(Silicon Valley, its history the best companies)




                                                            Students report
                                                                On Economics
                                                      by Constantine Nikitin
                                  Contents
Silicon Valley - what is that?    3
Stanford University    3
Hewlett Packard - the garage myth 5
  HP: Foundation and first years  5
  The rise of HP up to the present     6
  The HP Way - an example of corporate culture for a whole industry      7
  HP today. 7
The rise of Silicon Valley  10
  Invention of the transistor     10
  Shockley Semiconductor    11
  Importance of military funding  12
Intel Corp. 13
  Foundation in 1968   13
  First products - Moore's Law    13
  "Ted" Hoff's first microprocessor    14
  Cooperation with IBM in the 1980s    15
  Intel today    16
The emergence of the PC industry  17
  Altair - the first PC     18
  The first computer shops  19
  Homebrew Computer Club    19
The Apple Story  19
  "Woz" and Jobs - the two "Steves"    19
  The first Apple      20
  Building up the company   21
  Apple II - starting the personal computer boom  22
  Turbulences in the early 1980s  23
  The Lisa project     23
  The Macintosh revolution  24
  John Sculley and Steve Jobs     25
  Apple today.   27


Silicon Valley - what is that?

This question may have occurred  to  many  people's  minds  when  they  came
across the term Silicon Valley. What hides behind it is  mostly  unknown  to
them, although the revolutionary inventions  and  developments,  which  have
been made in this Valley, affect everyone's daily life, and it is hard  to
imagine  our  modern  civilization  without  them.  Silicon  Valley  is  the
heartland of the microelectronics industry that is based on  semiconductors.

Geographically, it is the northern part of the Santa Clara County,  an  area
stretching from the south end of the San Francisco Bay  Area  to  San  Jose,
limited by the Santa Cruz Mountains in the west and  the  northern  part  of
the Diablo Range in  the  east.  It  covers  a  thirty-  by  ten-mile  strip
extending from Menlo Park and Palo Alto, through Los Altos,  Mountain  View,
Sunnyvale, Cupertino and Santa Clara, down to San Jose.)
The name Silicon Valley was coined in 1971 by Don C. Hoefler, editor of  the
Microelectronics News, when he used this term in his magazine as  the  title
for a series of articles about the semiconductor  industry  in  Santa  Clara
County.  "Silicon"  was  chosen  because  it  is  the  material  from  which
semiconductor chips are made, which  is  "the  fundamental  product  of  the
local high-technology industries.")
Silicon  Valley  saw  the  "development  of  the  integrated  circuit,   the
microprocessor, the personal computer and the video game") and  has  spawned
a  lot  of  high-tech  products  such  as   pocket   calculators,   cordless
telephones, lasers or digital watches.
Looking at our high-tech society in which the PC has become indispensable  -
both in business and at home, replacing the  good  old  typewriter  by  word
processing - the crucial role of Silicon Valley as  the  birthplace  of  the
microelectronics and then the PC revolution becomes even more evident.
Silicon Valley is also seen as a place where many  entrepreneurs  backed  by
venture capital have  made  the  American  Dream  come  true  as  "Overnight
Millionaires."
This makes Silicon Valley a philosophy saying that  everything  which  seems
impossible is feasible and that improvements in our society can  take  place
daily, as Thomas McEnery, the mayor of San Jose, the capital  of  the  Santa
Clara County, puts it.)
Thomas Mahon calls it the "economic and cultural frontier  where  successful
entrepreneurship and venture capitalism,  innovative  work  rules  and  open
management styles provide the background" for  the  perhaps  "most  profound
[...] inquiry ever into the nature o f intelligence" which  might,  together
with "bioengineering and 'artificially intelligent' software,  [...]  affect
our very evolution.")
On the following pages I would like to convey the image  of  Silicon  Valley
as the nucleus of modern computing, presenting the  most  important  events,
which comprise the  developments  of  the  three  major  companies  Hewlett-
Packard, Intel and Apple.

Stanford University

The story of the Silicon Valley starts  with  Stanford  University  in  Palo
Alto,  which  has  been  of  fundamental  importance  in  the  rise  of  the
electronics industry in Santa Clara County.
In the 19th century,  Spanish  settlers,  who  have  been  the  first  white
visitors to California, founded civilian communities and gave  them  Spanish
names such as San Francisco,  Santa  Clara  or  San  Jose.  They  liked  the
Mediterranean climate in the Santa Clara Valley, which was very  hospitable.
This area came to be used by farmers and ranchers cultivating orchards,  for
it provided "some of the world's finest farming soil.")
In 1887, Leland Stanford, a wealthy railroad magnate who owned a large  part
of the Pacific Railroad, decided to  dedicate  a  university  to  his  son's
memory who had died due to a severe disease shortly before  he  intended  to
go to a university.
Leland Stanford and his wife built Leland Stanford Jr. University  on  8,800
acres of farmland in Palo Alto and also donated 20 million  dollars  to  it.
The university opened in 1891 and "would in time become one of  the  world's
great academic institutions.")
In 1912, Lee De Forest, who had invented the first vacuum tube,  the  three-
electrode audion, discovered the  amplifying  effect  of  his  audion  while
working in a Federal  Telegraph  laboratory  in  Palo  Alto.  This  was  the
beginning of the Electronics Age, and "amateur radio became  an  obsession")
at Stanford University.
Frederick Terman, who was the  progenitor  of  the  initial  Silicon  Valley
boom, changed the state of this university fundamentally. Today he  is  also
known as the "godfather of Silicon Valley.") Terman was born  in  1900,  and
as the son of a Stanford professor  (who  developed  the  Stanford-Binet  IQ
tests) he had grown up on the campus. After  his  graduation  from  Stanford
University  he  decided  to  go  East  to  the  Massachusetts  Institute  of
Technology (MIT), which was the leading university in  technology  then.  He
studied under Vannevar Bush, who was one of  America's  leading  scientists,
and was offered a teaching position at MIT after receiving his doctorate  in
1924.
He returned to Palo Alto to visit his family before he intended to start  at
MIT, but he was caught by a severe case of tuberculosis,  which  forced  him
to spend one year in bed. This made him finally to decide to  stay  in  Palo
Alto and teach at Stanford University  because  of  the  better  climate  in
California.)
Terman became head of the department of engineering by 1937 and  established
a stronger cooperation between  Stanford  and  the  surrounding  electronics
industry to stop the brain drain caused by many students  who  went  to  the
East after graduation, as they did not find a job in California then.)
The Varian brothers are an example of such  cooperation  between  university
and industry. After graduation they founded a company upon  a  product  they
had  developed  at  the  Stanford  laboratories.   Their   company,   Varian
Associates, was settled 25 miles from  the  university  and  specialized  on
radar technology.
After World War II, the Stanford Research Institute (SRI) was  founded.  Its
aim was to provide the industry with more skilled students and  to  increase
the number of companies in Santa Clara County.
Terman wanted companies to settle  next  to  the  university.  In  1951,  he
founded the first high-technology industrial  park,  the  Stanford  Research
Park,  "where  business,  academic  and  government  interests  could   come
together in a synergistic vision of the  future.")  Portions  of  this  land
would be leased to companies, because the  "original  Stanford  family  land
gift forbade the sale of any of its  8,800  acres.")  These  companies  were
offered close contacts to the SRI and could lease land for  99  years  at  a
fixed price, which they had to pay in advance. The first firm to  settle  in
this park was Varian Associates leasing land for $4,000 an acre,  which  was
a good deal as there was no inflation clause in the  agreement  making  this
site today worth several hundred thousand dollars.
More and more firms -  among  them  Hewlett-Packard  as  one  of  the  first
residents - settled their Research  and  Development  (R&D)  departments  in
this park, and they were to become the "core of the early  explosive  growth
of Silicon Valley.") Today, there are m ore than  90  firms  employing  over
25,000 people.
During the Korean War the US government placed Stanford with  a  great  deal
of their projects, which made more, and more  electronics  companies  (among
them IBM and Lockheed) open R&D departments in Santa Clara County.
Due to his prepaid leasing program Terman received  more  than  $18  million
and, moreover, many companies  endowed  the  university  with  gifts,  which
Terman used to hire qualified professors from all over  the  USA.  Thus,  he
had created a mechanism which increased the settlement  of  the  electronics
industry.
The successful Stanford Research Park has served as a worldwide model for  a
lot of other high-technology parks.)

Hewlett Packard - the garage myth

Hewlett-Packard was one of the first companies to be founded in the  Silicon
Valley and has today become the largest one to be seated  there.  Its  story
is typical for this Valley and has had a great impact on many firms  founded
later on.

HP: Foundation and first years

Bill Hewlett and David Packard met at  Stanford  University  in  1934.  Bill
Hewlett was the "son of the dean of the Stanford Medical School, while  Dave
Packard  had  come  to  Stanford  from  Pueblo,  Colorado,")  and   was   an
enthusiastic radio ham.
They both were very interested in electronic engineering and spent a lot  of
their free time experimenting in Terman's  lab  who  supported  them.  After
graduation in 1934, Packard went to Schenectady, New York, where  he  worked
for General Electric (GE), while Hewlett went on studying  at  the  MIT.  In
1938, Terman called them back to Stanford where they would  earn  electrical
engineering degrees after their fifth year of study.
During this year they decided to work on  a  project  professor  Terman  had
suggested to them in his course at university: In the garage next  to  their
rented  apartment  in  Palo  Alto  they  developed  a   variable   frequency
oscillator, which was much better than existing products  but  cost  only  a
"fraction of the existing price ($55 instead of  $500).")  Terman  was  very
convinced by this product, so he encouraged them  to  try  to  sell  it.  He
himself loaned them $538 for the production and arranged an additional  loan
from a bank in Palo Alto.
The new firm Hewlett-Packard (HP) was founded in 1939,  and  its  first  big
sale were eight audio oscillators to Walt Disney Studios,  which  used  them
for the soundtrack of "Fantasia.")
From now on, they concentrated on highly qualified products  and  innovative
electronic instruments for engineers and scientists. This main product  line
has been kept till today.
By 1942, five years after its foundation, HP already had  60  employees  and
reached annual sales  of  about  $1  million.  So  it  became  necessary  to
construct the first  HP-owned  building  in  Palo  Alto.  The  two  Stanford
graduates had successfully  built  up  their  own  company  which  had  been
founded upon an idea during their studies and was to rise  from  a  "garage-
headquartered firm") to a leading company in the world. This phenomenon  was
typical  for  Silicon  Valley  and  would  be  imitated  by  many  following
companies such as Apple.

