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            MOS Technology

                 from
             On The Edge:
       The Spectacular Rise and
          Fall of Commodore
           by Brian Bagnall

               Part II

    Peddle had the option to receive a
severance package or move elsewhere in
GE. For Peddle, the decision was easy.
"Myself and two other guys took the
termination agreement. We said, 'This
is found money, so we're going to
start our own business.' We had
already started on the cash register
business, and I had a deal with
Exxon."

    The three partners immersed
themselves in their intelligent-
terminals. "We got it all done and
actually built the electronics that
demonstrated the concepts," says
Peddle.

    During this time, Peddle devised
many concepts that would have made him
wealthy if he chose to patent them.
"We invented the credit-card driven
gasoline pump, the first credit
verification terminal (i.e. credit
card scanners) and the first point of
sale terminal (i.e. computerized cash
registers)." Peddle now laments, "It's
too bad we didn't patent it because we
could have been very wealthy as a
result of that."

    Peddle realized the intelligent
terminal needed a fundamentally new
component to make their ideas work.
"We needed our own microprocessor," he
says. This realization would lead
Peddle on an extraordinary journey
that would change millions of lives.

    At first, Peddle tried to develop
the technology within his fledgling
company but it was hopeless without
funding. "We had everything going for
us, but we didn't know how to raise
money," he says. It was time for
Peddle and his team to move on.

    Chuck Peddle and his wife now had
four children, but the stresses of
Peddle leaving his secure job at GE
caused the marriage to disintegrate.
They divorced in 1971. "I put a bag of
clothes in my (Austin-Healey) Sprite
and drove away," he says. Within
weeks, in what Peddle terms a 'planned
transition', Peddle remarried a
voluptuous blonde with two children
from a previous marriage.

    "I took some time out, because
there was a change in life; going
through the divorce and all that,"
says Peddle. In 1972, Peddle tried to
start a Word Processing company using
Digital Equipment Corporation (DEC)
time-sharing systems. "We actually did
the first on-line text processing
system, setting type for newspapers,"
he says. Peddle was too early. "That
company couldn't make it either."

    The experience gave Peddle
valuable knowledge he would need to
develop the next generation of
microprocessors. "I had done all the
microelectronics and knew why a
microprocessor needed to happen, and
how to make a microprocessor, and how
to make things that used
microprocessors," he says. "But I
didn't have a microprocessor because
they weren't around yet."

    In 1973, Peddle spotted an
employment ad from Motorola for their
new microprocessor program in Mesa,
Arizona. He recalls, "I went down and
talked to the guy who was running the
program, who was a calculator guy."
Peddle's experience at GE won him the
job. "He basically hired me to finish
the program."

    Chuck started work at Motorola in
1973, around the time when Large Scale
Integration (LSI) of semiconductor
technology allowed the circuitry of a
calculator or computer to fit onto a
single chip. As the Intel 4004 and
8008 processors were gaining
popularity, Motorola decided to enter
the microprocessor market with their
own chips.

    A Motorola designer named Tom
Bennett created the original
architecture for the 6800, but Peddle
felt it needed some changes. "They
kind of muddled their way through the
architecture for the 6800, which had
some flaws in it. I was able to fix
some of those flaws but it was too
late for others," says Peddle. The
final 8-bit microprocessor had 40
pins, 4000 transistors and an
instruction set of 107 operations.

    Peddle also made a major
contribution to the project by
designing the support chips for the
6800. Computers had to interact with
peripheral devices like disk drives
and printers, so Peddle designed a
specialized support chips for this
purpose. One chip to emerge was the
6820 Peripheral Interface Adapter,
which most people just called the PIA
chip. The 6820 became a major reason
for the eventual popularity of the
6800.

    Although Motorola engineers
grasped the importance of what they
had created, the management and
salespeople knew very little of
microprocessors. According to Peddle,
some managers at Motorola even tried
to kill the project. "So I built a
demo of the chip using some of the
hardware for my cash register to show
everybody that microprocessors really
did work," he says.

    The salespeople at Motorola
required an education on
microprocessors but there were no
courses. "They didn't know how to sell
it, so I put together a training class
for their applications engineers,"
says Peddle.

    Peddle was instrumental in making
some of the first deals for Motorola,
including Tektronics, NCR (National
Cash Register company), Ford Motor
Company, Unisys, and Burroughs (makers
of calculators). "I wound up going
into the field presenting the
architecture because I was the only
one in the company who could
intelligently talk to customers and
have architectural discussions," he
says.

