The chip industry's quiet celebration

12 September 2008

Nominally, today is a 50th anniversary for the integrated circuit (IC). But it's a troublesome anniversary, which is why the celebration is a bit muted. I could argue that any one of three or four dates could serve as the true beginning of the IC industry.

On September 12, 1958, Texas Instruments engineer Jack Kilby demonstrated to colleagues a tiny chip that carried more than one transistor. Some six months later, TI filed its first patent on IC manufacturing, making the first move in an acrimonious war over who really invented the IC. Filing in February 1959, TI easily beat the application from Fairchild Semiconductor's Bob Noyce, which was filed in July 1959. Although Noyce's application was published first, TI argued it had the prior art and won, only to lose ten years later.

Here's the problem: Noyce had the basis for the technology that is used today. Kilby used wires to connect the transistors together. Noyce realised he could get layers of silicon deposited on the surface of the chip to do the same job. The reality is that, if Kilby's technique was used today, we would still regard the IBM System/360 as the ultimate computer. Noyce's realisation made possible billion-transistor chips. However, the discovery that would usher in that kind of integration had to wait for almost ten years after the initial inventions.

By the time all the wrangling had finished, Fairchild and TI had cross-licensed their patents and Noyce was moving on to co-found Intel. So, I could argue, and generally do, that the real anniversary should fall a year later, on July 30, 1959, which is when Noyce filed his patent and set in train the patent war.

Kilby certainly had the foresight to work on integrated circuits. TI, at the time, found the invention troubling. Morris Chang, who founded the world's first and now the biggest foundry TSMC, talked at last year's IEDM about the day Kilby showed off his work. Company executives did not exactly welcome the news. Like other chipmakers, they were having enough trouble getting working single-transistor devices off a wafer, they dread to think what the yield would be for chips carrying two or more.

Fairchild was keen to sell ICs but the customers of the 1960s - mostly military contractors - regarded integrated chips with suspicion, as Intel's Gordon Moore recalled at ISSCC in 2003. They could not test the internal connections themselves - these being the days when customers did not trust chipmakers to test devices properly. So, they preferred to buy single-transistor devices.

Noyce had the brainwave of making the contractors an offer they could not refuse: sell the integrated devices for less than the price of their single-transistor combinations. In one move, Fairchild set in motion the semi-controlled deflation that has driven the market and, to a large extent, Moore's Law ever since. It's hard to come up with an exact date for this one but, to my mind, this is when the IC revolution really started.

But, some companies have alighted on today as the anniversary. One of the most curious was NXP, which was trying to drum up interest in the date a week or two ago. Yet, today, NXP chose as the day to say it was planning to lay off thousands of R&D and semiconductor fab staff. If NXP thought today was a day to bury bad news, the company miscalculated badly. I think this was just one of those unfortunate coincidences as its third quarter closes pretty soon.

Yet, in some ways, NXP's move reflects the situation facing chipmakers 50 years on (or maybe 49 or 44). Chip sales continue to surge forward but hardly anybody has been making money since the collapse of the Internet bubble in 2001. Noyce's controlled deflation has tipped over into a pricing bloodbath that is forcing companies to take drastic action. Saddled with debt inflicted on it by its private-equity owners NXP is simply at the head of a queue of companies who are likely to make equally painful moves as they try to survive or simply package themselves up for mergers.

The revolution that started about 50 years ago is not stopping, but the companies celebrating the date realise that the party for many of them ended some time ago.