The Semiconductor Revolution: Microchips

April 7, 2009 | Jesse Jenkins,

The following is an excerpt chapter from the Breakthrough Institute report, Case Studies in American Innovation: A New Look at Government Involvement in Technological Innovation. You can download the full report here or read more excerpts from the document here.

A modern microprocessor. The purchasing power of the federal government made the microchip an affordable and ubiquitous technology. Government procurement drove the price of microchips down by a factor of fifty in just a matter of years. Consider this: without these public investments in the semiconductor revolution, your iPod would cost $10,000 and be the size of a room!

In 1958, a truly groundbreaking idea was finally realized in the laboratories of Texas Instruments (TI). For years prior, engineers had struggled to design circuits that could drive the increasingly sophisticated electronics of the time. Complex electronic processes required circuits involving many transistors, which had to be painstakingly soldered together, and the connections were unreliable and difficult to produce.

Jack Kilby, a TI engineer, realized that this connection problem - known to the electronics industry as the "tyranny of numbers" - could be solved by making all the transistors in a circuit, as well as their connections, out of a single piece of material. In the late summer of 1958, Kilby carved a complex circuit out of a single piece of germanium metal, and the "integrated circuit" - also known as the microchip - was born.

Other engineers, most notably Robert Noyce of Fairchild Semiconductor, quickly improved on Kilby's design, turning a prototype into a promising new innovation. But the future of the microchip was by no means certain. It took the buying power of the U.S. government to make the microchip into a mass-produced, affordable and ubiquitous piece of technology.

In the early 1960s, computers were already becoming common; many private firms used massive mainframe computers to keep track of customers and assets. But the demand for sheer computing power - and, in turn, for microchips - was greatest among government agencies. Within a few years of the first microchip patents, these agencies were buying hundreds of thousands of chips a year. Throughout the early 1960's, the federal government bought virtually every microchip firms could produce.

The Air Force was the first big microchip buyer. Kilby's and Noyce's innovation competed with other next-generation circuit designs - including some envisioned by government researchers - but Air Force engineers decided that the microchip best fit their needs for mass-produced, powerful processors to guide the new Minuteman II missile. The resulting demand built an industry practically overnight, as the Air Force purchased thousands of chips a week from several firms. Assembly lines dedicated to microchips were established, enabling production of huge quantities of devices cheaply and quickly.

But the Air Force wasn't the only player in this game. NASA, deep into planning for the Apollo Project, needed advanced circuits for the Saturn rocket's onboard guidance computer. Microchips promised unparalleled computing power at a small size, but they were unproven in the marketplace and had never been produced on a large scale. Nonetheless, Eldon Hall, a NASA official, decided to take a risk on the promising new technology. Soon, private companies were churning out massive amounts of purpose-built Apollo Guidance Computer microchips. In fact, NASA bought so many that manufacturers were able to achieve huge improvements in the production process - so much so, in fact, that the price of the Apollo microchip fell from $1000 per unit to between $20 and $30 per unit in the span of a couple years.

The government's insatiable demand for microchips rapidly and massively expanded manufacturing capacity and industrial expertise during the 1960's, paving the way for cheap, mass-produced microchips that could be sold to businesses and ordinary Americans. Public procurement single-handedly kick-started the microchip industry and set the digital era in motion.


  • Ceruzzi, Paul (1998). A History of Modern Computing. Massachusetts Institute of Technology Press.
  • Longview Institute. "The Birth of the Microchip." URL.
  • Texas Instruments. "The Chip that Jack Built." URL.

You can download the full report, Case Studies in American Innovation here or read more excerpts from the document here.