    The presentations usually ended
the same way. "The guys would sit
down, we would explain the 6800, and
they would just fall in love," says
Peddle. However, the $300 price tag
for a single 6800 processor prevented
engineers from adopting the 6800
microprocessor in low cost products.

    According to Peddle, someone would
invariably say, "You're charging too
much for it. What I want to use it for
is not to replace a minicomputer. I
want to use it to replace a
controller, but at $300 per device
it's not cost effective."

    Armed with this knowledge, Chuck
Peddle had an epiphany. He recognized
the vast market for cost-reduced
microprocessors. Both Intel and
Motorola were overlooking an important
market. Peddle slavered at the
possibilities.

    In August 1974, Motorola publicly
introduced the 6800 chip for $300. The
6800 would eventually become
successful for Motorola, in no small
part to the efforts of Chuck Peddle.
It almost became too successful and
Motorola saw no reason to attack other
markets.

    Peddle pushed Motorola for a
cost-reduced microprocessor. According
to Peddle, "One week I returned to
Motorola after one of these trips, and
I had a letter there, formally
instructing me Motorola was not going
to follow a cost reduced product. I
was ordered to stop working on it,"
recalls Peddle.

    Undeterred, Peddle wrote a letter
(which he still owns today) saying,
"This is product abandonment,
therefore I am going to pursue this
idea on my own. You don't have any
rights to it because this letter says
you don't want it." From that moment
on, Peddle stopped working on
microprocessors for Motorola. He
continued teaching classes and
finished the 6520 PIA chip he was
developing, but his true focus was
finding a way to make his low-cost
microprocessor.

    While still employed at Motorola,
Peddle tried raising money to fund his
microprocessor. He visited Mostek (not
to be confused with MOS Technology)
and talked to prominent venture
capitalist L.J. Sevin of
Sevin-Rosen(1), but he was not
interested in Peddle's idea. Peddle
continued talking to people in the
semiconductor business.

    One day, Peddle ran into an old
friend from GE who now worked at Ford
Motor Company. His friend mentioned
John Pavinen, another ex-GE employee
who was now running a semiconductor
company near Valley Forge,
Pennsylvania. "When I started looking
around for partners, I knew Pavinen
was a killer computer guy," he
recalls. "I called him up. He said,
'Come on down. Let's talk about it.'"

    Peddle flew to Pennsylvania to
examine MOS Technology. The facility
was located at 950 Rittenhouse Road, a
14-acre site in an industrial park,
called the Valley Forge Corporate
Center. Peddle was impressed with the
small firm. It had good credentials
and many customers, among them a
calculator company named Commodore.

    Satisfied, Peddle sat down to
discuss his new project with John
Pavinen. "Pavinen immediately loved
the idea of doing the product," says
Peddle. The two discussed the
specifications for the microprocessor,
but MOS Technology was only capable of
manufacturing chips using the
P-channel process. Peddle wanted the
more advanced N-channel process.

    Pavinen felt he could deliver the
N-channel process. "He had taught
himself process development when he
was working at General Instrument, and
was really good at it," says Peddle.
"He considered himself to be a
competitor to (Andrew) Grove (of
Intel). He was convinced he could do a
five-volt N-channel process in the
same amount of time it would take me
to develop the microprocessor."

    The partnership between Chuck
Peddle and John Pavinen seemed to hold
promise. For his part, Pavinen badly
needed a new product to replace the
shrinking calculator market. MOS
Technology engineer Al Charpentier
describes the situation that caused
MOS Technology to accept Chuck
Peddle's proposal. "Here's a company
that is somewhat dying, and the
calculator margins are shrinking," he
says. "They wanted market share."

    Pavinen told Peddle, "Move your
people and we'll set up a second group
within the company. You run your own
show."

    As Motorola publicly unveiled the
6800, Chuck Peddle and seven coworkers
from the engineering and marketing
department left Motorola to pursue
their own vision. The team included
Will Mathis, Bill Mensch, Rod Orgill,
Ray Hirt, Harry Bawcum, Mike James,
Terry Holt(2), and Chuck Peddle. The
departure of several of Motorola's top
engineers seriously drained the
company of much needed expertise on
the eve of the 6800 debut.

    Pavinen gave Peddle and his team a
stake in the company. "The deal was,
if the microprocessor took off, we
would have a piece of the company," he
recalls.

