Читать книгу Inside Intel - Tim Jackson - Страница 17
ОглавлениеIT WAS A SYMPTOM of the technological knowhow Bob Noyce and Gordon Moore had assembled at Intel that the company was able to break one of the cardinal rules of the electronics industry. That rule was: you shouldn’t try to develop a new circuit design and a new manufacturing process at the same time.
Jerry Sanders and his colleagues at AMD, based ten minutes’ drive away from Intel in the town of Sunnyvale, had no such luxury. While Grove and Moore could claim formidable knowledge of both the physics and chemistry of silicon wafers, the team Sanders had assembled had no more insight into these matters than the average group of engineers and salesmen in the electronics industry. For AMD, the technological risks of trying to innovate on all fronts at once would have been too great.
There was also a financial issue. When you brought out an entirely new product, the customers you were trying to sell it to were all manufacturers of one kind or another – usually computer companies. They wouldn’t design it into one of their products until they had seen a working sample – but even if they liked it, you would have to wait until the computer they’d designed it into was finished and ready for manufacturing. Only then, two years or more after your engineers had started designing, would the customer want to buy the part in significant commercial quantities. This meant it took almost two development cycles instead of one before money invested in a new part started paying back.
Intel had raised $1m more than AMD, and had started up nine months earlier. The industry was consolidating, price pressures were increasing, and experts were beginning to say that it was now too late to start a broad-based semiconductor manufacturing company. So the financial climate was simply too risky for Sanders to consider developing radical new products at the outset.
In the business plan for AMD, he had dealt with the problem diplomatically. The company’s long-term ambition, the plan explained, was, of course, to develop a range of absolutely new products all of its own. Such an ambition was as uncontroversial as motherhood; proprietary products brought in higher margins, and were a sign of intellectual machismo. But in the short term, AMD’s route into the business would be to operate as a ‘second source’.
‘Second-sourcing’ was effectively the invention of one man: Robert S. McNamara, President Kennedy’s secretary of defense. When he arrived at the Defense Department from the Ford Motor Company, McNamara realized that one of the biggest sources of wasted public money in defence contracting was the fact that many parts came from only one supplier – which made it impossible for Uncle Sam to tell whether he was getting good value for money or not. McNamara decided to try to make it a rule that every part should come from at least two sources. Not only did this provide a useful reality check against fraudulent pricing; it also injected an element of competition into the market. When two companies were fighting for the government’s business, they had an incentive to look for ways to make their manufacturing more efficient, thus lowering their prices.
As the 1960s wore on, McNamara’s ideas were taken up enthusiastically in the computer industry. The mainframe companies that were trying to compete against IBM realized that every single-sourced component they bought was a hostage to fortune. If its supply dried up – whether because of an earthquake under the factory, a fluffed introduction by its maker of a new process, or simply a supplier accepting a higher offer for the parts from another customer – then a computer worth tens or even hundreds of thousands of dollars could be left sitting in a warehouse, useless because of the absence of a single small component worth only a couple of bucks. It was in order to avoid this nightmare that computer companies preferred to buy parts where there were at least two makers in business. For an electronics company with its own technology, a second source was a necessary evil: it took the cream off margins, but it was the only way to get customers to buy the part.
There were two ways to become a second source. The formal way was to sign a licensing agreement with the company that invented the product, paying an up-front fee and a royalty. In return, you got a set of the masks containing the master layouts of the circuits. Sometimes, if you were lucky, some engineering visits to help you to get the line working properly so that the process would deliver reasonable yields.
The informal way to do it was to buy a few sample parts from a distributor as soon as the part came out, rush them hack to the lab, pop the top and take blowups of the circuits inside. You then assigned a team of people to perform traces on the part, carrying out a kind of electrical audit to try to deduce from the signals going in and out what was happening inside. This was slower and more difficult than official second-sourcing, but cheaper. And although it was frowned on, the law of trademarks and patents, secrets and copyrights was murky enough to make it possible without actually breaking the law.
Second-sourcing, then, was the strategy that Sanders proposed to use to bootstrap himself into the semiconductor business. For this purpose, the key technical member of his team was Sven Simonsen, a Danish engineer who had come to the United States after working for Westinghouse Electric in Copenhagen. Simonsen had been a circuit designer at Fairchild, where he had conceived ten different logic devices, all in medium-scale integration, and had then as head of department presided over the development of fifteen more. By 1970 the devices were no longer state-of-the-art; they contained far fewer components than the 4,000-transistor monsters that Intel was working on. But they were good, solid sellers, and Simonsen knew the product range so well that he did not need to take so much as a scrap of paper from Fairchild with him when he left to join AMD.
