The innovation slowdown at the US tech giants
By Michael Hennigan, Finfacts founder and editor
Jul 2, 2014 - 7:26 AM

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Michael Malone's new book, "The Intel Trinity : How Robert Noyce, Gordon Moore, and Andy Grove Built the World's Most Important Company" (HarperBusiness), will be published in mid-July and today in an op-ed in The Wall Street Journal, he writes: "For more than a half-century, big technology companies have led the way in inventing revolutionary products and services, from calculators to smartphones. Startups, meanwhile, have built upon those creations with innovations like peripheral devices and software applications. This was as true for the IBM computer as it was for the Apple iPhone. But something fundamental has shifted in Silicon Valley."

Intel, the chip giant, says that the invention of the microprocessor, which operates as the brains inside electronic devices, was monumental, but Malone's book points to how these three men created things that forever changed the world and inspired innovation at Intel, which Malone calls “the world’s most important company.”

The book describes how the rare, yet complementary characters and talents of Noyce [1927-1990] (entrepreneur, co-inventor of the integrated circuit and leader of the legendary “Fairchild Eight”), Moore [1929- ] (respected and revered scientist of Moore’s Law fame), and Grove [1936- ] (brilliant engineer who became one of the great business leaders of the late 20th century) was crucial to the founding and dramatic growth of Silicon Valley and of Intel.

In 2012 in a paper [pdf] that I presented at an economics conference, I wrote:

The key developments in the 1950s were when William Shockley, co-inventor of the transistor seven years earlier, founded Shockley Semiconductor Laboratories in Santa Clara Valley in 1955. He recruited 12 young scientists dedicated to the use of germanium and silicon for transistors -- his "PhD production line." Shockley won the Nobel Prize¨ for Physics in 1956.

However, his management style prompted 8 young scientists to leave the company and establish Fairchild Semiconductor in 1957.

The so-called "Traitorous Eight" developed a method of mass producing silicon transistors. The group included Gordon Moore and Robert Noyce who were later the co-founders of Intel, in 1968.

The new company was profitable in six months with the help of its first sale: an order from IBM for 100 transistors at $150 apiece. The order was shipped in a Brillo scouring pad carton, picked up at a local supermarket.

In 1958, Robert Noyce developed the monolithic integrated circuit...a miniaturized electrical circuit on a fingernail-size wafer of silicon. It was the birth of the microchip.]

Michael Malone sees Facebook's acquisition of the WhatsApp mobile messaging startup last February as an "emblematic event."

He writes: "It may prove a brilliant strategy. But it also means that Facebook, one of the most innovative companies of the past decade, now depends on purchasing the inventiveness of others. The company isn't alone."

We at Finfacts have also reported on this trend:

Apple acquires 24 companies in 18 months; Targeting Irish tax-linked Beats Electronics

Young US firms in high tech down from 60% ratio in 1982 to 38%

Malone says during Steve Jobs's tenure at Apple, the company produced three landmark products - - the iPod, iPhone and iPad - - in little more than eight years. Now, after four years, customers are growing impatient waiting for the rumoured iWatch, which, if real, won't appear until at least autumn.

Google, it requires employees to spend part of their time inventing, has acquired more than 150 companies in its history, including drones and Boston Dynamics's robot cheetahs. Even Intel has been slogging along for the past few years.

On the other hand, even if they are short on new ideas, most of these companies are long on cash, with some of the biggest war chests in American industrial history. Apple is sitting on $160bn - - enough to buy the entire next generation of tech startups."

Michael Malone says the acquisition strategy is also seen in the big pharma and biotech.

Our recent piece on tax inversions covers this issue:

US tax inversions screw-up Ireland's national accounts; Bring few benefits

Oracle founded in 1977, has become the world's biggest business software company, mainly through acquisition.

On why are large tech companies losing the ability to innovate, Malone cites entrepreneur and author Salim Ismail who has studied the new generation of "exponential corporations," enterprises that grow 10 times faster than the average rate. He believes that established companies simply aren't structured for this kind of speed. So their only choice is to buy those companies that can still innovate rapidly.

Malone concludes his op-ed piece: "Tech appears to be evolving into a different kind of field: one that is, paradoxically, more static at the top but also more dependent on entrepreneurship than ever before."

The failure rate in high tech is as high as 90%!

For Ireland, innovation and the application of technology are important and the reason why we at Finfacts have repeatedly questioned the delusions of Micheál Martin, enterprise minister, in 2006 who aspired to create a "world-class knowledge economy" by 2013 or Richard Bruton, enterprise minister, who said in 2012 that Ireland should aim to create the next Microsoft or Google (in a country with a tiny domestic market - armchair experts often ignore the importance of the learning experience in a familiar market before venturing overseas), is that a young Irish venture capital-backed tech firm with serious potential, would inevitably be acquired internationally before it could scale up in Ireland.

Irish Jobs & Innovation: What should Ireland do? - Part 5

Intel 25 years in Ireland: Employs 2,800 not 4,500

Andy Grove, Robert Noyce and Gordon Moore in 1978. Photo: Intel

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