design it into one of their products until they had
`seen a working sample - but even if they liked it, you would have
`to wait until the computer they'd designed it into was finished and
`ready for manufacturing. Only then, two years or more after your
`engineers had started designing, would the customer want to buy
`the part in significant commercial quantities. This meant it took
`almost two development cycles instead of one before money invested
`in a new part started paying back.
`Intel had raised $1m more than AMD, and had started up nine
`months earlier. The industry was consolidating, price pressures were
`increasing, and experts were beginning to say that it was now too
`late to start a broad-based semiconductor manufacturing company.
`
`