The rise of HP up to the present

During World War II the demand  for  electronic  products  brought  HP  many
orders, and the company could grow constantly in the  subsequent  years.  HP
continued to invent new devices such as the high-speed frequency counter  in
1951, which greatly reduced the time required (from 10  minutes  to  one  or
two seconds only) to accurately measure  high  frequencies.  Radio  stations
used it, for example.
The net revenue went up to $5.5 million in 1951 and the HP workforce was  at
215 employees. So, in 1957, the stocks were offered to the  public  for  the
first time. The additional capital due to the stock  offering  was  invested
to acquire other companies  and  t  o  expand  globally  such  as  into  the
European market. As a consequence, in 1959, the  first  manufacturing  plant
outside Palo Alto was built in Bblingen, West Germany.
HP entered the Fortune magazine's list of the  top  500  U.S.  companies  in
1962,  and  established  the  HP  Laboratories  in  1966,  which  were   the
"company's central  research  facility")  and  became  one  of  the  world's
leading electronic research centers.
In the 1970s, the  company's  product  line  was  shifted  from  "electronic
instruments to include computers"), and the world's first  scientific  hand-
held calculator (HP-35) was developed in 1972, making the "engineer's  slide
rule obsolete.")
In the 1980s, HP introduced its LaserJet printer (1985),  which  became  the
company's successful single product ever, and  moved  into  the  top  50  on
Fortune 500 listing with net revenues of more than $10 billion (1988).)
Today, HP has total orders of $16.7 billion and  employs  more  than  92,000
people in the whole world.) Annually, The company spends over 10 percent  of
its net revenues in R&D. These investments are fundamental to keep  up  with
the "state-of-the-art" technology, which uses the  most  modern  inventions.
New products have always played a key role in HP's  growth,  therefore  more
than half of 1992's orders were for products  introduced  in  the  past  two
years.) HP's more than 18,000 products  include  "computers  and  peripheral
products, test and measurement instruments and  computerized  test  systems,
networking products, electronic components, hand-held  calculators,  medical
electronic equipment, and instruments and systems for chemical analysis.")
Bill Hewlett and Dave Packard today rank with America's  richest  men  ($1.7
and $0.85 billion) and are widely respected, especially  in  Silicon  Valley
where  they  are  viewed  as  the  two  "most  successful  entrepreneurs  in
America.") They have spent millions of t heir  profits  for  social  welfare
and have established the Hewlett-Foundation.)
Hewlett and Packard have set a pattern of  an  outstanding  company  against
which every new high-technology firm "must be measured.")

The HP Way - an example of corporate culture for a whole industry

From the beginning the two  founders  have  developed  a  management  style,
which had never occurred in a large company before. They coined a  new  type
of corporate culture, which was to be called "the HP way."
HP always renounced the "hire and fire" mentality,  which  meant  to  employ
many workers for  a  single  big  order  and  to  dismiss  them  afterwards.
Instead, the company offered its employees "almost perfect  job  security.")
Even in 1974, when the U.S. economy  was  in  a  profound  crisis  and  many
people were unemployed, HP avoided layoffs by  a  four-day  workweek,  which
was a unique measure in corporate America.
The two founders trusted in the "individual's own motivation to  work")  and
treated their employees as family members; hence the  custom  to  call  each
other by the first name - even the two chiefs were only known  as  Bill  and
Dave.
The HP workers were participated in the company with stock options and  were
even paid additional premiums when  HP  was  successful  -  today  known  as
profit sharing. These measures served to identify the employees  with  their
work and to encourage them.
Moreover,  the  HP  way  included  extensive  employment  benefits  such  as
scholarships for the employee's children.
At the end of the 1950s Bill and Dave decided to write  down  the  company's
objectives, which were to serve as guidelines for  "all  decision-making  by
HP people,") since the company had grown ever  larger.  With  some  changes,
those objectives are still valid today.  They  cover  as  follows:  "Profit,
Customers,  Fields  of  Interest,  Growth,  Our  People,   Management,   and
Citizenship.") And these objectives are to be achieved through teamwork.
HP's strategies nowadays comprise mainly  the  "Management  by  Objectives",
"Management by Wandering around" meaning informal communication  within  the
company,  and  "Total  Quality  Control"  which  aims  at  producing  highly
qualified products.)
The HP way is seen as model for corporate culture in many countries.
The roots of many  subsequent  companies  are  located  in  HP,  e.g.  Steve
Wozniak, who worked at HP and later co-founded Apple. This has  led  to  the
establishment of a new corporate culture in Silicon Valley  and  many  firms
have tried to imitate the HP  way  and  ad  opted  measures  such  as  stock
options, innovative work rules, teamwork, and profit sharing.

HP today.

