The last century was largely defined by energy and, especially, oil (OK, up until about 1990). Oil exploration, the creation and growth of the automobile industry, the creation and growth of an electricity generation and distribution industry. ExxonMobil is, of course, the current name of (several parts of) Rockfeller’s Standard Oil Company.

The previous century had been defined by agriculture and, to a lesser extent, by railroads. Indeed, the railroads of the 1800s were the Internet boom of the time: a few large profitable companies and hundreds of completely nonviable railroads in places where it turned out there wasn’t enough business to support a company. By the way, did you know that the Lefty O’Doul bridge by AT&T park in San Francisco used to be a rail bridge since the baseball parking lots were railyards. That’s why it is so massive.

For the most of the last 50 years Exxon has been the most valuable company on earth as it continues to be today. I believe GE were more valuable than them for a short period (the Welch years) and Microsoft pushed ahead at one point in the 1990s, but both fell back. However, I think they are on borrowed time and, if Apple continues to execute as well as it has been doing, then they will eventually surpass them.

But in the 21st century consumer electronics looks like it is going to be the defining technology: Internet, computers, cell-phones and who knows what else. Although in first quarter PetroChina was actually more valuable event than Exxon, ChinaMobile is also in the top 10 with its 570 million subscribers. That’s another trend we can expect to see more of, Asian companies rising to the top. When consumer electronics is the technology, Asia has a lot of consumers. Remember, the population of China (never mind India) is bigger than the US, all of Europe, Japan, Brazil combined.

Apple apparently has 50,000 employees. Not the over 80,000 that ExxonMobil has but in the same league, but nothing compared to Walmart’s two million employees.

With revenues of $65B Apple makes over $1M per employee. Revenue per employee isn’t actually a very interesting measure, it often merely indicates how much a company outsources, but when you consider that many of those employees are in retail and so not highly leveraged, the revenue per person in the core company must be huge.

In other parts of the business, in particular semiconductor design, Apple is outsourcing less than it used to. The original iPhone was all parts purchased externally, the heart of the iPad is the A4 chip designed internally at Apple (with lots of IP from elsewhere, of course). This is a trend that I think is going to be important and that I’ll come back to soon.

The first was that success would be decided in Washington through lobbying and rent-seeking rather than the marketplace. Of course, Washington doesn’t control the entire economy but there has been no shortage of examples to point to of this. Government picking winners never seems to work. I lived in Britain in the 1970s and saw plenty of that then. The big problem is that the government doesn’t pick winners, they pick losers who happen to have strong political power; dying or mismanaged companies like GM or Fannie-Mae or Citibank. I don’t think we want the government trying to pick winners like some sort of venture capitalist of last resort looking for the next Google, but it would probably be a better use of the money. I saw an interesting analysis the other day that the entire space program of the 1960s to put a man on the moon, adjusted for inflation, cost less than the AIG bailout. Of course the country is richer now, even in the downturn, than it was then so it may be less as a percentage of GDP, but still.

The second thing I worried about was anti-trade rhetoric. Semiconductor and EDA are global businesses, since you can’t really build a fab and just serve the local market from it; they are too expensive. I think there is probably some sort of trade-war coming with China, partially because they will make a good scapegoat during the elections later in the year, and partly because China really is a lot less open to trade than they try to appear. And it will hit the news soon since the WTO has accepted to hear China’s complaint about the US tariff on cheap tires. It is also going to be interesting to see how the latest spat with Google plays out. Further, since most of Asia pegs its currency to the US dollar, and the US dollar is weak due to the unending deficits, it can only decline in practice against the European currencies, which will lead to trade tensions there too as European exports to Asia and the US become increasingly overpriced.

The best thing for Silicon Valley is when the marketplace picks winners and losers and Washington keeps out of the game. Brown’s election in Massachusetts is a warning shot across the bow of the current administration but I don’t think it is any kind of endorsement of the Republican party policies—does anyone even know what they are? Until today the Republican strategy for the 2010 elections seemed like it would be to run on the policy of repealing an unpopular health-care bill. Now they’ll actually have to say what they might do instead.

The piece ended up being headlined “To Shake Its Malaise, EDA Must Look To Where Design Is Really Happening.” Journalists are constantly complaining about bad headlines being attached to their wonderful work, but in this case I think that the headline is a good summary of what I say.

