Institute For The Future

Manufacturing and Silicon Valley

Earlier this year, search engine giant Google paid over $1.6 billion to acquire the video sharing service YouTube. The 18 month-old startup had just over sixty employees, and made nothing of its own, other than a little software code; the value of the company rested in the vast audience that uploaded and shared videos. For many, the sale seemed to mark the return of the dot-com boom days, and the coming of age of "Web 2.0."

The ability of companies to conjure value seemingly out of thin air seems very far removed from the days when Silicon Valley actually made things. Today, as Google takes over space formerly occupied by NASA, and Pilates studios and social software companies take over Palo Alto buildings that used to house machine shops, it's harder and harder to remember that the Valley used to be famous as a manufacturing powerhouse.

I'm a bit more aware of these ghosts now because I recently read Christophe Lecuyer's Making Silicon Valley: Innovation and the Growth of High Tech, 1930-1970, a new book that makes a strong case that the unique challenges of making electronics drove the creation of the Valley's distinct culture. The book builds on case studies of some well-known companies (National Semiconductor and Varian), and of companies that are now just legend (who remembers Eitel-McCullouch?), to make several claims.

First, manufacturing was central to the rise of Silicon Valley— and by implication, an important source of regional and global advantage. Manufacturing is not just a boring process of translating prototypes into products. Figuring out how to produce thousands or millions of units of complicated, high-performance components requires as much ingenuity and creativity as inventing a new device in the first place, and sometimes even generates new innovations. Jean Hoerni invented the planar process for manufacturing semiconductors in response to military demands for ultra-high performance components.

Second, Silicon Valley's vibrancy is the product of the remixing of technical and national cultures. In the 1920s and 1930s, for example, the radio industry, professional radio engineers, and amateur radio enthusiasts all contributed to the growth of a vacuum tube industry on the Peninsula. San Francisco's huge maritime industry and large U.S. Navy presence created a demand for well-trained radio engineers and equipment. At the same time, the local ham radio community's local culture—whose social, egalitarian, and competitive but open character still resonate—influenced Eitel-McCulloch and Litton Industries.

Finally, Stanford University's influence in jump-starting and sustaining the Valley has been overstated. Yes, Stanford engineering school dean Frederick Terman was an angel investor in Hewlett-Packard, and encouraged promising young graduates to remain in the area; but Stanford gets more from Valley companies than companies get from Stanford. The military, in contrast, emerges as a major player in the Valley's history through the 1960s, for better (military technical specifications pushed companies to innovate, and government contracts could turn a small company into a big one) or worse (the money tended to dry up quickly).

It may yield unforeseen lessons, because manufacturing isn't completely gone from Silicon Valley. Nanosolar, one of a slew of new Silicon Valley companies that works on alternative energy, just announced plans to build its new factory not in China or India, but in San Jose. As one venture capitalist put it, the photovoltaic solar cell company is "trying to move the photovoltaics industry from the economics of the semiconductor business to the economics of the printing business"-- precisely the kind of move that requires manufacturing genius of the sort Lecuyer describes. Who was one of Nanosolar's early investors? Google.