Business Summary PALO ALTO, Calif., Nov. 13, 2000 -- Hewlett-Packard
Company (NYSE: HWP) today reported 17% revenue growth (20% excluding
currency effects) in its fourth fiscal quarter ended Oct. 31, 2000.
Excluding extraordinary other income and restructuring expenses, diluted
earnings per share (EPS) was up 14% from the year-ago quarter.
During the quarter, HP completed its previously announced 2-for-1  split  of
its common stock in the form  of  a  stock  dividend.  Share  and  per-share
amounts have been adjusted to reflect this split.
Net revenue was $13.3 billion, compared with $11.4 billion  in  last  year's
fourth quarter. EPS for the quarter was 41  cents  on  a  diluted  basis,(1)
excluding investment and divestiture gains and losses, the effects of  stock
appreciation  rights  and  balance  sheet  translation,  and   restructuring
expenses. Including these items, diluted EPS on  a  reported  basis  was  45
cents per share on approximately 2.05 billion shares  of  common  stock  and
equivalents outstanding. This compares with diluted EPS of 36 cents  in  the
same period last year(2).
"We are pleased that revenue growth is accelerating, but  very  disappointed
that we missed our EPS growth target this quarter due to the  confluence  of
a number of issues that we now understand and  are  urgently  addressing.  I
accept full responsibility  for  the  shortfall,"  said  Carly  Fiorina,  HP
chairman, president and chief executive officer.
"Issues  that  reduced  profitability  included  margin  pressures,  adverse
currency effects, higher-than-expected expenses, and business mix. The  good
news is that our business is healthy, demand is strong, and  we  are  making
good progress against our strategic objectives as we continue the hard  work
of reinventing hp. We are determined to succeed and  are  not  backing  away
from our growth targets," Fiorina said.
HP also announced it has terminated discussions with  PricewaterhouseCoopers
(PwC) regarding the potential acquisition of its consulting business.
Fiorina said, "We are disappointed that we have not been  able  to  reach  a
mutually acceptable agreement to acquire PwC's consulting business. This  is
a high-quality operation, and we  believe  the  strategic  logic  underlying
this  acquisition  is  compelling.  However,  given   the   current   market
environment, we are no longer  confident  that  we  can  satisfy  our  value
creation and employee retention objectives -- and I am unwilling to  subject
the  HP  organization  to  the  continuing  distraction  of  pursuing   this
acquisition any further. We remain committed  to  aggressively  growing  our
consulting capabilities, organically and possibly by  acquisition,  and  are
open to other business arrangements to achieve our goals."
Business Summary
Net revenue in the United States was $6.0 billion, an increase of  13%  from
the year-ago quarter. Revenue from outside the U.S. rose 20% (26%  in  local
currency) to $7.3 billion. In Europe, revenue was $4.5 billion, an  increase
of 15% (27% in local currency). In Asia Pacific, revenue was  $1.9  billion,
an increase of 36% (34%  in  local  currency).  In  Latin  America,  revenue
increased 11% to $0.6 billion.
Imaging and Printing Systems
The imaging and printing systems segment -- laser and inkjet  printing,  and
imaging devices and associated supplies -- grew  6%  in  revenue  year  over
year (9% in local  currency)  against  a  very  strong  quarter  last  year.
Internet printing and a migration to color are driving strategy and  growth.
Strong sales of supplies, scanners, all-in-one (AiO) products, and  consumer
imaging devices, as well as overall strength in Europe and  Asia,  partially
offset softness in the U.S. business printing market  and  continuing  price
erosion in inkjet printers.
Nearly 12 million printing and scanning  devices  were  shipped  during  the
quarter. HP's  color  LaserJet  market  share  continues  to  grow  and  new
products began shipping in October. Imaging revenues grew 31% over the year-
ago period, driven by strong performances in  all  product  lines:  AiOs  up
31%, scanners up 12% and digital cameras and printers  up  137%.  AiO  units
were up 53% and PhotoSmart printer units were  up  208%.  Supplies  revenues
grew 15% against a strong quarter last year.
Operating margin was 13.4%, up from 13.2% last year.
Computing Systems
The computing systems segment -- a broad range  of  Internet  infrastructure
systems and solutions for businesses and consumers, including  workstations,
desktops, notebooks, mobile devices, UNIX(R) and  PC  servers,  storage  and
software solutions -- grew 29% in revenue  year  over  year  (32%  in  local
currency) with strong performances across all product categories.
UNIX server revenues rose 23% year over year, with orders up 43%, driven  by
excellent performance in low- and mid-range  servers.  Superdome,  HP's  new
high-end  server  introduced  this  quarter,  is  achieving   stronger-than-
expected market acceptance, and volume  shipments  remain  on  schedule  for
January. NetServer revenues were up 20%. Enterprise  storage  revenues  were
up 40% with the HP Surestore E Disk Array XP512,  HP's  flagship  enterprise
storage product, up 90% in revenues with strong backlog.  Software  revenues
(excluding VeriFone) were up 18%, but down sequentially  with  strong  order
backlog at the end of the  quarter.  OpenView  revenues  were  up  29%  with
orders up 60%. PC revenues were up  40%,  with  home  PC  revenues  up  62%,
notebooks up 164%, workstations up 11%, and commercial desktops up 8%.
Operating margin was 3.7%, up from 3.2% last  year,  but  down  sequentially
from 7.3% in the third quarter primarily due  to  margin  pressures,  higher
expenses and mix changes.
IT Services
The IT services segment  --  hardware  and  software  services,  along  with
mission-critical, outsourcing, consulting and customer financing services --
 grew  15%  in  revenue  year  over  year  (18%  in  local  currency).  HP's
consulting business achieved in 46% revenue  growth,  with  substantial  new
hires broadening and deepening the organization's capabilities.
Operating margin was 7.4%, essentially flat with 7.5% last year.
Costs and Expenses
Cost of goods sold this quarter was 72.5% of net revenue, up from  71.3%  in
the year-ago period.  Expenses  grew  15%.  After  adjusting  for  currency,
expense growth was 17%. Operating expenses, as reported, were 20.3%  of  net
revenue. This compares with 20.7% in the comparable period last year.
Asset Management
Return on assets for the  quarter  was  10.5%  compared  with  9.8%  in  the
comparable quarter last year. Inventory was 11.7% of revenue  compared  with
11.5% in last year's fourth fiscal quarter. Trade receivables were 13.1%  of
revenue compared with 14.1% in the prior year period.  Net  property,  plant
and equipment was 9.2% of  revenue  compared  with  10.2%  in  the  year-ago
quarter.
Full-year Review
Net revenue increased 15% to  $48.8  billion.  Net  revenue  in  the  United
States rose 14% to $21.6 billion, while  revenue  from  outside  the  United
States increased 16% to $27.2 billion.
Net earnings from continuing operations were $3.6 billion,  an  increase  of
15%, compared with $3.1 billion in fiscal 1999. Net earnings per share  were
$1.73 on a diluted basis, up 16% from $1.49 last year.
Outlook for FY 2001
For the 2001 fiscal year  ending  Oct.  31,  2001,  HP  expects  to  achieve
revenue growth in the range of 15 to 17%, compared to 15% in FY 2000.  Gross
margin percentage in FY 2001 is expected to be  in  the  range  of  27.5  to
28.5%, compared to 28.5% in FY 2000, with improvements beginning in the  2nd
quarter.  Total  operating  expenses  in  FY  2001  are   expected   to   be
approximately 10 to 12% above FY  2000.  Tax  rate  is  expected  to  remain
constant at approximately 23%.
The  forward-looking  statements  in  this  Outlook  are  based  on  current
expectations  and  are  subject  to  risks,  uncertainties  and  assumptions
described  under  the  sub-heading  "Forward-Looking   Statements."   Actual
results may differ materially from the expectations expressed  above.  These
statements do not include the potential impact of any mergers,  acquisitions
or other business combinations that may be completed after Oct. 31, 2000.
HP will be discussing its fourth quarter results and its 2001 outlook  on  a
conference call today, beginning at 6 a.m. (PST).  A  live  Webcast  of  the
conference         call         will         be         available         at
   contact://www.hp.com/hpinfo/investor/quarters/2000/q4webcast.php. A replay  of
the Webcast will be available at the same Web site shortly  after  the  call
and will remain available through 4:30 p.m. PST on Nov. 22, 2000.


The rise of Silicon Valley

Hewlett-Packard was Silicon  Valley's  first  large  firm  and  due  to  its
success one of the area's most admired electronics firms.
While HP was important for the initial growth of the area and at  first  was
based on electronic devices, the actual Silicon Valley  fever  was  launched
in the mid-1950s  with  Shockley  and  Fairchild,  and  other  semiconductor
firms, and went on to the microelectronics revolution  and  the  development
of the first PCs in the mid-1970s, continuing till today.

Invention of the transistor

One major  event  was  crucial  for  this  whole  development.  It  was  the
invention of the transistor that revolutionized the world of electronics.
By the 1940s, the switching  units  in  computers  were  mechanical  relays,
which were then replaced by  vacuum  tubes.  But  these  vacuum  tubes  soon
turned out to have some critical disadvantages, which  impeded  the  further
progress  in  computing  technology.  In  contrast,  transistors  were  much
better. They could perform everything the vacuum tubes  did,  but  "required
much less current, did not generate as much heat, and  were  much  smaller")
than vacuum tubes.
The use of vacuum tubes, which could not be made as  small  as  transistors,
had meant that the computers were very large and drew a lot  of  power.  For
example the famous American ENIAC, built in  1946  and  consisting  of  more
than 18,000 vacuum tubes, had a total weight of  30  tons,  filled  a  whole
room of 500 square meters and consumed 150 KW  per  hour.  The  breathtaking
development in computers can be seen, when comparing the ENIAC with  today's
laptops which are portable with about 5 kg, are battery driven and run  some
100,000 times faster.)
This development  was  launched  by  the  transistor  (short  for  "transfer
resistance") invention in 1947 by William Shockley and his  colleagues  John
Bardeen and Walter Brattain. This "major  invention  of  the  century")  was
made at the Bell Labs in Murray Hill, New Jersey, which are the "R&D arm  of
the American Telephone and Telegraph Company  (AT&T).")  And  in  1956,  the
three scientists received the Nobel Prize in  Physics  for  their  invention
that had "more significance than the mere obsolescence  of  another  bit  of
technology.")
The transistor is a "switch - or,  more  precisely,  an  electronic  "gate,"
opening and closing to allow  the  passage  of  current.")  Transistors  are
solid-state and are based on semiconductors such as  silicon.  The  crystals
of these elements show properties, which are  between  those  of  conductors
and insulators, so  they  are  called  semiconductors.  The  peculiarity  of
semiconductor crystals is that they can be made "to act as a  conductor  for
electrical current passing through it in one  direction")  only,  by  adding
impurities or "doping" them - for instance, "adding small amounts  of  boron
of phosphorus.")

Shockley Semiconductor

In 1955, William Shockley, co-inventor of the transistor, decided  to  start
his  own  company,  Shockley  Semiconductor,  to  build  transistors,  after
leaving the Bell Labs. The new firm was seated in Palo Alto in  Santa  Clara
County, California, where he had grown up. Shockley man aged to  hire  eight
of the best scientists from the  East  Coast,  who  were  attracted  by  his
scientific reputation. These talented young men - "the cream of  electronics
research" - represented the "greatest collection of electronics genius  ever
assembled". Their names were: Julius Blank, Victor Grinich, Eugene  Kleiner,
Jean Hoerni, Jay Last, Gordon Moore, Robert Noyce and Sheldon Roberts.)
But however brilliant Shockley was, who was called  a  "marvelous  intuitive
problem solver" and a "tremendous generator of ideas" by  Robert  Noyce,  it
soon turned out that he was "hard as hell to work with", as  his  style  was
"oppressive" and he "didn't have trust and faith in other individuals.")
When Shockley refused the suggestions of his eight engineers who  wanted  to
concentrate on silicon transistors, while their  boss  pursued  research  on
four-layer diodes, they decided to quit and start their own firm in 1957.
Within several months Shockley had to shut down his firm, since he had  lost
his engineers, whom he called traitors  and  they  are  now  known  as  "the
Traitorous Eight".
Although Shockley was not very successful with his firm  in  Palo  Alto,  he
"deserves  credit  for  starting  the  entrepreneurial  chain-reaction  that
launched the semiconductor  industry  in  Silicon  Valley,")  since  he  had
brought together excellent scientists there like Robert Noyce  without  whom
there might never have been a Silicon Valley on the San Francisco  Peninsula
at all. Or as M. Malone calls it, "Shockley put the last stone in  place  in
the construction of Silicon Valley.")