The bottom line is that EDA, focused as it is on IC design in advanced processes, is focusing on a decreasingly important part of the overall electronic design process. Yes, you can’t design a leading-edge chip without EDA so the market isn’t going to go away. But most electronic systems use off-the-shelf chips rather than designing them from the ground up. There will always be a market for bespoke Saville Row tailoring of expensive suits, but the real market is at Macy’s, Nordstrom’s and Mens’ Wearhouse.

Here’s an example. The biometric company I work for has a fingerprint-protected USB drive product (that we got working the night before CES, it’s not just taping out a chip that comes down to the wire). It contains some flash memory, a USB and hardware-encryption chip (standard product) and a programmable Luminary chip (now part of Texas Instruments). The whole system requires a fingerprint sensor and an OLED too, which obviously can’t be integrated onto a custom chip in any case. Of course in volumes of hundreds of millions it would make sense to integrate the Luminary chip (which is an ARM processor with some standard peripherals) and the USB/encryption chip. But it will never ship in those volumes (I can dream) so I can’t imagine that would ever make sense. Although, as a long-term IC guy, it upsets my sense of elegance to have two chips that clearly “should” be integrated, it is simply cheaper to use two separate chips. Most electronic products are like this: a handful of highly-integrated but standard chips on a little circuit board.

One theme that runs through this blog is that semiconductor economics drives everything. Semiconductor is a mass-production process that can deliver very cheap chips but only if the “mass” in mass-production is large enough. Otherwise the fixed costs overwhelm: the cost of design, the cost of masks and the fab setup times. The only alternative is to aggregate end-user systems so that the same chip is used in multiple designs. FPGAs are obviously one form of aggregation, just buy raw gates and put them together later. The Luminary chip in the Biogy drive is another.

I certainly don’t claim to have all the answers as to what the big EDA companies should do. But somebody needs to be the Mens’ Wearhouse of EDA and serve the mainstream market, even though the unit price is lower. I guarantee it.

“I think Silicon Valley has been toppled from its pedestal. I think information technology is much less important in the global picture today than it was even 10-20 years ago. … I think the areas where people will be making a difference and making important social and economic contributions will be in the area of energy and bio-engineering. While there will be contributions in bio-technology and bio-engineering and energy technology that will come out of the valley, I do not believe it will have the type of global leadership position in those areas that it did in information technology."

I’m not sure this is right. Firstly, I’m not sure information technology is less important than it used to be. Of course biotechnology and energy technology will become more important and so IT will decline relatively, but I doubt it will decline absolutely. I mean it’s not like the Internet is done innovating.

I’m a little skeptical about some of the energy technology. In the long term it will be very important. In the short term it is simply farming government subsidies which is not a recipe for creating game-changing technology. I’m with Vinhod Khosla that unless the technology makes sense in the context of China and India, then it is just feel-good technology akin to putting solar panels on the roof of the Moscone center in the world’s most famously foggy city.

 Biotechnology is clearly increasing in importance. But there seems to be plenty of it in Silicon Valley (which, of course, no longer produces any silicon directly since that is not the highest value part of the chain). Silicon Valley certainly knows how to do innovation, create companies, manage intellectual property, embrace change. Not attributes that are thick on the ground in, say, Detroit. Or Washington, although it is now a big hub for technology simply because of the vacuum sucking money up from all over the US and disbursing lots of it locally in DC. Interesting to note that Morgan Stanley held their big partner offsite in Washington, not New York, for the first time ever. In industry after industry, success is starting to come from getting the government to write the rules your way rather than outright competition (see automotive, pharmaceutical, banking, insurance, to go along with the long standing agriculture, energy).

So I think that Silicon Valley will do fine (depending on California’s state governance not getting into a tax/exodus death spiral as places like Detroit have done) although it is true that as technologies develop they also proliferate into other parts of the world. Silicon manufacturing was originated in Silicon Valley almost exactly 50 years ago; now it is mostly in Asia. A lot of the ideas in the PC (and Mac) originated in Silicon Valley at SRI and Xerox PARC (not to mention Berkeley and Stanford) but development is done everywhere. I’m sure other technologies will be the same.

I think Silicon Valley has two unique attributes. Firstly, in the same way as Hollywood is the easiest place (but not the cheapest) to make a movie since all the infrastructure is there, Silicon Valley has all the infrastructure for creating innovative companies. And secondly, Silicon Valley (and to a lesser extent other parts of the US) is good at sucking in the best talent from all over the world and integrating them into companies and making them productive. The company I (a Brit) ran last year was founded by an Israeli, had an Iranian CTO, a French lead engineer, Dutch and Russian engineers, Korean and a Columbian AEs to go with a couple of born in the US americans. The VC board members and investors were a Cypriot and a Vietnamese immigrant. Just look at the first two people there: an Israeli founder and an Iranian CTO. I don’t see that happening in Tel Aviv or Tehran. They had to come here to do that.