    On August 19, 1974, the team
started work on their new processor at
MOS Technology. With Chuck Peddle and
his band of engineers, MOS Technology
would radically change the market for
computers.


MOS Technology

    In 1969, a large industrial
manufacturing company called
Allen-Bradley wanted to enter the new
semiconductor business. They financed
the creation of MOS Technology. The
three men who founded and operated the
new startup had previously worked with
Peddle at GE. They were Mort Jaffe,
Don McLaughlin, and John Pavinen.

    For the first five years, MOS
Technology supplied calculator chips
and other semiconductor parts to the
electronics industry. Then Chuck
Peddle and his team of ex-Motorola
employees began working on a
revolution within the microprocessor
industry.

    This revolution would occur at
Valley Forge, Pennsylvania on the East
Coast, approximately 100 miles inland
from the Atlantic Ocean and 20 miles
from Philadelphia. It was an
appropriate place for a revolution.
Almost 200 years earlier, Valley Forge
was the turning point in the American
Revolution when General George
Washington's tired and bloodied troops
retreated to Valley Forge for the
winter, only to emerge with an
unwavering offensive. Chuck and his
band of engineers would also retreat
for the winter, and in the following
summer, they would unleash a powerful
new weapon.

    In the seventies, Valley Forge was
a small, dispersed town with a
population of about 400 people. MOS
Technology headquarters resided in the
peaceful setting, along a lone country
road surrounded by wildlife. Street
names like Adams Avenue, Monroe
Boulevard, Madison Avenue, and
Jefferson Avenue celebrated the
revolutionary past.

    Directly across the road from MOS
was a beautiful golf course, General
Washington Country Club, tempting the
MOS executives to squeeze in a round
of play. Less than a mile away was the
Audubon Wildlife Sanctuary, a park
filled with serene trails where
Canadian geese gathered in the fall
while migrating south. Horse trails
snaked in and out of the surrounding
countryside. Riders would often emerge
from the bushes and stare at this out
of place high-tech firm. They could
scarcely understand what was going on
inside.

    The headquarters hearkened back to
the 1950's. It was a box-shaped
two-story building with glass windows
along the front and sides. Stray golf
balls frequently bounced off the front
windows, occasionally leaving small
bullet sized holes that no one ever
repaired. To the side and rear of the
building were two huge parking lots,
largely deserted since most people
preferred to use the circular driveway
out front.

    The engineering lab on the second
floor was the fountainhead of ideas
for the company. This was where
engineers invented the semiconductor
chips. The engineers subdivided the
lab into a maze of smaller rooms, each
with a specific task. It was in this
environment that Chuck Peddle would
plan the centerpiece of his
revolution.

    Although Peddle envisioned a true
microprocessor, it is a delicious
irony that he did not design it for
computers. "It was never intended to
be a computer device. Never in a
million years," he reveals. Instead,
he envisioned the microprocessor for
home electronics, home appliances,
automobiles, industrial machines V
just about everywhere except personal
computers. "If we were going to do a
computer, we would have done something
else."

    Price was the key to achieving
widespread use of his microprocessor.
Peddle envisioned a series of
processors of varying size and
complexity. The full featured
microprocessor would sell for between
$20 and $25. This meant the actual
production cost could not exceed $12;
otherwise, it would be
unprofitable.(3)

    With microprocessor economics, MOS
desperately needed to sell high
volumes of chips to overcome their
design costs. According to Al
Charpentier, the burgeoning
microprocessor industry was having
problems establishing itself. "You've
got a new technology that everybody is
interested in but it's not taking
off," he explains. "The numbers back
then were tiny. They were scientific
curiosities because they were so
expensive. So (MOS) wanted to drive
the interest level way up, and that's
how the $20 price tag got hammered
in."

    The price seemed unreasonably low
compared to Motorola. "We wanted to
own the market," says Peddle. "If you
want to own a market, you take a price
point that you make good money at, and
you make sure nobody else can play
with you. You build big, fast
companies that way."

    When asked why he did not chose a
slightly higher price, say fifty
dollars, Peddle says, "Because then I
don't get the design in. At twelve
bucks and fifteen bucks and twenty
bucks I get design-ins everywhere."
Peddle was after widespread success.
"We wanted people to put
microprocessors everywhere. We were
trying to change the world."

    The ex-Motorola employees split
into three groups, each with their own
areas of expertise. "We came in and
effectively took over two or three
rooms, and operated totally
independent of the rest of the company
for a long time," says Peddle.

    [Continued in MOS - Part III]