The father of one of those young men who left Shockley  had  contacts  to  a
New York investment firm, which sent a young executive named Arthur Rock  to
secure financing for their new enterprise. Rock asked a  lot  of  companies,
if  they  were  interested  in  backing  this  project,  but  has  not  been
successful so  far.  The  concept  of  investing  money  in  new  technology
ventures was largely unknown then, and indeed  the  term  "venture  capital"
itself wouldn't be coined until 1965") - by Arthur Rock, who  should  become
Silicon Valley's first and most famous venture capitalist later on.
Finally, due to Rock's efforts, the "Traitorous  Eight"  managed  to  obtain
financial support from industrialist Sherman Fairchild  to  start  Fairchild
Semiconductor in 1957.
Fairchild Semiconductor was developed by Shockley's firm, and as the  "still
existing granddaddy of  them  all")  has  itself  spawned  scores  of  other
companies in Silicon Valley: Most semiconductor firms' roots can  be  traced
back to Fairchild. The most famous ones of them are National  Semiconductor,
Intel, Advanced Micro Devices (AMD);  and  many  well-known  Valley  leaders
have worked at Fairchild,  e.g.  Charlie  Sporck  (National  Semiconductor),
Jerry Sanders (AMD's founder), Jean Hoerni, and last but  not  least  Robert
Noyce, who  is  considered  the  "Mayor  of  Silicon  Valley")  due  to  his
overwhelming success.
Robert Noyce was born in  southwestern  Iowa  in  1927.  His  father  was  a
preacher in the Congregational Church and thus was "perpetually on the  move
to new congregations, his family in tow.") When the Noyces decided  to  stay
at the college town of Grinnell, Iowa, for a longer  period  of  time  after
many years of moving, this place meant stability in  young  Bob's  life  and
thus would become his first and only real home, which he would later  regard
as important for his eventual success.
After  high  school,  Robert  studied  at  Grinnell  College.  His   physics
professor had been in contact with John Bardeen (one of the three  inventors
of the transistor) and obtained two of the first transistors in 1948,  which
he presented his students, including Bob Noyce. This aroused young  Robert's
interest in semiconductors and transistors, which  made  him  try  to  learn
everything  he  could  get  about  this  fascinating  field  of  solid-state
physics.
Having graduated from Grinnell College he  continued  his  studies  at  "the
premier school of science on the East Coast,  MIT,")  where  he  met  famous
scientists like Shockley. He received his doctorate, and decided to work  at
Philco until 1955, when he was invited by William Shockley  to  join  a  new
firm named "Shockley Semiconductor" in Santa Clara County  -  together  with
seven other splendid scientists.
When the so-called "Shockley Eight" started a  new  venture  with  Fairchild
Semiconductor, Robert Noyce began "his own transformation from  engineer  to
business manager:") He was chosen to lead the new company as he  seemed  the
best to do this job.
Fairchild Semiconductor focused on building a marketable silicon  transistor
applying a new  manufacturing  process  called  "mesa".  Despite  being  the
smallest  company  in  electronics  business  then,  it   attracted   public
attention, particularly in 1958, when  "Big  Blue"  -  as  dominant  IBM  is
nicknamed - ordered the "first-ever mesa silicon  transistors")  for  memory
drivers in its computers.
This order contributed to the early success of Fairchild Semiconductor,  and
indicated the beginning of a  long  relationship  between  IBM  and  Silicon
Valley.

Importance of military funding

Before switching over to  the  events  at  Intel,  the  aspect  of  military
funding is to be dealt with, since it has played an important  role  in  the
early days of Silicon Valley.
During World War II, after the Japanese attack at Pearl Harbor  in  1942,  a
great deal of the U.S. military forces and of the  military  production  was
moved  to  California.  Within  a  few  years,  California  -  formerly   an
agricultural state - became a booming  industrial  state  and  the  military
center of the USA.)
After the war, in the time of the Cold War and the  arms  race,  the  Korean
conflict, the "missile  gap"  and  the  space  program,  the  Pentagon  kept
ordering  high-technology  products   from   the   armament   factories   in
California.  Many  companies  established  R&D  departments  and  production
facilities in Santa Clara County near Stanford  University,  which  provided
them with bright engineers and scientists, and  were  largely  supported  by
the Pentagon's demand for electronic high-tech products.
Examples for such firms are FMC, GTE, Varian Associates,  Westinghouse,  and
finally Lockheed, which opened its R&D department in the  Stanford  Research
Park in 1956, and started Lockheed Missiles  and  Space  Company  (LMSC)  in
Sunnyvale. Lockheed's move  to  Northern  California  was  crucial  for  the
developments in Santa Clara County; today the company  is  Silicon  Valley's
largest employer with more than 24,000 people.)
Military funding for  high-tech  products  was  responsible  for  the  early
growth of Silicon Valley in the 1950s and  1960s.  The  U.S.  Department  of
Defense was  the  biggest  buyer  of  these  products,  e.g.  its  purchases
represented about 70 percent of the total production of ICs in 1965.)
While this share in chip  demands  has  dropped  to  8  percent  today,  the
Pentagon remains the biggest supporter of new technologies and accounts  for
most of the purchases of the latest developments.

Intel Corp.

After the transistor and  the  integrated  circuit,  the  invention  of  the
microprocessor in the early 1970s  represents  the  next  step  towards  the
modern way of computing, providing the basis  for  the  subsequent  personal
computer revolution.
It was at Intel where the first microprocessor was designed  -  representing
the key to modern personal computers. With its logic and memory  chips,  the
company provides the basic components for microcomputers. Intel is  regarded
as Silicon Valley's flagship and its most successful semiconductor  company,
owing its worldwide leading role to a perpetually high spending on  research
and development (R&D).

Foundation in 1968

It all started in 1968,  when  Bob  Noyce  resigned  as  head  of  Fairchild
Semiconductor taking along Gordon Moore and Andy Grove, to embark on  a  new
venture. They had decided to leave the  company,  because  they  wanted  "to
regain the satisfaction of research and  development  in  a  small,  growing
company,") since Fairchild had become big with lots of bureaucracy  work  to
be done. Gordon Moore had belonged to the famous Shockley Eight and  was  in
charge of the R&D team at Fairchild. Andy Grove, a young  Hungarian  migr,
who had earned a doctorate in chemical engineering  at  U.C.  Berkeley,  had
joined Fairchild in the early 1960s.
Intel (short for Integrated Electronics), a typical Fairchild spin-off,  was
financially backed by venture capital from Arthur  Rock,  who  had  been  in
contact with Noyce since 1957. The company was  founded  upon  the  idea  of
integrating  many  transistors  on  a  chip  of  silicon,  after  Noyce  had
developed  a  new  photochemical  process.  The  three  engineers  initially
focused on building the first semiconductor chips used for computer  memory,
which should replace the dominant memory storage  technology  at  the  time,
called "magnetic core". Intel's task was to drive down the cost per  bit  by
increasing the capacity of memory chips dramatically.

First products - Moore's Law

Within a year, Intel  developed  its  first  product  -  the  3101  Schottky
bipolar 64-bit static random access memory (SRAM), which was  followed  soon
after by the 1101. This  chip  (1101)  was  a  256-bit  SRAM  and  had  been
developed on Intel's new "silicon  gate  metal  -oxide  semiconductor  (MOS)
process,"  which  should  become  the  "industry's  process  technology   of
choice.") With the first two products, the young  company  started  with  12
employees and net revenues  of  $2,672  in  1968,  had  already  gained  the
technological lead in the field of memory chips.
Intel's first really successful product was the 1103 dynamic  random  access
memory (DRAM), which was manufactured in  the  MOS  process.  Introduced  in
1970, this chip was the "first merchant market LSI (large-scale  integrated)
DRAM," and received broad acceptance because it  was  superior  to  magnetic
core memories. So, by the end of 1971, the 1103 became "the world's largest-
selling semiconductor device" and provided the  capital  for  Intel's  early
growth.)
Until today, semiconductors have "adhered to Moore's Law,"  which  has  been
framed by the "cofounder of Fairchild and Intel" when the  first  commercial
DRAMs appeared in the early 1970s. This law predicts that the price per  bit
(the smallest unit of memory) drops by 30 percent  every  year.  It  implies
that you will receive 30 percent more power  (speed/capacity)  at  the  same
price, or that the "price of a certain power is 30 percent less.")
Moore's Law applies to both memory chips and microprocessors, and shows  the
unprecedented rapid progress in microelectronics. This  "astonishing  ratio"
has never occurred in "the history  of  manufacturing"  before.  Applied  to
automobiles, it means that "a Cadillac would have a top speed of  500  miles
per hour, get two hundred miles to a gallon of gas  and  cost  less  than  a
dollar" - almost incredible.)
1971  was  a  crucial  year  at  Intel.  The  company's  revenues  surpassed
operating expenses for the first time, and the company went public,  raising
$6.8 million.
Moreover, the company introduced a new memory chip  -  the  first  erasable,
programmable read only memory (EPROM). Invented by Intel's Dov Frohman,  the
new memory could store data permanently  like  already  existing  ROMs,  but
besides could be erased simply by a beam of ultraviolet light  and  be  used
again. The EPROM was initially viewed as a  "prototyping  device"  for  R&D.
The invention of the microprocessor in the same year,  however,  showed  the
real significance of the EPROM, which could be used  by  original  equipment
manufacturer  (OEM)  customers  (they  build  the  end-products)  to   store
microprocessor programs in a "flexible and low-cost  way."  The  "unexpected
synergy" between the EPROM and the  microprocessor  resulted  in  a  growing
market for both  chips  and  contributed  a  great  deal  to  Intel's  early
success.)