This is not unreasonable. EDA has shrunk its employment over the last couple of years and it is unlikely to come back again to its previous level. So some people will need to find jobs in new industries.

If you are an engineer in EDA then you know how to do very technical programming. You could certainly do other forms of technical programming. But the sweet spot in the job market is in internet companies and there is a lot of specialized stuff there that you probably don’t have experience of. If someone wants to get an internet startup going quickly then you want people who already know Ruby on Rails, mySQL or the iPhone developer kit or whatever. Not someone really smart who could probably learn that stuff eventually. Personally, I think this is silly. A smart programmer can suck up a language in no time and will run rings around someone less good even with a lot of domain experience. Good programmers are not 30% better than average ones, they are 10 times better. But even if you get hired, you don’t get paid for all that deep knowledge of, say, placement that you’ve spent years acquiring.

If you are in marketing or management it is even more difficult. At one level you have experience of running business to business (b2b) marketing for a software company. But you have years of understanding of IC design and none of relational databases or whatever, which makes it hard to make that transition. Furthermore, most internet companies are business to consumer (b2c) or internet-based business to business which is very similar.

I interviewed over a year ago with a b2c company and I was amazed that they seemed interested in me. It was bit like the Groucho Marx joke about not wanting to be a member of any club that would have him. The fact that they seemed interested in hiring me for a job that I was so manifestly unqualified for (although it would have been interesting to learn) made me doubt their competence.

If you are in some other domains you get stuck in those domains. I have a friend who is in finance. That allows you to work in all sorts of different companies, but always in finance where all companies look very similar. She wants to get out of finance, which is a similar problem. She’s smart enough to do all sorts of jobs but the only jobs that will pay anything close to what she is used to are ones that value all that financial experience.

It’s a tough transition to make. Your experience is what makes you valuable in EDA (or finance or whatever). If you go somewhere where that is not valued it is very hard to make anything close to what you made in EDA. After all, EDA pays pretty well so long as you have a job.

I’m not especially anti-union, but I think that the political-union complex is completely out of control, and is a major threat to Silicon Valley’s continued long-term success. We are on a path to private squalor and public affluence in California. The private sector will have to fund all the promises that the politicians made over the years, in a massive transfer of wealth from the poor (retirees living on their savings and people making average salaries) to the rich (public sector retirees).

The cities of Vallejo went bankrupt recently, entirely due to firefighter and police salaries and benefits, especially retirees where they have lots of retired employees on six-figure salaries and unlimited medical benefits for life. Vallejo has 120,000 residents but $850M of unfunded retiree commitments to the police and firefighters. That’s around $25,000 per household. Those people probably also owe at least that much in unfunded public sector retiree benefits at the state level too. Many other cities are predicted to go bankrupt in the current downturn, since it’s the only way they have a chance to re-negotiate those gold-plated contracts.

A friend of friend works in finance for the Santa Clara school district. Every teacher they employ costs $180,000 per year. About a third of that is salary and medical benefits but the rest is their retirement benefits, which Santa Clara is smart enough not to leave unfunded to create a future disaster.  I wish someone was putting away over $100,000 per year for my retirement.

There’s not really any good way to measure prison guard productivity, but in education there is. Over the last 20 years, adjusted for inflation, California’s spending on education has doubled. But standards are exactly where they were 20 years ago according to the state’s tests. In what other industry has productivity halved? The best part of California’s education system is actually the universities and community colleges. But that part is now threatened because all the money is going to the inefficient K-12 segment where, in principle, we could cut spending by 50% with no effect on outcomes. Stanford is a private university, but Berkeley, UCLA and so on are not. If they lose their stars then it will certainly affect Silicon Valley.

Since Arnold Schwarzenegger was elected governor in 2003, California’s spending has increased by 40% because so much of the budget is on autopilot, driven by various propositions or by existing contracts. What that means is that we could reduce California’s budget by a bout a third and it would be something like 2001 again. It didn’t seem bad back then after all.

A good analogy I saw recently was with Hollywood. Where do all those pretty young actresses come from? By and large, not from Los Angeles. If you are pretty enough with some acting talent living in a small town in the mid-West, Hollywood is potentially your route to advancement. The odds aren’t that great, of course, since pretty women aren’t a vanishingly small percentage, and Hollywood doesn’t want all its actresses to look like supermodels anyway.

