The Birth and Boom of the World's Largest Chip-Maker

The Birth and Boom of the World's Largest Chip-Maker

On this day in economic and business history...

Gordon Moore and Robert Noyce were part of the founding team behind Fairchild Semiconductor in 1957. In 11 years, the two men would forge legendary hardware-engineering careers. They developed the first practical integrated circuits, created the most widely recognized "law" of computing power, and built the chips that helped man land on the moon. But after 11 years, the two chip makers left the plodding Fairchild behind for even greater ambitions. On July 18, 1968, they founded Intel , a company that would quickly and vastly eclipse their former employer.

The company will engage in research, development, adn [sic] manufacture and sales of integrated electronic structures to fulfill the needs of electronics systems manufacturers. This will include thin films, thick films, semiconductor devices, and other solid-state components used in hybrid and monolithic integrated structures.
-- First paragraph of Intel's three-paragraph business plan written by Gordon Moore.

Moore later told NPR that they left because "we got to the point that electronics were going into almost all consumer items, so we had the feeling that this was the basic technology of some kind of a revolution." An understatement, to be sure.

Originally called NM Electronics, after its co-founders' initials, the company soon renamed itself to the familiar brand "inside" most PCs after it purchased the rights to "Intel" from a hotel chain called Intelco. The name is simply a portmanteau of Integrated Electronics; the shortened form of "intelligence" was a bonus. In its first fiscal year, Intel recorded no sales and spent about $350,000 on research and development -- an amount Intel spent on R&D every 32 minutes during its 40th year in operation.

Intel's first two products, released in 1969, were memory chips, but Intel made its name in 1971 with the release of the world's first commercial central processing unit, or CPU. Intel went public shortly after it launched this groundbreaking product, and its shares, despite remaining well below their dot-com peaks, have still produced total returns (with dividends reinvested) of about 180,000% over the subsequent four decades. The company's IPO raised a paltry $6.8 million, but that was more than enough to build mountains.

Despite opening an early position in CPUs, Intel remained very much a memory-chip maker until the 1980s, when low-cost Japanese competition buzz-sawed its way through American memory-makers. Intel, unlike its peers, had recently opened a fallback position that would transform it into one of the most successful technology companies in history: the IBM PC, which had been built with off-the-shelf components -- including Intel's 8088 processor, an offshoot of the 8086 -- to get to market faster.

IBM's engineering decision to use Intel chips rather than its own in-house chips would have enormous repercussions for the computer industry. IBM's hardware became a blueprint, but every other company that reverse-engineered that blueprint had to use Intel's CPUs, as the entire system was locked into Intel architecture by design. Then-CEO Moore and Andy Grove, Intel's employee No. 3 and its CEO from 1987 to 1998, initially underestimated the phenomenal impact the PC would have on Intel's bottom line. One of their early assumptions, according to NPR, was that it was a rather trivial product but might be a good way for cooks to store recipes. However, they were smart enough to keep their chip designs proprietary and build them in-house.

The rest, as you know, is history. Intel rode the PC revolution and the dot-com bubble to one of the largest market capitalizations in American history. Near the top, it joined the Dow Jones Industrial Average , along with Microsoft, as representatives of a "new economy" made possible by the global adoption of a standard hardware-software pairing. In 2012, Gordon Moore reflected to Fortune on holding on to his Intel shares long past the point of their peak: "You win a few, you lose a few. On balance, I've come out OK." He does have a knack for understatements.

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