"Ted" Hoff's first microprocessor

The invention of the  microprocessor  marked  a  turning  point  in  Intel's
history. This development "changed not only the future of the  company,  but
much of the industrial world.")
The story to this technological breakthrough began in 1969, when a  Japanese
calculator manufacturer called Busicomp asked  Intel  to  design  a  set  of
chips for a family of programmable calculators. Marcian "Ted" Hoff, a  young
and "very bright ex-Stanford research associate") who had  joined  Intel  as
employee number 12, was charged with this project. However, he did not  like
the Japanese design calling for 12 custom chips - each of them was  assigned
a distinct task. Hoff thought designing so many different chip s would  make
the calculators as expensive as minicomputers such as DEC's PDP-8,  although
they could merely be used for calculation. His idea was to develop  a  four-
chip set with a general-purpose logic device as its center, which  could  be
programmed by inst ructions stored on a semiconductor memory chip. This  was
the theory behind the first microprocessor.
With the help of new employee Stan Mazor, Hoff perfected the design of  what
would be the 4004 arithmetic chip. After Busicomp had accepted  Hoff's  chip
set, Frederico Faggin, one of the best chip design  experts,  who  had  been
hired recently,  began  transforming  the  design  into  silicon.  The  4004
microprocessor, a 4-bit chip (processes 4 bits - a string of  four  ones  or
zeroes - of information at a time), contained 2300 MOS transistors, and  was
as powerful as the legendary first electronic computer, ENIAC.
Soon after the first 4004s had been delivered to  Busicomp,  Intel  realized
the market potential of the chip, and  successfully  renegotiated  with  the
Japanese to regain the exclusive rights, which had been sold to Busicomp.
In November 1971, Intel introduced the 4004 to the public in  an  Electronic
News ad. It announced not just a new product, but "a new era  of  integrated
electronics  [...],  a  micro  programmable  computer  on  a   chip.")   The
microprocessor is  -  as  Gordon  Moore  call  s  it  -  "one  of  the  most
revolutionary products in the history of mankind,") and ranks as one  of  12
milestones of American technology in a survey of U.S. News and World  Report
in 1982. This chip  is  the  actual  computer  itself:  It  is  the  central
processing u nit (CPU) - the  computer's  brains.  The  microprocessor  made
possible the microcomputer, which is "as big as it is  only  to  accommodate
us." For "we'd have a hard  time  getting  information  into  or  out  of  a
microprocessor without a keyboard, a printer and a  terminal,"  as  Th.Mahon
puts it.)
However significant Hoff's invention, nevertheless, it  was  hardly  noticed
in the public until early 1973. The microprocessor had its  own  instruction
set and was to be programmed in order to  execute  specific  tasks.  So  Ted
Hoff had to inform the public and t he engineers about the  capabilities  of
the new device and how to program it.

Cooperation with IBM in the 1980s

Intel's measures in the late 1970s as a reaction to  increasing  competition
from other chip manufacturers paid off greatly and resulted in a  remarkable
technological  lead  against   its   competitors.   The   most   significant
consequence, which was a landmark in the company's  development,  was  IBM's
decision to rely on the Intel 8088 microprocessor for its PCs in 1980.
IBM (short  for  International  Business  Machines)  has  been  the  world's
leading company in the big mainframe computers since the 1950s. Due  to  its
dominance, it was often compared with  a  giant  and  referred  to  as  "Big
Blue." Surprisingly, it was not before 198 1 (the PC revolution had  already
been on for a few years) that IBM introduced its own Personal Computer.
Because of IBM's dominance and worldwide reputation,  its  PCs  soon  became
industry standard  and  penetrated  the  office  market:  other  established
computer companies followed and introduced their own  PCs  -  the  so-called
"clones"  -  which  were  compatible  to  IBM'   s   models.   To   maintain
compatibility, all these  manufacturers  were  forced  to  rely  on  Intel's
microprocessors, which thus were bootstrapped to industry standard, too.
As well as for Intel, the CPU manufacturer, IBM's decision has been  crucial
for a company in the software field: Microsoft's (Redmond,  Washington)  MS-
DOS was chosen  as  the  IBM  PC's  operating  system  and  became  industry
standard. It is essential to every IBM compatible  PC.  Microsoft,  a  small
company in 1980, grew explosively, and is today's superior software giant.
At the beginning of the 1980s, IBM was concerned about  Intel's  ability  to
keep investing in R&D and therefore decided to support Intel by buying  $250
million (=12%) of the company's stock. This endorsed Intel's position,  and,
in 1987, IBM sold the last of its shares in a strong Intel.

Intel today

                             Annual report 2000

                               [pic][pic][pic]

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                               [pic][pic][pic]


Today, Intel supplies  the  computing  and  communications  industries  with
chips, boards and systems building blocks  that  are  the  "ingredients"  of
computers, servers, and networking  and  communications  products.  Industry
members to create advanced computing and communications  systems  use  these
products. Intel's mission is to be the preeminent  building  block  supplier
to the worldwide Internet economy.
[pic]

Intel Architecture  platform  products[pic]  Microprocessors,  also  called
central processing units (CPUs) or chips, are frequently  described  as  the
"brains" of a computer, because they control the central processing of  data
in personal computers (PCs),  servers,  workstations  and  other  computers.
Intel offers microprocessors optimized for each  segment  of  the  computing
market:
Intel Pentium III Xeon processors for mid-range to high-end  servers  and
workstations
Intel Pentium 4 and Pentium III processors for  entry-level  servers  and
workstations and performance desktop PCs
Intel Celeron processors for value PC systems
Mobile Pentium III processors for performance in mobile PC systems
Chipsets  perform  essential  logic  functions  surrounding   the   CPU   in
computers,  and  support  and  extend  the   graphics,   video   and   other
capabilities of many Intel processor-based systems.
Motherboards combine Intel microprocessors and chipsets to  form  the  basic
subsystem of a PC or server.
e-Business solutions enable services  and  channel  programs  to  accelerate
integration  and  deployment  of  Intel   Architecture-based   systems   and
products.
[pic]Wireless communications and computing products[pic] These products  are
component-level  hardware  and  software  focusing   on   digital   cellular
communications and other applications needing both low-power processing  and
high performance.  These  products  are  used  in  mobile  phones,  handheld
devices, two-way pagers and many other products. For  these  markets,  Intel
offers Intel Flash memory,  application  processors  based  on  the  Intel
StrongARM processor core, and base band chipsets  for  cellular  phones  and
other wireless devices.
Networking and communications products[pic] Communications  building  blocks
for next-generation networks  and  Internet  data  centers  are  offered  at
various levels of integration. These products  are  used  in  communications
servers, network appliances and computer telephony integration equipment.
Component-level building  blocks  include  communications  silicon  such  as
network processors and other board-level components, software  and  embedded
control chips. These products  are  integrated  in  communications  hardware
such as hubs,  routers,  switches  and  servers  for  local  and  wide  area
networking applications. Embedded control  chips  are  also  used  in  laser
printers, imaging, automotive systems and other applications.
New business products[pic] These products and  services  include  e-Commerce
data center services as well as connected peripherals.
[pic]
Intel's major customers include:
Original equipment manufacturers[pic] (OEMs) of computer  systems,  cellular
phone and handheld  computing  devices,  telecommunications  and  networking
communications equipment, and peripherals.
Users of PC and network communications products[pic] including  individuals,
large and small businesses, and Internet service providerswho  buy  Intel's
PC enhancements, business communications products  and  networking  products
through reseller, retail, e-Business and OEM channels.
Other manufacturers[pic] including makers of a wide range of industrial  and
communications equipment.

The emergence of the PC industry

Until the early 1970s, computers were  huge  machines  -  from  the  largest
ones, the supercomputers, to mainframes and minicomputers - and were  mainly
used for scientific research in universities and in  military  institutions,
and for business calculations in major  companies.  Surprisingly,  when  the
first microprocessors appeared, none of the established  companies  such  as
IBM, DEC or HP had the idea to build small, personal  computers.  They  just
did not see any market for them and could not imagine  what  those  machines
should be  needed  for.  None  of  these  large  companies  anticipated  the
possibilities of PCs, which are today used in almost every  office,  in  the
home, in the  school,  on  airplanes,  etc.  and  can  act  as  typewriters,
calculators, accounting systems, telecommunications instruments,  libraries,
tutors, toys and many the like.
So, it was the hobbyists, single electronics  wizards  who  liked  tinkering
with electronic devices that constructed their own computers  as  the  first
PCs. These "computer nuts" ignited the "fire in the valley;") they  launched
the personal computer  revolution  in  Silicon  Valley  "out  of  their  own
fascination with the technology. The personal computer arose from  a  spirit
of sharing "hard-won technical information" with other computer  freaks  who
developed their devices for the fun of tinkering around in this  fascinating
field of  electronics.  Some  of  these  frequently  young  hobbyists  found
themselves almost overnight as  millionaires,  after  they  had  sold  their
devices in a newly founded firm.
Before dealing with the story of Apple, which is typical of  Silicon  Valley
and  responsible  for  the  breakthrough  of  the  personal  computer,  some
information about the first PC and the emergence of the  PC  industry  shall
be given.

Altair - the first PC

Altair is often regarded as the first personal  computer,  although  it  was
one of those  switches  and  lights  computers  -  programming  is  done  by
arranging a set of switches in a special order, and the  results  appear  as
different combinations of lights. In  other  words,  such  a  machine  is  a
genuine computer, but absolutely useless, as Steve Wozniak, one  of  the  PC
pioneers, put it.)
After the first microprocessors had come onto the  market,  Ed  Roberts,  an
engineer at MITS, a small calculator company in Texas, decided  to  build  a
kit computer, which he intended to sell to hobbyists. He chose Intel's  8080
as the CPU for his computer, since this  chip  was  the  most  advanced  and
powerful at the time. As Roberts wanted to sell his computer for  less  than
$500 and the official price for the 8080 was already at $360,  he  contacted
Intel and could finally receive the chip for only $75 apiece.
By the end of 1974, Roberts finished his computer, which was  named  Altair.
When the Altair was introduced on the cover of the  January  1975  issue  of
Popular Electronics as the first personal computer, which would go for  $397
only, the market response was in credible. The  low  price  was  the  actual
sensation, because it was largely known that the price for  the  Intel  8080
CPU powering the Altair was already at $360. So  many  hobbyists,  engineers
and programmers who had keenly  waited  for  their  own  personal  computer,
which they could experiment  on  at  home,  welcomed  the  new  product  and
ordered "their" Altair on the spot.
Roberts had never expected such a great response  and  his  small  firm  was
flooded by those immediate orders  (more  than  4000).  He  boosted  up  the
production, but still could not meet the  huge  demand.  The  Altair  was  a
success at first, and Roberts sold many of them.
However, he had increased production at the expense of quality  and  further
refinement of his computer, so the Altair brought along  a  lot  of  trouble
and was finally supplanted by other computers, which were superior.
Nevertheless, the Altair as the first successful microcomputer,  contributed
a lot to the PC revolution,  since  it  encouraged  other  people  to  build
personal computers (e.g. IMSAI, Apple).