The great advantage of trying to redesign a chip that you had already designed once before was that it gave you a chance to correct all the mistakes you had made the first time round, without having the manufacturing guys on your back screaming about the production that would be lost every time you stopped the line to make a change. But it was risky to improve things too much. The object of the exercise was to produce a part that was ‘pin compatible’ with the market leader – meaning that it could be slotted into the circuit board using the same number and placing of metal connectors, or ‘pins’, as the other company’s part. If the redesigned circuit used only half as much power and ran three times as fast, the computer company that was buying it would have to make design changes before it could start using your part. Far better just to aim for a 15% speed improvement, and make it easier for the customer to switch.
There was just one problem. If the competition found out that its part was being second-sourced without authorization, it could always fall back on an old-fashioned strong-arm tactic to squeeze out the interloper. ‘OK,’ it could say to its biggest customers. ‘You’ve received a bid from the guys down the street on three of our parts that undercuts us by 20%. But you’re still buying six other parts from us where there’s no second source. You’re gonna have to choose: do you want those six parts or not? Because there’s no way we’ll sell them to you if you’re buying the other three from the competition.’ Alternatively, it could simply refuse to sell the different parts individually.
This form of defence was called ‘packaging out’, and it raised the stakes dramatically for a company that was thinking of becoming a second source. Copying just a handful of products from the range wasn’t enough. To get into the chip business seriously, you might need to clone ten different parts or more in order to protect your customers against the risk of retaliation.
It was a measure of the energy of the AMD engineers that even with the upheaval of changing jobs, moving into the company’s site in Sunnyvale, and scratching their heads to think back over a number of past projects, they still managed to bring no fewer than sixteen finished circuits to market within nine months of starting work.
At first, AMD’s parts were hard to sell. Purchasing managers loved to cut their costs, but they knew that switching a contract to an untried new company that failed to deliver might cost them their jobs. So it would take more than just a few nickels off the price before they would commit themselves. It would also take credibility and good, old-fashioned salesmanship. After several years of sitting in Fairchild’s LA office telling a fleet of salesmen what to do, Ed Turney suddenly found himself pounding the pavements for AMD, visiting clients. Because credibility was crucial, he would often take Simonsen or another engineer with him. In particularly difficult cases even the master salesman himself -Jerry Sanders – would occasionally be drafted in to help.
Just when pessimism was beginning to set in, the fledgling company received an unexpected bonus. The new management at Fairchild Semiconductor sent a memo around to its salesmen, attacking AMD and demolishing its product line point by point. When a friendly client sent a copy to Turney, he immediately realized its value: the memo proved that Fairchild took the threat from AMD seriously. Since credibility was the company’s greatest problem, this was a positive rather than a negative thing. Turney promptly ran off a few hundred copies of the memo, and circulated them to all the purchasing managers who were still humming and hawing about whether they were going to buy from AMD.
Once the customers began to look at AMD’s product line more closely, they saw another attraction. Traditionally, the electronics market had been split into two: there were the standard components for the computer industry, which would work in a temperature range between zero and 75 degrees Celsius; and there were the parts sold to the military, which were guaranteed to work anywhere in a much wider range from –55 to +125. The two sets of components were often run off exactly the same production line; the only difference was that the parts which still worked during the extreme temperature tests would get sold to the military for three or four times the normal price so they could be frozen or boiled up in the sky or under the sea.
Sanders saw an opportunity in this. Because AMD was making design changes to the parts it was second sourcing, and was fabricating them on a new production line with clean equipment, the yields were often higher than in the Fairchild plant where the original part was still being made. As a result, AMD found that an unexpectedly high proportion of its parts met the more rigorous military specification. Most civilian customers had no practical need for ‘Mil Spec’ parts, since they weren’t building fighter planes or missiles. But the military standard of quality sounded good, and helped the parts to sell.
Shortly after AMD’s first advertisements appeared in the trade press, Simonsen took a call from an executive at Westinghouse Electric, the company he had worked for before joining Fairchild.
‘Sven, you’ve been advertising a four-bit adder,’ said the voice. ‘Do you really make the part, or is it just a marketing ploy?’
The question was a reasonable one; plenty of companies in the industry saw nothing wrong with advertising parts that weren’t yet in production. But Simonsen protested that AMD was innocent. Not only was the company making the part, a small logic chip that could add together whole numbers between 0 and 15. AMD could even provide 1,000 units the next day if his former colleague wanted them, he boasted.
