Regional Networks and the Resurgence of Silicon Valley

“The Chips Are Down,” San Jose Mercury News, December 1, 1986.

Dataquest Inc., “Survey of Semiconductor Start-Ups” (Mountain View, CA: Dataquest, 1988).

Ferguson C. , “From the People Who Brought You Voodoo Economics,” Harvard Business Review (May/June 1988), pp. 55–62; Gilder G. , “The Revitalization of Everything: The Law of the Microcosm,” Harvard Business Review (March/April 1988), pp. 49–61.

See Saxenian A. , “The Cheshire Cat's Grin: Innovation, Regional Development and the Cambridge Case” Economy and Society, 18/4 (Winter 1989) for a critique of this free market approach (the “high-tech recipe”).

These regions are modern counterparts of the 19th century Marshallian industrial districts. See Sabel C. , “Flexible Specialisation and the Reemergence of Regional Economies,” in Hirst P. Zeitlin J. , eds., Reversing Industrial Decline (Oxford: Berg, 1988); Piore M. Sabel C. , The Second Industrial Divide (New York, NY: Basic Books, 1984).

The research for this project entailed over fifty open-ended interviews with Silicon Valley executives, managers, engineers, and venture capitalists that were conducted between 1988 and 1990.

See, for example, Rogers T. J. , “Return to the Microcosm,” letter to the editor of the Harvard Business Review (July/August 1988), pp. 139–140.

While National was traditionally known for emphasizing low-cost production of commodity memories and AMD, Intel, and MMI specialized in design innovation (e.g., in microprocessors), all were oriented toward serving mass markets.

For a discussion of the various specialization strategies, see Cole B. , “ASIC Houses Revise Their Strategies,” Electronics, August 6, 1987.

Corn J. Rajaratnam R. “Cypress Semiconductor and Integrated Device Technology” Needham Investment Analysis, Needham & Co., Inc. April 4, 1990.

McCreadie J. Rice V. , “Nine New Mavericks,” Electronic Business, September 4, 1989.

Mehler M. , “Minifabs Reshape IC Production,” Electronics Business, June 1, 1987; Cole B. , “Getting to the Market on Time,” Electronics (April 1989).

Borrus M. , Competing for Control (New York, NY: Ballinger, 1988).

Corn Rajaratnam , op. cit.

McReadie Rice , op. cit.

Cited in Rice V. , “The Upstart Start-Ups,” Electronic Business, August 15, 1987.

While in 1985 there were only half a dozen basic designs, there are now more than 100 standard memory architectures and options, and the process will continue. Cole B. , “By the Mid-90's the Memory Market Will Look Like the Logic Business,” Electronics (August 1988).

Leibowitz M. , “ASIC Strategies for the Big Five,” Electronic Business, October 15, 1988.

Investment report by Alex Brown & Sons, Baltimore. Cited in Goldman J. , “Nine Valley Chip Companies Recommended by R&D Firm,” The San Jose Business Journal, October 30, 1989.

Scott A. Angel D. , “The U.S. Semiconductor Industry: A Locational Analysis,” Environment and Planning D, 19 (1987).

These are the results of a study of more than 400 Silicon Valley companies over a 20-year period (1967–1987) conducted by Professor Bruno Albert V. , University of Santa Clara School of Business. Cited in The New York Times, March 7, 1988.

Rich's Business Guide to Silicon Valley and Northern California (Los Altos, CA: Rich's Business Directories, 1989).

See, for example, David P. Rosenbloom J. , “Marshallian Factor Market Externalities and the Dynamics of Industrial Localization,” Center for Economic Policy Research, Publication No. 118, Stanford University, 1987.

Electronic Business, 1987.

Silicon Valley's venture capitalists are typically intimately involved in the businesses they support: They advise entrepreneurs on business plans and strategies, help find coinvestors, recruit key people to fill out a management team, provide regular (even daily) management advice, and serve on boards of directors.

Granovetter M. , “Economic Action and Social Structure: The Problem of Embeddedness,” American Journal of Sociology, 91/3 (1985).

Angel D. , “The Labor Market for Engineers in the U.S. Semiconductor Industry,” Economic Geography, 65/2 (1986).

Interview, Walker Robert , Vice President and Chief Engineering Officer, LSI Logic Corporation, May 2, 1988.

Journalistic accounts of Silicon Valley capture this sense of social cohesion. See Rogers E. Larsen J. , Silicon Valley Fever (New York, NY: Basic Books, 1984); Malone M. , The Big Score (New York, NY: Doubleday, 1985); Braun E. Mac-Donald S. , Revolution in Miniature (New York, NY: Cambridge University Press, 1978).

Saxenian A. , “A High Technology Industrial District: Silicon Valley in the American Context,” in Perulli P. , ed., Citta della scienza e della technologia, Quaderni della Fondazione Istituto Gramsci Veneto 6/7 (Venice: Arsenale Editrice, 1989).

See Weiss J. Delbecq A. , “High Technology Cultures and Management: Silicon Valley and Route 128,” Group and Organization Studies, 12/1 (March 1987).

As late as the early 1970s, the consensus of the industry was that the future lay in customization of large-scale integrated circuits and that the role of standard products would be small. The history is detailed in Wilson R. Ashton P. Egan T. , Innovation, Competition, and Government Policy in the Semiconductor Industry (Lexington, MA: Heath, 1980).

Business Week, July 21, 1980.