The first computer shops

During this  time,  the  mid-1970s,  the  first  computer  shops  came  into
existence. Pioneering in this field was Paul Terrell who came  to  the  idea
of running such a shop, after the Altair had been put onto the  market.  His
first Byte Shop opened in Mountain View (located in  the  heart  of  Silicon
Valley) by the end of 1975.
Initially,  Terrell  sold  the  Altair  and  accessory  products   such   as
additional memory boards and other devices,  which  came  onto  the  market.
With the arising microcomputer industry, he  could  offer  his  customers  -
mainly hobbyists and engineers -  more  and  more  products,  and  his  shop
became a success. Other Byte Shops were opened and Terrell's  computer  shop
chain expanded beyond the Silicon Valley. The computer  shops  provided  its
customers with a variety of  devices  around  the  computer  and  also  with
service and help.
The Altair was shipped as a kit computer and was to be assembled first,  and
then it was still not difficult to work with it. The hobbyists  helped  each
other with advice. It was this spirit of sharing solutions  and  the  common
interest in microcomputers that led to the foundation of the first  computer
club.

Homebrew Computer Club

The legendary Homebrew  Computer  Club  was  the  first  of  its  kind,  and
provided an early impetus for the development of the microcomputer  industry
in Silicon Valley. Its first meeting in March 1975 was held in  one  of  its
members' garage in Menlo Park in Santa Clara County.  The  Homebrew  members
were engineers and computer enthusiasts who discussed about the  Altair  and
other technical topics. The club attracted many hobbyists and  was  attended
by nearly 750 people one year after its foundation.  The  Homebrew  Computer
Club had its own philosophy. People meet, because they  were  interested  in
computers and liked tinkering with them, but not for  commercial  reasons  -
at least in its early times. Its members "exchanged  information  about  all
aspects of micro computing technology") and talked about  devices  they  had
designed. From its ranks came the founders of many  microcomputer  companies
- for example Bob Marsh, Adam Osborne, or Steve Jobs and  Steven  Wozniak  -
the famous Apple founders.
The Homebrew Computer Club is the place where  the  roots  of  many  Silicon
Valley microcomputer companies are located. It has "spawned a revolution  in
micro processing") and represents an "important step in the  development  of
a multi-billion dollar industry.

The Apple Story

Apple provides one  of  Silicon  Valley's  most  famous  stories.  It  shows
features that are typical for most start-up firms in  the  valley,  however,
it is unique and its early success and  its  contribution  to  the  personal
computer are unmatched.

"Woz" and Jobs - the two "Steves"

Apple's history starts with the story of two young  and  exceptional  people
who  began  building  a  computer  in  their  garage   and   "launched   the
microcomputer revolution,") changing our daily life in many respects.
The Apple story is the story of the two "Steves". Stephen G. Wozniak  was  a
typical Silicon Valley child. Born  in  1950,  he  had  grown  up  with  the
electronics  industry  in  Silicon  Valley,  and  had  been   intrigued   by
electronics from the start, since his father w as an  electronics  engineer.
Wozniak, known to his friends as "Woz", was bright and  was  an  electronics
genius. At the age of 13, he won the highest award at a local  science  fair
for his addition-subtraction machine. His electronics teacher  at  Homestead
High School recognized Woz's outstanding talent and arranged a job  for  him
at a local company, where Steve could work with computers once  a  week.  It
was there that Wozniak saw the capabilities of a computer (it  was  the  DEC
PDP-8 minicomputer) and studying the manual, it became his dream to  have  a
computer of his own one-day. He designed  computers  on  paper.  Many  other
students who grew up in Silicon Valley shared this dream.
In 1971, Wozniak built his first computer with his high-school  friend  Bill
Fernandez. This computer (they called it Cream Soda Computer) was  developed
in his friend's garage and had "switches  and  lights  just  as  the  Altair
would have more than three years later.")
Bill introduced Woz to a friend of his named Steven P. Jobs. Jobs  was  born
in 1955, and his foster parents were - unlike most other people  in  Silicon
Valley - blue-collar workers. However, growing up in an environment full  of
electronics, Steve came in con tact with  this  fascinating  technology  and
was caught by it.
Jobs was a  loner  and  his  character  can  be  described  as  brash,  very
ambitious  and  unshakably  self-confident.  With  his  directness  and  his
persistency he persuaded most people. He  had  the  ability  to  convey  his
notions and vision to other people quite well. An d he  was  not  afraid  to
talk to famous people and did never stop talking to them until they gave  in
and did what he  wanted.  His  traits  could  already  be  observed  in  his
adolescence, for instance when he - at the age of thirteen -  called  famous
Bill Hewlett, president of HP, and asked him for spare parts he  needed  for
his frequency counter.
Although Steve Jobs was five years younger than Wozniak, "the two got  along
at once."  Apart  from  their  common  fascination  with  electronics,  they
"shared a certain intensity." Whereas Woz was  intense  in  digging  "deeper
into an intellectual problem than anyone  else,"  Jobs's  intensity  was  in
ambition. Moreover, both were genuine  pranksters,  and  often  they  fooled
others with their technical knowledge.)
When they heard of "phone-phreaking" - making free  long-distance  telephone
calls with a device  called  "blue  box"  -  the  two  started  their  first
business venture, building those blue boxes.
In 1972, Steve Jobs went to  Reed  College  in  Oregon;  however,  there  he
became more interested in Eastern religions, dropped out a  year  later  and
returned to Silicon Valley, where he took a job with Atari  (a  young  video
game company) until he had saved enough money to go on a trip to  India  for
some months. Then he went back to California and to his work at Atari.
After attending  three  different  colleges,  Wozniak  had  begun  work  for
Hewlett-Packard in summer 1973. When Atari planned to  develop  a  new  game
called "Breakout," Jobs boasted he could design  it  in  only  four  days  -
quicker and better than anyone else. Jobs t old his  friend  Woz  about  it,
and the two designed the game in record time, working four nights and  days,
and were paid the promised $700 for it. This  experience  showed  them  that
they could work together on a tough project and succeed.

The first Apple

When  the  Homebrew  Computer  Club  came  into  existence,  Wozniak   began
attending its meetings. As he later would recall, Homebrew was a  revelation
for him and changed his life.  He  met  people  who  "shared  his  love  for
computers") and learned from them as well a s he encouraged  them  with  his
technical expertise. Others brought along their Altairs, which  Wozniak  was
interested in but could not afford. He realized this computer resembled  the
Cream Soda Computer he had built some time ago.
Soon after, Chuck Peddle at MOS Tech released his  new  6502  microprocessor
chip for only $20, which was a sensation compared  to  the  usual  price  of
$400 for those chips then. Suddenly, Woz  saw  his  chance  and  decided  to
write the first  BASIC  for  it,  which  was  the  most  spread  programming
language. After finishing with the BASIC, he made a computer for it  to  run
on. The other hobbyists at Homebrew were impressed by Wozniak's  kit,  which
actually was a board with chips and interfaces for a keyboard  and  a  video
monitor.
Steve Jobs saw the opportunity of this machine, which they named Apple,  and
finally persuaded Wozniak to start a company in April 1976. The  two  raised
the money for the prototype model with a printed circuit  board  by  selling
Jobs' VW microbus and Wozniak's HP calculators.  With  the  Apple  I,  Steve
Wozniak had designed a "technological wonder") and made his dream of  owning
a computer come true. His friend Steve Jobs played the role  of  a  salesman
and his ambitious promotion made the Apple I "a star in the tight  world  of
computer freaks.")
The breakthrough for the two Steves came in July, when Paul Terrell  ordered
50 Apples for his Byte Shop, however on condition the computers  were  fully
assembled in a case  and  equipped  with  a  cassette  interface  to  enable
external data storage.
Jobs could "obtain net 30 days credit") for the parts they needed for  their
computer. Working hard in Jobs parents' garage, they  managed  to  construct
the 50 Apples within those 30 days.
The Apple I was continuously refined by Wozniak,  and  its  sales  made  the
young company known, partly because the company's name appeared  on  top  of
computer  lists,  which  were  published   by   electronics   magazines   in
alphabetical order.