‘Not quite,’ he was told. The Westinghouse man explained that he was in charge of a project to develop a radar for the US air force. The air force’s standard practice was to ‘fly before buy’; it would happily issue development contracts, but to get a real production order, a company would have to demonstrate an aircraft that actually flew – or in this case a radar device that worked. Westinghouse’s problem was that it was ninety days away from a crucial test of its new radar system, and it had just been told by Texas Instruments, the most powerful company in the chip industry, that a four-bit adder crucial to the entire system was running late. There was no second source. To stay in with a chance of winning the contract, Westinghouse had decided to redesign the radar system around the equivalent Fairchild part. Having been bitten once already, it wanted a second source in case Fairchild in turn failed to deliver.
Simonsen realized that AMD had just been offered a great opportunity. ‘Don’t do that,’ he replied. ‘You don’t need to redesign your system. Give us the specifications [for the TI part], and we’ll build you an adder that works with your existing system design. The component price will be high, but it will cost you less than the redesign.’
The Westinghouse manager was sceptical. Surely, he said, it would take too long for AMD to develop a second-source TI part from scratch. After all, there were only three months to go before the radar system test.
‘We’ll do it in six weeks,’ said Simonsen.
Six weeks later, to the day, Simonsen delivered the first production sample to Westinghouse. It was a smart move. Not only was AMD guaranteed far higher margins than it would have received as a second source to an existing Fairchild part. More importantly, the Westinghouse guy was now convinced that everyone at AMD walked on water. The goodwill that the company had earned would be worth many hundreds of thousands of dollars in future contracts.
* * *
The ideal kind of second source, people used to say in their cups at the Wagon Wheel, was a company that was just good enough to make customers believe it could build the part, but not quite good enough actually to build it. That was the kind of second source that Intel was lucky enough to find.
The product that proved the point was the 1103, the world’s first 1K DRAM. Intel had advertised it in the trade rags under the screaming headline: cores lose price war to new chip. The ads went on to invite potential customers to call Intel collect in Mountain View, tell its sales department what they were currently paying per bit for core memory, and hear from Intel how they could switch to smaller, faster semiconductor technology without spending a penny more.
So powerfully did this pitch grab the industry that Intel was soon inundated with calls from computer companies, none of whom wanted to be caught out by being last to switch to semiconductor memory. Five minutes into the conversation, however, would always come the dread question: who was Intel’s second source?
Andy Grove was temperamentally opposed to the principle of second-sourcing. As anyone who had seen the charts on his wall could tell, he saw it as one of the greatest failures of the electronics industry that its members never seemed to be able to deliver on their commitments. The solution to the problem, he believed, was not to sacrifice revenues by allowing a know-nothing competitor to rip off your designs. Instead, he maintained, Intel should get its manufacturing working with sufficient reliability so that customers did not need to ask for a second source.
There was also a concrete issue at stake. The industry’s graveyard was littered with the bones of companies that had come up with a couple of good ideas but then failed to mass-produce them at the right time and the right price. The great risk of signing a second-source deal was that if the chosen partner was one of the industry’s leading names, Intel might hand over to a well-funded and well-organized competitor the very secrets that could be used to drive it out of business.
But Grove was before his time. Early in 1970 Intel had received a request for second-source rights from a Canadian telecommunications company called Microsystems International Limited. After extensive discussions, Intel’s board of directors overrode Grove’s objections and authorized Noyce and Moore to go ahead and negotiate a deal.
The MIL deal was fortuitously timed. It began to produce a stream of fees and royalties – starting with an up-front cheque for nearly $1m – that kept the company afloat while Intel was suffering from the recession at the end of 1970. But the pain came in the winter, when Intel was forced to send teams of engineers out to Ottawa, braving the worst snow and ice that a Canadian winter could throw at them, to hand over to MIL the mask sets for the 1103 and to make sure that its fab lines were running properly. The job proved unexpectedly difficult, but Intel was contractually obliged to do it, and the Canadian company had astutely inserted a provision in the agreement which meant that Intel would receive bonuses if it helped MIL to achieve certain yield levels by a specified date. The painful process of managing this, and the wasted time of repeated engineering visits, left Grove with a bad taste in the mouth. It was ‘not as emotionally satisfying as getting a product to manufacturing,’ he recalled, ‘but the degree of work was really quite the same’. But he worked loyally to implement the decision that he had opposed, and did his best to make it a success.
