The Traitorous Eight and The Birth of Silicon Valley

Podcast Transcript

In 1957, eight young engineers walked away from one of the most important laboratories in America and, in doing so, helped create the modern technology industry.

Their break with a Nobel Prize-winning physicist set off a chain reaction of innovation, investment, and entrepreneurship that transformed a quiet region of California into Silicon Valley.

The companies they founded and the people they inspired would shape everything from computers to smartphones, and their influence can still be felt today.

Learn more about the Traitorous Eight and the birth of Silicon Valley on this episode of Everything Everywhere Daily.

Silicon Valley is normally defined as the region south of San Francisco, which usually coincides with the Santa Clara Valley. It includes cities such as Mountain View, Sunnyvale, Palo Alto, Cupertino, and Santa Clara.

It has become the global center of the technology industry and it has created companies that have created many trillions of dollars of value.

I’m sure all of you are aware of the companies that are located in Silicon Valley. However, have you ever wondered why the tech industry is located there and not somewhere else?

Silicon Valley isn’t based where it is because of any natural resources and it isn’t named as such because that is where they mine silicon.

The reason why Silicon Valley is where it is, is because of a series of decisions made by several early technology pioneers.

If we go all the way back, we can probably trace the origin of Silicon Valley to a single individual: William Shockley.

William Shockley was a physicist and inventor best known for co-inventing the transistor at Bell Labs in 1947 alongside John Bardeen and Walter Brattain. The trio won the 1956 Nobel Prize in Physics for their work.

In 1956, the year he won the Nobel Prize, he founded Shockley Semiconductor Laboratory in Mountain View, California. The selection of Mountain View was pretty simple. His mother lived nearby in Palo Alto, and he wanted to be close to her after returning from the East Coast.

At the same time, he also recognized that the area had important advantages for electronics research, including proximity to Stanford University,

Shockley Semiconductor Laboratory attracted some of the sharpest young minds in the country. Among them were Robert Noyce, Gordon Moore, Julius Blank, Victor Grinich, Jean Hoerni, Eugene Kleiner, Jay Last, and Sheldon Roberts. These eight men were talented, ambitious, and eager to do serious work in the emerging semiconductor industry.

While Shockley was an unquestionably brilliant engineer, he was, by all accounts, an absolutely horrible person to work for.

He was a boss who was paranoid, dismissive, and erratic. Shockley second-guessed his employees constantly, insisted on lie detector tests when he suspected internal sabotage, and pivoted the company’s research direction in ways that made little technical sense to his employees.

In particular, he wanted to pursue a device called the four-layer diode, while his employees wanted to focus on silicon transistors, which they believed had much greater commercial potential.

Within a year, the eight had had enough.

In 1957, they made a decision that was almost unheard of at the time. They all quit together.

Corporate loyalty was a deeply held value in postwar America, and leaving an employer, let alone orchestrating a group departure, carried real social stigma. Shockley famously called them the “Traitorous Eight,” and the name stuck.

However, walking out on Shockley turned out to be one of the most consequential decisions in the history of American business.

Leaving was one thing. Starting a new company was another. In the 1950s, the idea of venture capital barely existed in the form people know today. Banks were reluctant to lend to young engineers with no products and no proven business experience.

Eugene Kleiner wrote a letter to his father’s investment banker in New York, Hayden Stone. The letter landed on Arthur Rock’s desk, a young associate who immediately recognized what he was looking at.

Rock flew out to California, met the eight men, and became convinced they were worth backing. The challenge was finding an established company willing to fund an independent research unit, something that had essentially never been done before.

Rock and his colleague Bud Coyle approached around 30 companies before Sherman Fairchild of Fairchild Camera and Instrument Corporation agreed to put up $1.5 million. In exchange, Fairchild got the option to buy the new company outright. The deal was structured so that the eight founders received equity, a novel arrangement at the time.

The result was Fairchild Semiconductor, which was founded in 1957.

Fairchild Semiconductor moved fast. Within its first year, the company developed a commercially viable silicon transistor. Robert Noyce and Jean Hoerni then made a breakthrough that changed everything: the planar process and, building on that, the integrated circuit.

The integrated circuit placed multiple transistors on a single piece of silicon, connected by thin metallic pathways. Instead of wiring together dozens of individual components by hand, engineers could now manufacture complexity directly into a chip.

This was the foundational technology of the modern electronics industry. Everything that followed, personal computers, mobile phones, and the internet, all trace its lineage back to that innovation.

Fairchild became the most important semiconductor company in the world through the late 1950s and into the 1960s, and the Santa Clara Valley was where it was happening.

The company also did something culturally significant. Fairchild operated in an informal, collaborative atmosphere as a direct response to Shockley’s toxic management style.