Building up the company

While the first Apple was being sold, Steve Wozniak had already  begun  work
on another computer, the Apple II. This machine would have  several  special
features which had not appeared in any microcomputer before and  would  make
it "the milestone product that would  usher  in  the  age  of  the  personal
computer.")
Jobs and Wozniak sensed the market potential their new computer would  have,
but realized they did not have the necessary capital  for  constructing  the
machines. So they tried  to  sell  their  computer  to  several  established
companies such as Atari, HP and MOS Tech, which, however, rejected.  Looking
out for some venture capital to produce the  new  computers  by  themselves,
Steve Jobs met with Mike Markkula, who  had  been  a  marketing  manager  at
Fairchild and Intel.
Markkula was at the age of 38, but had already retired, since he had made  a
fortune of many million dollars by his stock option  at  Intel.  He  visited
Jobs's garage and became interested in their project. Markkula,  the  former
marketing wizard at Intel, thought  it  "made  sense  to  provide  computing
power to individuals in the home and workplace" and  offered  to  help  them
"draw up a business plan.") Finally, he decided to join the two  Steves.  He
offered $250,000 of his own money and  his  marketing  expertise  for  on  e
third of the company, which was incorporated as Apple  Computer  in  January
1977. Markkula's decision marked the turning point in  Apple's  history;  he
took care of the business side and arranged  all  the  things  necessary  to
create a successful company. Markkula's  know-how  was  crucial  for  Apple,
since Woz and Jobs did not have any business expertise.  This  knowledge  is
very important for new firms. A lot of other  start-ups  in  Silicon  Valley
failed as their founders were only engineers, who lost  control  over  their
enterprises when they could not  meet  the  skyrocketing  demand  for  their
products.
In 1977, Markkula hired Mike Scott, who had worked for product marketing  at
Fairchild, as the company's president,  because  he  felt  Apple  needed  an
experienced person to run the company.
Jobs, who wanted only  the  best  for  his  company,  also  persuaded  Regis
McKenna, who ran the biggest and most influential agency in Silicon  Valley,
to do public relations and advertising for Apple. McKenna,  who  worked  for
successful Intel and many other companies,  brought  Apple  legitimacy  and,
among other things,  designed  the  famous  Apple  logo.  Another  important
contribution was the fact that he made Apple the first company to  advertise
personal computers in consumer magazines to "get national attention"  and  "
popularize this idea of low-cost computers.")
Steve Jobs's persistency had persuaded Wozniak, the electronics  genius  who
designed the machine, McKenna,  and  Markkula,  the  business  expert.  Jobs
himself was the driving force that brought the key  components  together  to
build up a successful company.

Apple II - starting the personal computer boom

In April 1977, the Apple II was introduced to the public at the  West  coast
Computer Faire (market), where Apple  had  rented  the  largest  booth  just
opposite  the  entrance.  Wozniak's  "technological  wonder")  was  a  great
success and the first orders were already made. The Apple II was the  "first
true personal computer.") It was the first microcomputer  able  to  generate
color graphics and the first with BASIC in  ROM  and  included  a  keyboard,
power supply and an attractive lightweight and  beige  plastic  case,  which
would  become  standard  for  subsequent  PCs.  The  Apple   II   was   more
sophisticated than any microcomputer  before,  and  represented  a  machine,
which could be worked with  effectively.  Steve  Wozniak  had  put  all  his
"engineering savvy") into it, and had created a computer he  would  like  to
own.
The Apple II was given a rapturous welcome  in  the  public.  In  1977,  the
company sold more than 4,000 computers, which were  priced  at  $1,300,  and
grew rapidly.
Programs and data for the Apple II were stored on cassette tapes.  But  this
common way of storage turned out to be quite unreliable  and  awkward.  Mike
Markkula saw the future in floppy disks, which had been developed by IBM  in
the early 1970s, and asked Wozniak to design a disk drive for the Apple  II.
Woz took the challenge and finished in record time  (only  one  month).  His
final design was brilliant: he developed a new technique  ("self-sync")  and
created the fastest minifloppy disk drive. It was shipped in June  1978  and
proved vital for Apple's further growth. It made  possible  the  development
of serious software such as word processors and data base packages,")  which
increased the practical use of the computer decisively.
In 1979, Daniel Fylstra, a programmer from  Boston,  released  VisiCalc  for
the Apple II. This spreadsheet  was  a  novelty  in  computer  software.  It
relieved  business  calculations  considerably  and  could  be  used  to  do
financial forecasting. It was  the  first  application  that  made  personal
computers a practical tool for people who do not know  how  to  write  their
own  programs.  VisiCalc  was  very  successful  and  contributed   to   the
skyrocketing sales of the Apple II.
The same  year,  marketing  wizard  Mike  Markkula  made  another  important
decision for Apple future growth. His idea was to create  a  new  market  in
the field of education and  schools.  The  Apple  Education  Foundation  was
established, which granted complete Apple  systems  equipped  with  learning
software to schools. This market should account for  a  major  part  of  the
company's sales in the subsequent years, since  Apple  II  soon  became  the
most popular machine for students.

Turbulences in the early 1980s

The successful stock sale provided Apple  with  an  "extravagant  amount  of
capital ($1 billion)," which could be spent  on  developing  the  "company's
next computer generation.") This time,  however,  was  quite  turbulent  for
Apple and was marked by crises and inner power struggles.
Designing on Apple III began in 1978. This computer was to be the  successor
to Wozniak's Apple II, and was finally introduced to  the  public  in  1981.
But it was not successful - a "disaster" or  "fiasco,")  since  it  had  too
many faults and  did  not  work  properly.  Nevertheless,  the  company  was
without any financial troubles, since sales of the  Apple  II  continued  to
increase rapidly.
Concurrently, Steve Jobs became the company's visionary  and  thought  about
the next computer generation. Such a visionary is a  "person  who  has  both
the vision and the willingness to put everything on the line, including  his
career, to  further  that  vision.  Jobs  became  a  perfect  visionary  and
convinced everyone around him with his vision.
In 1979, he and some other Apple employees  visited  the  Xerox  PARC  (Palo
Alto Research  Center),  which  was  known  for  its  advanced  research  in
computing. What they saw was revolutionary and had  never  appeared  on  any
personal computer before. The "environment of  the  screen  was  graphically
based" with icons  (representing  files  or  programs),  with  a  mouse  for
pointing and moving at them, windows and pull-down  menus.  Thus,  the  user
could "interact easily with the computer [...] without ever typing a  single
letter.
Jobs was quite impressed and wanted to transfer this concept  on  a  new  PC
called Lisa, which was intended for  the  business  world.  Steve,  however,
came up with ever-new ideas for the designers of this project.  He  "created
chaos because he would get an idea, start a project, then  change  his  mind
two or three  times,  until  people  were  doing  a  kind  of  random  walk,
continually scrapping and starting over.")
Markkula and Scott were concerned about the further progress  of  Lisa.  So,
in the course of a reorganization of the company, they decided to  put  John
Couch, a former software designer at HP, in a charge of  the  Lisa  project.
Jobs was made chairman of the boa rd  to  represent  Apple  in  the  public.
However, Steve was shocked that he was  taken  the  chance  to  fulfill  his
vision, and relations between him and Scott deteriorated.
In February 1981, Wozniak, the technological brains behind the Apple  I  and
II, crashed his four-seated airplane. He hit his  head  badly  and  suffered
from a case of temporary  amnesia.  For  some  time,  he  retired  from  the
company and he finished his undergraduate degree at U.C. Berkeley.
The company had grown rapidly to 2,000  employees,  and  some  of  them  had
joined Apple in the hope of a safe job. Setting an example,  president  Mike
Scott laid  off  42  people  on  a  day  which  came  to  be  called  "Black
Wednesday". Apple was shocked since some of t hose  people  seemed  to  have
been chosen arbitrarily. Scott's  management  style  became  more  and  more
disliked, and finally Mike Markkula decided to fire Scott and took over  his
position until a new president was found.

The Lisa project

Meanwhile, Steve Jobs had discovered his new  project.  Soon  he  had  taken
control of the Macintosh project, which had been started by Jeff  Raskin  in
1979 to design a small and handy personal computer. Steve dedicated all  his
power to the Macintosh, which was to be a smaller and cheaper Lisa  and  was
to revolutionize the way of computing.
The company was now separated into  three  divisions,  Apple  II,  Lisa  and
Macintosh, which began competing against each other -  particularly  between
the latter two.
Lisa was developed by a number of experienced engineers and programmers  who
had been recruited from HP, DEC  and  Xerox.  This  project  was  "the  most
professional operation ever mounted  at  Apple")  and  was  in  contrast  to
Steve's bunch of young hackers at Macintosh.
When Lisa was introduced to the public in August 1983, it was "ahead of  its
time:") Lisa was easy to use because of the mouse, graphical  interface  and
windows, and had additional features such as  multitasking.  Though  is  was
first welcomed by the press as revolutionary, Lisa failed. One  problem  was
Steve's "lack of self-discipline:") When introducing Lisa  he  talked  about
"his" Macintosh which would come out soon and with features  like  Lisa  but
cost only a fraction  ($2,000  instead  of  $10,000  for  Lisa).  The  other
strategic mistake was the announcement  that  the  two  computers  were  not
compatible. So it is no wonder many people waited until the Macintosh  would
come.
Finally, Lisa, which was intended for the business market at  its  price  of
$10,000, lacked the ability to communicate with other  computers  -  a  fact
which was decisive for this market.
In the meantime, IBM had entered  the  personal  computer  market  with  its
first IBM PC in 1981, and already dominated a large part of  it.  Its  first
PC "wasn't an earth-shattering machine technically") and was much harder  to
use than the forthcoming Apple machines. But the fact that it was  built  by
IBM was enough to make it successful,  and  many  software  companies  wrote
applications for it. Apple had bravely run a full-page  ad  saying  "Welcome
IBM, Seriously", but it soon seemed to have lost the  battle.  Nevertheless,
IBM's entry brought Apple a lot of publicity as the  only  real  competition
to Big Blue.
Thus, Lisa was not very successful and the second failure  after  the  Apple
III. Still, Apple's sales increased - only because of the  successful  Apple
II. But the company needed a successor, and all its hopes  were  now  placed
in the Macintosh.