Silicon Valley draws in intellectual firepower in the same way. In fact in an even bigger way since we don’t care what race you are and whether your English is perfect. We draw in many of the smartest people from all over the world, in many cases have them do Masters degrees or PhDs here, and then employ them, to the extent that our grandstanding politicians will allow (which is not the topic for today).

I remember studying a 240 person engineering group I was responsible for and I estimated that over half of them were born outside of the US: a lot of Indians, of course, Vietnamese and Chinese. But also French, English, South American, Egyptian. Pretty much everywhere. Of the people who were brought up in the US, a big percentage seemed to be from the mid-West just as in the Hollywood example above. That was a surprise.

This isn’t meant to be a criticism of California’s K-12 education system, although there is certainly plenty of criticism to go round, especially for the bureaucrats and the venal teacher’s unions. But if you are brought up around here (or in New York, Boston and so on), you have lots of options and working really hard in high-school so that you can go to college and work on a really hard engineering degree might not be that attractive. But if you are in a small town in the middle of an agricultural state, or a large town in India, with little in common with your peers due to your geekiness, then this seems like the a good way to escape. It’s probably not that deliberate a plan, teenagers are notorious for acting in the moment, but, as Sam Lewis and Joe Young put it: “How you going to keep them down on the farm after they’ve seen Paree?” Well, Mountain View isn’t quite Paris but it’s not Nowhereville either, and the weather is a lot nicer.

Politicians all over the world look at Silicon Valley and say “we want one too.” But Silicon Valley is really self-sustaining, sucking in intellectual talent from wherever it is found. Those politicians want a film industry too.

But Silicon Valley and Hollywood both got started in another era through a serious of chance events like Shockley preferring California to New Jersey, and the early film industry wanting to get as far away from Edison and his patent lawyers . Getting a Silicon xxx or a film industry going in your state requires more than just a few adjustments to the state tax code. The best talent, even from your state, is going to California (so long as California’s appaling political leaders don’t sell the entire state to the public sector unions).

Silicon Valley, the Hollywood of the North.

But inside the big picture is rather amusing smaller story.

Mitch Igusa was the employee of Cadence who packaged up a lot of the source code of the place and route database Symbad, wrote it into a file called byebye.tar and emailed it to himself at home. Then he resigned from Cadence and went off to be a “consultant,” setting up an office one block from Avant! (then still called Arcsys).

Mitch was never an Avant! employee but apparently was paid by an Avant! executive out of a shell company set up and controlled by some of the other Avant! executives. Anyway, eventually his home got raided, and a hard disk full of Cadence source code was found, stripped of Cadence copyright, and in the process of being modified.

His case got wrapped up with all the other Avant! cases and, as is well-known, Avant! managed to delay legal action for years at the same time as they built up a big place and route business and used the money to acquire several other companies (full disclosure: including Compass where I was CEO at the time). Eventually, Mitch’s case came to trial ahead of the others, he pleaded guilty, and was sentenced to one year’s jail time (the other Avant! executive waited until the last possible moment and then pleaded guilty on the eve of the trial).

Now the story starts to get even more complicated. Because during the years of delay, Mitch Igusa had co-founded and was the chief architect at Silicon Perspective. The company managed to convince the judge that it would collapse without Mitch and so he was allowed to “participate in a work-release program.” That doesn’t sound very significant but in fact it meant that during the day Mitch Igusa would go to Silicon Perspective and program, and in the evening he’d go off back to jail until the following morning.

Meanwhile, Cadence’s floorplanning and placement technology had fallen behind in the market and a new market leader was starting to dominate the space. Yes, it was Silicon Perspective.

Eventually Cadence acquired Silicon Perpective. Cadence made the mistake of not putting a cap on the earnout portion of the acquisition, apparently meaning it ended up being an acquisition at nearly a billion dollars. Since then no EDA acqisition has had an unlimited earnout. But I digress. For obvious reasons, Cadence didn’t really want Mitch Igusa back on the payroll, of course. Initially, the story goes, he was positioned as being disposable, so it wasn’t a deal-breaker. But as the deal got closer it became apparent he was essential. After all, he was the chief architect of the product so a bit hard to do without. So he continued to “work at Silicon Perspective post-acquisition,” as Lavi Lev, then the exec VP of Cadence, put it. That is to say he worked back at Cadence again.

So apparently there was a period of time when Mitch Igusa would come into work at Cadence during the day writing Cadence physical design code, and then in the evening he’d go back to jail to serve his sentence for stealing…Cadence physical design code. If it happened in a screenplay, you’d think the writer was being a bit unrealistic.