Ideas moved freely, engineers were respected, and there was a sense that the work itself mattered. That culture would later become the template for how Silicon Valley companies saw themselves.

Fairchild’s success created a problem: it was so good at training talented people that those people kept leaving to start their own companies. The spin-offs from Fairchild, eventually nicknamed “Fairchildren,” were staggering in number and impact.

But the most important spin-off came in 1968, when Robert Noyce and Gordon Moore left to start a new company. They were joined shortly after by Andy Grove.

The new company was called Intel.

Intel’s founding was itself a landmark moment in venture capital history. Arthur Rock, who had helped put together the Fairchild deal a decade earlier, raised $2.5 million for Intel in just two days. The speed and ease of that fundraiser reflected how mature the financing ecosystem for technology startups had become.

Intel started by making memory chips, but in 1971, it produced the 4004, widely regarded as the first commercially available microprocessor. A complete CPU on a single chip.

The implications were enormous. If the integrated circuit was the key to making electronics smaller and cheaper, the microprocessor was the key to making them programmable. It turned computers from room-sized institutional machines into something that could eventually sit on a desk, fit in a pocket, or run a car.

Gordon Moore had written in 1965, before Intel even existed, that the number of transistors on a chip would roughly double every two years while costs fell. Moore’s Law, as it came to be known, accurately described the trajectory of the semiconductor industry for decades, and it was a topic I covered in a previous episode.

Advanced Micro Devices, better known as AMD, was founded in 1969 by Jerry Sanders and several colleagues who had previously worked at Fairchild Semiconductor. Sanders had been Fairchild’s director of worldwide marketing.

Eugene Kleiner moved into venture capital and co-founded Kleiner Perkins, one of the most influential venture capital firms in Silicon Valley history. The firm later funded companies such as Amazon, Electronic Arts, Netscape, Sun Microsystems, America Online, and Google.

In many ways, the modern startup investment model traces directly back to the environment created by the Traitorous Eight and Fairchild Semiconductor.

Stanford University played a role, too, particularly through Frederick Terman, the dean of engineering, who actively encouraged his students and faculty to start companies and who worked to build relationships between the university and local industry.

The culture Terman developed helped ensure that talent stayed in the Bay Area rather than gravitating to the East Coast, thereby deepening the pool of engineers in the emerging cluster of companies.

The physical geography mattered as well. The Santa Clara Valley, which was farmland as recently as the 1940s, became a place where spin-offs begat spin-offs, where engineers moved between companies carrying knowledge, and where proximity made informal collaboration possible.

That geographic concentration fed on itself. Companies wanted to be there because the talent was there, and talent went there because the companies were there.

By some counts, more than 400 companies trace their lineage directly or indirectly to Fairchild Semiconductor.

It is actually hard to track beyond a certain point because the cross-pollination between Silicon Valley companies is so great. Even companies that didn’t have founders who worked at Fairchild Semiconductor, such as Apple and Nvidia, only existed because they were created within the ecosystem Fairchild built.

As for Fairchild Semiconductor itself, it eventually lost relevance in the 1970s as more and more employees left to work for other companies. The remaining engineers felt management did not fully understand the fast-moving semiconductor business or the culture developing in California, even though they were the ones who largely created it.

Bureaucracy grew, innovation slowed, and key people kept leaving. By the 1970s, competitors such as Intel, Texas Instruments, Motorola, and AMD had surpassed them.

The company changed hands multiple times. In 1987, it was acquired by National Semiconductor. Then, in 1997, National spun Fairchild back out as an independent company again under the Fairchild Semiconductor name.

The final chapter came in 2016, when ON Semiconductor acquired Fairchild Semiconductor for about $2.4 billion. ON Semiconductor later rebranded itself as onsemi.

The last of the traitorous eight, Gordon Moore, passed away in 2023. Robert Noyce died in 1990, still celebrated as one of the fathers of the modern semiconductor industry. Their names are on university buildings, on awards given by engineering societies, and embedded in the technical history of nearly every device with a chip.

One of the interesting things is that William Shockley, the man who arguably started everything, really had very little to do with the creation of Silicon Valley beyond inventing the transistor in the 1940s and being a bad boss.

There is no precise official number for the total value of all companies in Silicon Valley because the region includes thousands of public and private firms, but the combined value is enormous and likely exceeds $20 trillion today when you add together the market capitalizations and estimated private valuations of its major companies

The Traitorous Eight made a brave, somewhat scandalous decision to walk away from a difficult boss and try something on their own. What came from that decision, even though there was no way they could have known it, reshaped the entire global economy.

The chips in your phone, the processors in your laptop, the architecture of the internet, all of it can be traced back to a group of young engineers who didn’t like their boss.