The Macintosh revolution

The Macintosh was  to  fulfill  Steve  Jobs'  vision  of  "computer  to  the
people". He created a personal computer, which was easy to use and at a  low
cost. Steve thought of a tool for all people  to  broaden  their  mind  -  a
revolution towards the modern way of computing.
His Macintosh team was made  up  of  teenagers  and  self-taught  hackers  -
"idiot savants, passionate plodders and inspired amateurs" - who  "loved  to
cut  code.")  They  followed  his  vision  and  passionately  designed  this
outstanding computer. Jobs  continuously  drove  his  team  to  ever-greater
feats. He "kept thinking up crazier things,  or  more  aggressive  goals  if
they were doing good, or if they were achieving their goals he  wanted  them
to do more. He couldn't just stop, he had to push you to the  edge.")  Steve
"gave impossible tasks, never acknowledging that they were impossible,")  he
"doesn't have any boundaries, [...] because he has always been  able  to  do
anything he wanted" due to "his early success.") As  a  consequence,  people
usually worked 80 hours a week or more for their project.
Steve's most brilliant  hackers  were  Andy  Hertzfeld,  Bill  Atkinson  and
Burrell Smith. The Macintosh was equipped with Motorola's 68000 CPU, a  3.5-
inch floppy disk drive, a detachable keyboard, and the amount  of  space  it
took up from the desk should not be  larger  then  a  telephone  book  (this
meant a revolution in size). The computer was meant to be  an  open  system,
and software applications were to be  programmed  by  other  companies,  the
work of which was supported by a standard modular  toolbox.  This  box  made
sure that all applications were easy to use and appeared in  a  standardized
way. As  well  as  other  fundamental  software  the  standard  toolbox  was
available from the computer's ROM (Read Only Memory).
Influenced by robotics assembly lines in Japan, Steve decided to "build  the
most advanced assembly plant in  the  world")  for  the  production  of  the
Macintosh. It was fully automated and  the  labor  component  accounted  for
only one percent of the total cost.
Simultaneously to feverish efforts to finish the Macintosh, Apple  succeeded
in  finding  a  new  president.  Thanks  to  Steve's  visionary  powers   of
persuasion, John Sculley, top manager at PepsiCo,  finally  agreed  to  join
Apple in April 1983.
The introduction of the Macintosh, which was Steve's  revolutionary  machine
to change the world, was dated to January 1984 and was to be accompanied  by
a massive ad campaign in the media. Chiat/Day agency was asked to  create  a
commercial referring to the fact that 1984 was the year of  Orwell's  famous
novel. They produced the sixty-second ad, which was really exceptional,  and
proposed running it only once - during the  Super  Bowl,  the  most  watched
television event of the year.
It would be a million dollar minute, which was to capture public  attention.
Macintosh was presented as a milestone product that would revolutionize  the
way  of  computing,  breaking  IBM's,  the  "Big  Brother's"  dominance  and
conformity it was about to establish by its IBM PCs.
When the commercial was broadcast, it  reached  46.4  percent  of  America's
households. People were stunned about this outrageous ad, which was  "unlike
anything  they  had  seen  before.")  Suddenly,  millions  of  people   knew
something   called   Macintosh.   The   "commercial    sparked    widespread
controversy"), and won the highest advertising awards (more than 30).
The Macintosh (priced at $2,495) was a success from the start.  Steve  Jobs,
the visionary, compared it to Graham Bell's invention  of  the  telephone  a
hundred years  ago.  It  was  the  "most  approachable")  and  sophisticated
personal computer of the time, which ushered in a new era of easy  computing
with a graphical interface and mouse. This feature would be  taken  over  by
many software  companies  in  the  subsequent  years,  particularly  by  big
Microsoft, which developed Windows. This graphical user interface, which  ha
s been established as the industry  standard  today,  is  quite  similar  to
Macintoshs and makes possible the easy use of IBM PCs.
In the first 100 days, an industry record  of  more  than  70,000  Macintosh
computers were shipped - a number that went up to the total of 250,000  sold
units by the end of the year.

John Sculley and Steve Jobs

Despite the astonishing figures of sold Macintosh computers and a  boost  in
sales to more than $1.5 billion in 1984 (up  55%  from  1983),)  Apple  soon
fell into its most severe crisis, which would only be overcome by  Sculley's
hard measures and led to the firing of its visionary Steve Jobs.
John Sculley had been vice-president at PepsiCo where  he  had  successfully
made Pepsi the number one brand in the Cola Wars.  Actually,  there  was  no
reason for him, one of America's top managers with a secure and highly  paid
position at PepsiCo, to join a bunch of young computer  nerds  at  the  West
coast. The reason why he finally agreed yet is Steve Jobs who impressed  him
by his visionary ideas and asked him a question to  which  he  did  have  no
answer: "Do you want to spend the rest of your life  selling  sugared  water
or do you want a chance to change the world?") This question told  him  that
his "entire life was at a critical crossroads.")
Sculley and Jobs became close friends. They  could  "complete  each  other's
sentences" because they "were on the same wavelength.") The  "dynamic  duo",
as they were called in an issue  of  Business  Week  in  October  1983,  was
esteemed highly in the press and contributed significantly to  Apple's  good
reputation in the public at the time.
The  downfall  came  soon,  however,  when   their   largely   overestimated
expectations of the Macintosh sales could not  be  met.  In  their  euphoria
about the revolutionary Mac, they thought they would ship  80,000  units  by
the end of 1984, and had produced them in advance. When the reality  brought
"merely" 20,000 with a falling tendency, the  crisis  was  evident.  Reasons
for that decline were that the Macintosh was not as "perfect" as expected  -
with its 128 KByte RAM (they were  then  mounted  to  512  KB)  it  was  not
powerful enough, and there were hardly any software  applications  available
yet. Moreover, at the 1985 annual meeting, Jobs and  Sculley  neglected  the
fact that 70 percent of the company's sales were still due to the Apple  II,
whereas the Macintosh accounted for  only  30  percent.  Many  sophisticated
Apple II designers were annoyed and left the company.
Steve Jobs became  more  and  more  angry  and  aggressive  because  of  the
continuing drop in Macintosh sales (merely 2,500 units in March  1985).)  He
blamed everyone for it, except for himself. Steve just did not see that  the
"problem was with him.") In the end, he blamed even Sculley for  the  crisis
and wanted to lead the  company  himself.  But  this  seemed  impossible  to
everyone else: "Steve was a big thinker,  an  inspirational  motivator,  but
not a day-to-day manager. What was sad was that he could not see it.")
When Sculley was informed that Jobs intended to remove him insidiously  from
the company, he  was  quite  concerned,  but  then  decided  to  choose  the
company's  welfare  over  his  friendship  to  its   visionary   co-founder.
Supported by Markkula and the other members of the board, in  May  1985,  he
dismissed Steve from his positions as the vice-president and as  the  leader
of the Macintosh division; Jobs did not have any managerial power anymore.
Steve Jobs was quite depressed and made  trips  to  Europe  and  the  Soviet
Union. Finally, he decided to leave Apple in December  1985,  and  sold  all
his Apple shares. He took along some of the best employees to start his  new
venture - NeXT. He intended to  design  a  workstation  for  the  university
sector. In February 1987, billionaire Ross Perot invested  $20  million  for
16 percent of NeXT. The  new  computer  was  introduced  to  the  public  in
October 1988, priced at $6,000.
At Apple, John Sculley took several measures to save the company, which  had
become chaotic. In the course of a major reorganization he  dismissed  1,200
employees (20% of the total workforce) and  put  the  broken  parts  of  the
company together to form one unified Apple. His restructuring  saved  a  lot
of costs and consolidated the company.
1986 was Apple's worst year with a decline in net sales  from  $1.92  (1985)
to $1.90 billion. Gradually,  Sculley  could  persuade  software  companies,
which had turned away from Apple, to write applications for the Macintosh.
Apple found its new market  in  desktop  publishing  (DTP),  for  which  the
Macintosh was predestined. By the time, the Macintosh became a serious  tool
for the business market and its sales increased again.
Until today, Apple has grown steadily and now  reaches  net  sales  of  more
than $7 billion. Although the Macintosh lost the battle  against  Big  Blue,
today it is a successful  product  and  was  sold  over  2.5  million  times
worldwide in  1992.  Apple  remains  the  second-biggest  personal  computer
manufacturer  after  IBM  and  has  released  innovative  products  such  as
QuickTime, an easy to use multimedia software  combining  sound,  video  and
animation. Its latest development is Newton, a  personal  digital  assistant
(PDA), which serves as an electronic notepad and "integrates advanced  hand-
writing recognition, communication and data-management technologies.")

Apple today.

CUPERTINO, CaliforniaDecember 5, 2000Apple today announced  that  it  has
experienced significantly slower than  expected  sales  during  October  and
November, which will result in revenues and earnings for its quarter  ending
December 30, 2000 being substantially below expectations.
The company expects to report revenue of about $1 billion and  a  net  loss,
excluding investment gains, of between $225 and $250 million.
The $600 million revenue shortfall from  previous  expectations  is  due  to
lower  than  expected  channel  sell-through  across  all  geographies   and
unplanned sales promotions and pricing actions. The net loss is  the  result
of the revenue shortfall and cancellation charges related  to  decreases  in
forecasted component purchases for current products.
The swift industry-wide decline in PC sales will result  in  Apples  first
non-profitable quarter in three years, said Apples CEO Steve Jobs.  Were
not happy about it, and plan  to  return  to  sustained  profitability  next
quarter. We are committed to reducing  our  channel  inventories  to  normal
levels by the end of this quarter, and remain very  excited  about  the  new
products and programs Apple will be rolling out in 2001.
In light of the lower results anticipated for the December quarter, we  now
expect revenues for fiscal 2001 to be in the  $6  to  $6.5  billion  range,
said Apples CFO Fred Anderson.