San Francisco seems to have a very anti-business culture. Anything efficient and profitable is bad. So if, like me, you live in San Francisco you have to drive for 15 minutes and give your tax dollars to Daly City if you want to go to Home Depot. They finally gave up trying to open a store in San Francisco after 9 years of trying.  Of course a Walmart, Ikea or Target is unthinkable. And even Starbucks has problems opening new stores since they (big) compete too effectively against local coffee shops (small, thus good by definition). The reality is that some small coffee shops (like Ritual Roasters) are among the best in the US, and a Starbucks next door wouldn’t do well; and for some a Starbucks in the area would be an improvement. But in any case it makes more sense to let the customers of coffee shops decide who is good rather than the board of supervisors trying to burnish their progressive credentials.

Those two things together—much commerce is out of the city, many inhabitants work outside the city—are warnings that San Francisco is not heeding. San Francisco already has one big problem (as do many cities) that housing is really expensive (at least partially due to economically illiterate policies like rent control and excessive political interference in the planning process making it difficult to build any new housing) and the public schools are crappy. So when a resident has a family, they have to be rich to afford a large enough house and a private school, or they move out. So every year San Francisco can close some schools since there are ever fewer children in the city; famously there are more dogs than kids.

The trend, which is not good, is for San Francisco to depend increasingly on three things: out of town rich people who live elsewhere (often in Nevada due to California’s taxes) but like to keep an apartment in San Francisco (about 20% of the people in the building where I live are like that); people who live in San Francisco and work somewhere else; and tourism. Two of those three groups are spending a lot of money and generating a lot of tax that San Francisco doesn’t get to see, but it does have a lot of the costs associated with them. Of course, tourism brings dollars in from outside but most of the employment it creates is not at the high valued added end of the scale: restaurants, hotels and retail largely generate low-productivity low-pay jobs.

Busboys for San Francisco; on-chip buses in Silicon Valley; wi-fi equipped buses in between.

The story of the founding of Fairchild is pretty well known. Shockley invented the transistor at Bell Labs in New Jersey (for which he eventually won the Nobel prize in physics) and then moved to California to commercialize it. This was truly the founding of Silicon Valley.

Unable to persuade any of his colleagues to join him, he hired young graduates. But his abrasive management style and his decision to discontinue research into silicon-based transistors led eight key engineers, the “traitorous eight,” to leave and form Fairchild Semiconductor (Fairchild Camera and Instrument put up the money).

Two of the eight, Gordon Moore and Jay Last spoke at the ceremony that commemorated the work of two more of the eight, Robert Noyce and Jean Hoerni. Jean invented the planar process that was (and is) the foundation of integrated circuit manufacture and Robert Noyce took it and ran with it to create the first true integrated circuit in 1959, 50 years ago. Both Robert Noyce and Jean Hoerni unfortunately passed away in 1990 and 1997 respectively.

Of course those are some famous names. Robert Noyce and Gordon Moore went on to co-found Intel and employee #3 was Andy Grove. If you drive down 101 past Montague Expressway, that huge Intel building to the east side of the freeway is the RNB, the Robert Noyce Building.

After the unveiling of the plaque, the commemoration moved to the Computer History Museum. If you’ve never been there then it is highly recommended. Right now they also have a working version of Babbage’s Difference Engine, one of only two in existence. In his lifetime, Babbage never completed the manufacture but about twenty years ago the Science Museum in London (also highly recommended for a visit) decided to build an example to see if it worked. They got it finished in 1991, a month before the 200th anniversary of Babbage’s birth. Nathan Myhrvold took some of his Microsoft millions, and commissioned a second one for his living room. But right now it is in the computer history museum and you can see it in action if you live locally.

So 50 years ago this year was the first integrated circuit and so the first fab in silicon valley. In one of those nice closed circles, earlier this year the last fab in Silicon Valley closed. To close the circle even more, it was an Intel fab. It was transitioned last year from manufacturing to process development and is now finally closing/closed. It was a 50 year circle from the first fab to the last in the valley. Of course this is really a success story. Silicon Valley is a poor place for a fab: land is limited and costly, the ground shakes from time to time, there is a lot of traffic vibration and, as fabs got insanely expensive the California tax environment is unfavorable.

In any case, the high value part of building semiconductors is not the manufacturing part. As it says on the back of the iPhone, “Designed by Apple in California and manufactured in China.” Semiconductors are also often like that, “Designed by xx in Silicon Valley and manufactured in Taiwan.” Much better than the other way round.