Three months later, as MIL began to offer its own version of the 1103 in competition with Intel, it began to look as though Grove had been right. Every time the subject came up for discussion, his face gave away his thoughts. You should have listened to me. Was it really worth the front money? Look, we’re losing money left and right here.
But then MIL got too clever. In an attempt to get more chips out of each wafer on the fab line, the company made a change to its production system without consulting Intel: it tried to shrink the chip, and to increase the wafer diameter from two inches to three. The change was a disaster: yields dropped immediately to zero. To make matters worse, the Canadian company built up many months of useless inventory before the problem was properly detected, let alone solved. The result was a stream of former MIL customers, suddenly strapped for memory circuits, coming back to Intel begging for orders of 10,000 units for delivery as soon as possible. Intel profited handsomely, and MIL’s failure helped to reinforce the company’s reputation as an organization that could deliver on its commitments. Even Andy Grove was forced to admit that this first experience of second sourcing had proved to be a success.
AMD’s public relations were handled by Elliot Sopkin, a journalist who had come to California from Atlanta to work on a local paper in Oxnard, a beach town just north of LA. Sopkin had lived next door to Ed Turney, and had been impressed by the salesman’s raffish lifestyle. Every day, as Sopkin went out to work, he saw Turney stroll out on to the sand in a swimsuit, carrying a telephone with an enormously long extension cable. He would then sit down in a deck-chair, telephone machine at one elbow and adding-machine at the other, and start making loud sales calls to clients. When Sopkin returned from work at midnight, Turney would be back on the beach, full of drunken talk about the topless bar he had just visited in Santa Monica and the $100,000 sale he had just made to the purchasing manager he took there. It certainly seemed more fun than journalism. When Sanders appeared in Oxnard and offered Sopkin a position at AMD, he accepted without hesitation.
Six months into the job, Sopkin presented Sanders with a cartoon from the New Yorker depicting a king, obviously King Arthur, sitting on a throne at a large table surrounded by knights. ‘The round table symbolizes our equality,’ said the caption. ‘The high-backed chair and the funny crown symbolize that some of us are more equal than others.’
The cartoon captured Sanders’s style perfectly; his colleagues soon began to refer to him as ‘the king’. While Intel was non-hierarchical and resolutely insistent on the primacy of ‘knowledge power’ above ‘position power’, Sanders kept aloof. Even before the financing was in place, he made it clear to his seven colleagues that he would prefer to deal with investors himself – and followed this up by excluding the other founders from the company’s board of directors. Once the company was formed, he awarded himself the titles of president, chairman and chief executive officer. Nobody complained: they all had plenty to do themselves, and Sanders evidently had the capacity to lead.
He certainly looked the part. Sanders drove a Mercedes-Benz, and wore a huge range of clothes, from dazzling white suits to cowboy hats, that were evidently made to measure. Some of his colleagues thought he was the height of style; ‘always six months ahead of GQ,’ said one. Others thought Sanders’s clothes simply revealed that he was a poor boy made good. But everyone agreed on one thing: Sanders’s mane of hair, which would earn him the nickname of ‘the Silver Fox’ when it turned prematurely grey, was always impeccably coiffed.
Sanders was not one to shirk work. When an important Friday afternoon meeting dragged on to 9 p.m., his fellow-founders would groan, ‘Come on, Jerry, let’s go and have a drink down at the Wheel.’
‘OK,’ the king would snap, ‘I’ll pick up again at eight tomorrow morning.’
‘Jesus, Jerry. Tomorrow’s Saturday!’
‘Sorry. Make it nine.’
The king was not always an easy person to work with. Tom Skornia, the outside lawyer appointed as AMD’s general counsel, often heard his colleagues refer to the AMD chairman as ‘Monster Man’. AMD’s management meetings were also less participatory affairs than Intel’s. While Bob Noyce and Gordon Moore sat back at executive staff meetings, letting others fight out the big issues, Sanders’s style was to treat his staff meetings as if he were briefing a squadron in the air force. AMD’s key people would be summoned every Tuesday morning at 9 a.m. to hear a succession of predictions, announcements, questions, instructions. Sanders used the meetings to keep track of how different departments were progressing with different projects. But he gave his colleagues little opportunity to raise issues of their own at the meetings. These he preferred to deal with one to one, in his own office.
