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 decisions 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’, and 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 – less 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 Gelbach, an intolerant but charismatic figure who ran the national sales operation for Texas Instruments, and was suffering homesickness for the beaches of California. 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 get along with the new vice-president of sales and marketing, he might as well have a veto over his appointment. 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 20,000 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 surprises in the prospectus. Gelbach’s name appeared in the management 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 were still Noyce and Moore, with a combined holding of over 37% worth nearly $20m at the flotation price of $23.50. Although the prospectus showed that both men were paying themselves less than $30,000 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.
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. So the financial climate was simply too risky for Sanders to consider developing radical new products at the outset.
In the business plan for AMD, he had dealt with the problem diplomatically. The company’s long-term ambition, the plan explained, was, of course, to develop a range of absolutely new products all of its own. Such an ambition was as uncontroversial as motherhood; proprietary products brought in higher margins, and were a sign of intellectual machismo. But in the short term, AMD’s route into the business would be to operate as a ‘second source’.
‘Second-sourcing’ was effectively the invention of one man: Robert S. McNamara, President Kennedy’s secretary of defense. When he arrived at the Defense Department from the Ford Motor Company, McNamara realized that one of the biggest sources of wasted public money in defence contracting was the fact that many parts came from only one supplier – which made it impossible for Uncle Sam to tell whether he was getting good value for money or not. McNamara decided to try to make it a rule that every part should come from at least two sources. Not only did this provide a useful reality check against fraudulent pricing; it also injected an element of competition into the market. When two companies were fighting for the government’s business, they had an incentive to look for ways to make their manufacturing more efficient, thus lowering their prices.
As the 1960s wore on, McNamara’s ideas were taken up enthusiastically in the computer industry. The mainframe companies that were trying to compete against IBM realized that every single-sourced component they bought was a hostage to fortune. If its supply dried up – whether because of an earthquake under the factory, a fluffed introduction by its maker of a new process, or simply a supplier accepting a higher offer for the parts from another customer – then a computer worth tens or even hundreds of thousands of dollars could be left sitting in a warehouse, useless because of the absence of a single small component worth only a couple of bucks. It was in order to avoid this nightmare that computer companies preferred to buy parts where there were at least two makers in business. For an electronics company with its own technology, a second source