Failure Is an Option

Meanwhile -- and not by accident -- Campbell bumped into Mike Markkula, then Apple's chairman, at a reception. "How would you like to have the world's fastest chip?'' Campbell asked. At the time, the fastest chip in Apple's arsenal ran at about 50 MHz. Intel chips were pushing 60 MHz. What Campbell was proposing was a chip that would be tailored to Apple's operating system and capable of running at a stunning 533 MHz.

The timing of the encounter could not have been better. Apple was desperate to build its muscle within the computer market. Not only was Michael Spindler, Apple's CEO, committed to selling more powerful machines; he was also planning to reverse the company's long-standing refusal to license its operating system to other computer manufacturers. Within months, Apple agreed to grant licenses to third-party manufacturers to produce clones -- Apple-compatible computers that Spindler hoped would expand the market for machines built around the PowerPC processor. These clones, in turn, represented another big market for Campbell's chip.

Campbell met with Spindler and struck a deal. Apple invested $1.5 million in the company, which soon renamed itself Exponential Technology. Exponential agreed to develop and supply Apple with high-speed chips for a new generation of computers. Apple also got a seat on Exponential's board.

From the beginning, Campbell and his colleagues recognized that the partnership wasn't perfect. (But then, what partnership is perfect?) Apple urged Exponential to negotiate an agreement through which Motorola, a partner in the AIM alliance, would manufacture its chips. That agreement was good politics for Apple -- but bad business for Exponential. "At just about this time," says Stephanie Dorris, "the cell-phone market took off, and Motorola got swallowed up in that boom. Besides, our fabrication requirements were far more complicated than anything that Motorola had done before. We had serious doubts about its ability to perform."

Wisely, Exponential tried to hedge its bets. Campbell and Ivonne Valdes, 40, who was Exponential's vice president of sales, flew to Tokyo to persuade Hitachi Ltd., which operated a BiCMOS fabrication plant, to make Exponential's prototype chips.

Other problems were brewing. Exponential had hoped to leverage its purchase agreements with Apple to attract more capital. But years of bad strategic decisions and poor execution were beginning to take their toll on Apple. Internal dissent was mounting, the rate of defection was increasing, and market confidence was flagging. Exponential's patron was looking more vulnerable than ever. "That made it difficult for us to go out and raise money,'' says Dorris, the new company's CFO. "At one point, Gordie Campbell wrote a personal check for $1.5 million to help tide us over.''

Still, Campbell and Dorris managed to raise nearly $7 million: Exponential's chip had that much promise. They also convinced Rick Shriner, a vice president at Apple who was also a veteran of Intel, to come on board as president and CEO in November 1995. "I talked with Michael Spindler, and we agreed that one part of our strategy was to have the company plant a flag, so that Motorola and IBM would be challenged to meet it,'' recalls Shriner, a mannerly, upbeat man who appears to have about as much guile as Mr. Rogers. "We saw things going one of two ways: Eventually Apple might look to acquire us, or we would go public. It was an exciting opportunity.''

At about the same time, Power Computing Corp., an aggressive startup based in Round Rock, Texas, began rolling out the first Macintosh clones. By the end of the following year, its revenues hit $400 million; it had become one of the fastest-growing PC companies in the United States. Other manufacturers began to enter the market scene as well, among them Umax Technologies Inc. (a Taiwanese-owned Mac-compatible maker based in Silicon Valley) and a branch of Motorola that sought to develop high-performance workstations. Shriner and his team had a growing roster of potential customers. "There was so much optimism," Valdes remembers. "We were in a heads-down, tails-up mode.''

Rise and Fall

"Our phone didn't stop ringing."

The planets seemed to be in alignment for Exponential. Even bad news looked good. In February 1996, Michael Spindler was fired as Apple's CEO. His replacement, Gil Amelio, promised that Apple would regain market share by producing big new things that worked -- a strategy that entailed strengthening Apple's ties with Exponential. Apple went ahead with a plan to pay the young company $5 million in a prepurchase agreement that would channel all of Exponential's first- and second-generation chips to Apple during the first nine months of production. The agreement did not prohibit Exponential from negotiating with clone makers for chip sales after that nine-month period. So Ivonne Valdes did just that, locking up purchase orders from Power Computing and Umax.