But it was in the board meetings that Sanders’s instinctive political skill was most evident. Skornia, who served as company secretary as well as general counsel, began to notice how well the AMD chairman handled his fellow-directors. To ensure that his proposals were smoothly and speedily adopted in the board meetings, he would prime key board members in advance of a difficult decision. Only once in the first year, when he made an ill-judged proposal for AMD to take over a smaller electronics firm, was Sanders forced by his fellow-directors to retreat.
In 1971, however, Sanders began to shake out his organization. One day he summoned Sopkin into his office and began asking him questions: ‘Elliot, do we have security guards on duty during the day?’
‘Sure, Jerry. You know I look after that.’
‘You know what, it wouldn’t hurt if we had a guard on duty right up here this morning.’
‘Where would he be?’
‘I think he’d be walking between your office and mine, a bit closer to yours.’
‘When?’
‘About ten.’
At 10 a.m. precisely Sanders called Frank Botte, one of his seven fellow-founders, into his office, and closed the door behind him. He told Botte that he was performing below par, and fired him on the spot.
Five minutes later a strangled sound emerged from the office. Blazing with anger, Botte had grabbed Sanders by the throat and was squeezing as hard as he could. It required all the strength of the security guard, whose presence Sanders had carefully prearranged, to separate the two men.
Later in 1971 a similar fate befell Jack Gifford, the leader of the original group of four who had come to Sanders with the idea of building analog circuits. This time, the sin that the victim was allegedly guilty of was treason, pure and simple. Sanders believed, rightly or wrongly, that Gifford had tried to organize a palace coup against him and to take the chairmanship of AMD into his own hands. With a few well-placed phone calls, Sanders made sure that AMD’s directors realized how important it was to remove this potentially divisive influence – and with the board’s approval, it was not long before Gifford, too, left the company.
Thanks to the success of the engineers’ second-sourcing efforts, and Sanders’s indefatigable sales campaign, AMD was able to go public less than a year after Intel. Its prospectus, issued at the end of September 1972, showed that the company was making money – just. But there were a few surprises. Because Sanders had fired him without claiming cause, but then tried to force him to sell his AMD stock back to the company at ten cents a share, Botte had sued – and the case, worth over $1m, was still pending.
More interesting was what had happened to the company’s share capital. Unable to make its startup funding last all the way to the IPO, AMD had gone back to its investors in a second round for another $650,000 – ostensibly to follow Intel’s lead, and diversify from AMD’s basic bipolar technology into a new line of MOS semiconductors. The prospectus for the IPO also revealed that the balance of power between the founders had also changed. Originally, seven of the eight founders had each received 76,500 shares, and Sanders 102,000 in recognition of his senior status. But in June 1972 the company had granted him options over a further 48,000 shares.
Four of Sanders’s five remaining founding partners were astounded when they got news of this. The original equity splits had been carefully negotiated; how had Sanders managed to arrange an extra slab of shares for himself? The fifth founder, John Carey, was probably less surprised: the prospectus showed that he had been promoted to vice-president in 1972, and had been awarded over 24,000 shares in recognition of his enhanced value. Carey and Sanders soon found themselves facing furious demands by the other four to rescind the arrangement. But Sanders brazened it out. Without apologizing or explaining, he made it clear that the arrangement had been made, and that was that.
In the eyes of his partners, the issue of those stock options marked the beginning of what they believed would later prove to be a trend in Sanders’s stewardship of AMD: a grabbing for himself of a share of the company’s success that was considerably greater than what comparable managers elsewhere were being awarded.
At first sight, there seemed little need for this. At the time AMD went public Sanders was already paying himself $34,000 a year in salary – considerably more than both Noyce and Grove at the larger, older and more profitable Intel. But Sanders had always lived just a little beyond his means. Back in his Fairchild days he had inhabited a house on a good street in Los Altos Hills, one of the smartest places in the Valley. At AMD he had moved further north to the even more prestigious community of Atherton – and after the IPO he would move to an imposing house on a seven-acre estate so large that it required a full-time gardener and a housekeeper to run it.
In January 1973, when the wage controls imposed by Richard Nixon’s government were removed, Sanders set to work crafting a new contract covering his employment at AMD. The new terms included tight restrictions on the circumstances under which the board would be allowed to fire him, and salary and fringe benefits lavish enough to create a stir when they were published in a trade magazine the following year. Getting this new contract past the board was one of Sanders’s toughest showdowns yet, but once again he succeeded by brazening through. The AMD chairman’s favourite phrase was: ‘A man’s reach should exceed his grasp.’ Never had a life been lived so literally through that maxim.