See, for example, Robinson A. , “Giant Corporations From Tiny Chips Grow,” Science, 208 (1980).

For the classic explanation of the “learning curve” in semiconductors, see Noyce R. , “Microelectronics,” Scientific American, 237/3 (1977); Noyce R. , “Large-Scale Integration: What Is Yet to Come?” Science, 195 (March 1977).

Cited in The San Jose Mercury News, May 4, 1980.

Hayashi A. “The New Intel: Moore Mature, Moore Competitive,” Electronic Business, November 15, 1987.

Jarrat H. , “A Look at the Semiconductor Industry in the 1990s,” Speech presented to Robertson, Coleman and Stephens at The 1990 Semiconductor Conference, September 23, 1987.

Stowsky J. , “The Weakest Link: Semiconductor Equipment, Linkages, and the Limits to International Trade,” Working Paper No. 27, Berkeley Roundtable on the International Economy, University of California, Berkeley, 1988.

Markides C. Berg N. , “Manufacturing Offshore is Bad Business,” Harvard Business Review (September/October 1988), pp. 113–120.

Schrage M. , “Hard Times Descend on Silicon Valley,” The Washington Post, April 28, 1985.

Haas E. , “Applying the Lessons: Networking Semiconductor Companies,” Entrepreneurial Economy, 6/1 (July/August 1987); Aoki M. , “The Japanese Firm in Transition,” in Yamamura K. Yasuba Y. , eds., The Political Economy of Japan (Palo Alto, CA: Stanford University Press, 1987).

Dataquest , op. cit., 1988.

Interview, Miller Jeffrey , Vice President of Marketing, Adaptec Corporation, May 10, 1988.

Cited in Jones S. , “Hewlett Packard Inks Major Chip Deal,” San Jose Business Journal, May 18, 1987.

Observers often view this reliance on offshore foundries as a fatal vulnerability for the U.S. start-ups. They neglect, however, to recognize that manufacturing is only a minimal part of the total costs (typically less than 10%) of these highly specialized, design-intensive chips. Moreover, imitation is not the same threat that it is for a commodity chip maker: Their design cycles are so fast that by the time a competitor had produced an imitation of a chip, their next generation would be available. Finally, it is worth noting that this dependence on foreign suppliers is a direct result of the autarkic behavior of the established U.S. semiconductor firms. Many start-ups report being driven to use Asian foundries by the refusal of domestic producers to provide them with manufacturing fab capacity.

A growing literature describes network forms of organization, which fall between market exchange and administered hierarchies. However, most scholars neglect the spatial aspects of these networks. See Powell W. “Neither Market Nor Hierarchy: Network Forms of Organization” Research in Organizational Behavior, 12 (1990): 293–336. For a more extensive discussion of the supplier relations of Silicon Valley computer systems firms, see Saxenian A. , “The Origins and Dynamics of Production Networks in Silicon Valley,” Working Paper No. 516, Institute of Urban and Regional Development, University of California at Berkeley.

Cite in Koland C. , “Mips Chip Coalition Targets Leaders in Microprocessors,” San Jose Business Journal, December 17, 1987.

Cited in Cohodas M. , “How Apple Buys Electronics,” Electronics Purchasing (November 1986).

Interview, Metcalf Scott , Purchasing Director, Sun Microsystems, March 30, 1988.

“How Apple Buys Electronics,” Electronics Purchasing (November 1986).

This geographic expansion means that the data presented here on Santa Clara County significantly understates the growth of employment in Silicon Valley, which now includes portions of three adjacent counties.

Pollack A. , “Chip Pact Falls Short of Goals,” The New York Times, August 2, 1988. See also Mowery D. Rosenberg N. , “New Developments in U.S. Technology Policy: Implications for Competitiveness and International Trade Policy,” California Management Review, 32/1 (Fall 1989): 107–124.

Total entrance fees are about $2 million. Sematech requires a $1 million entry fee, and member firms must also join the Semiconductor Research Consortium for a $62,000 entry fee plus annual dues ranging from $65,000 to $2.4 million (depending on firm size). In addition a minimum of 5 engineers must be sent to participate in Sematech activities in Austin. These fees are high even for the established companies (equalling about 10% of their R&D budgets), but they are prohibitive for small firms; moreover, most start-ups can't afford to lose five of their best people. LSI Logic is the only Silicon Valley start-up that belongs to Sematech. It joined because it could afford to (being much larger than other start-ups) and because LSI founder Wilf Corrigan is a close personal friend of the founders of Sematech.

Rice V. , “The Decline of Chip Equipment Firms,” San Jose Mercury News, December 4, 1989.

Cypress president Rogers T.J. claims that “Sematech is a carefully constructed lobby effort … to deliberately and systematically exclude smaller companies.” Successful small firms like Cypress and IDT also claim that they are already ahead of Sematech technologically and thus would not benefit from it. Moran S. , “Sematech's Hefty Member Fees May Bar Small Chip Makers,” San Jose Business Journal, May 30, 1988; Rice V. , “Sematech: United We Stand?” Electronic Business, May 1, 1988.

Models might be drawn from Germany's Baden-Wurtemmburg, where public research institutes, regional governments, and trade associations support networks of innovative small and medium-sized machinery producers. Herrigel G. , “Industrial Order and the Politics of Industrial Change: Mechanical Engineering,” in Katzenstein P. , ed., Toward a Third Republic (Ithaca, NY: Cornell University Press, 1988).