From Palo Alto Wiki
Silicon Valley is the southern part of the San Francisco Bay Area in Northern California in the United States. The term originally referred to the region's large number of silicon chip innovators and manufacturers, but eventually came to refer to all the high-tech businesses in the area; it is now generally used as a metonym for the high-tech sector. Despite the development of other high-tech economic centers throughout the United States, Silicon Valley continues to be the leading high-tech hub because of its large number of engineers and venture capitalists.
Palo Alto lies in the heart of Silicon Valley.
 Seeds of Silicon Valley
William Hewlett and David Packard first set up shop in Palo Alto at 367 Addison Ave. making all sorts of odd electronic gadgets in 1938. The famous garage still stands, and in August 1988 it was named a state historic landmark.
In 1934, the two friends graduated with bachelor's degrees in engineering from Stanford University. They vowed to start a business together, but the economic climate was grim. So they followed the advice of Frederick Terman, their mentor and Stanford's world-famous dean of engineering, and went into research to gain time and more expertise.
Hewlett went to Cambridge to study at the Massachusetts Institute of Technology, while Packard accepted a position with General Electric at Schenectady, N.Y., studying vacuum tubes.
By 1936, Hewlett was back at Stanford working with Terman toward a graduate degree in engineering. His thesis project was the resistance-tuned audio oscillator, H-P's future meal ticket.
In 1938, Packard left G.E. and came back to Stanford with his wife, Lucile. Towing a Sears & Roebuck drill press, H-P's first piece of machinery, Packard came into town and settled at the house on Addison. Hewlett moved in with the Packards, living in a 12-by-18-foot cottage next to the garage in the back yard.
Since the two still were students, they relied heavily on Terman, who got Packard a research fellowship at Stanford. Then one day Terman gave them $538 to invest in machinery and arranged for a $l,000 loan. They began to tinker in the garage, spending 50 percent of their time experimenting and 50 percent working for income.
They made a diathermy machine, which provided electric heat treatment, for the Palo Alto Clinic, their first sale. They made a device to monitor bowling alley foul lines, a device to drive a telescope at Lick Observatory and an electronic harmonica tuner.
"If Packard's car was in the garage, it meant they had no orders," Terman is reported to have said. "But if it was out on the street, they had some business and were hard at work soldering, wiring, painting--you name it."
Hewlett perfected his thesis project and marketed it at a meeting of the Institute of Radio Engineers. Walt Disney Studios, on the cutting edge of stereophonic technology, wanted eight of the devices for the production of its film "Fantasia."
That was the first big sale, and turned out to be U.S. patent no. 2,268,872, filed July 11, 1939. In January 1939, the two formed an official partnership. For the year, they made $5,639 in sales, garnering a profit of $1,653.
That money enabled them to leave the garage in 1940 for a new location in a rented building on Page Mill Road. Government contracts for World War II, expansion, and worldwide recognition followed shortly.
 Varian Associates
On July 1, 1948, Russell Varian, a dyslexic but persistent Stanford physicist, and his brother, Sigurd, a pilot, started a shaky little company with four other employees in San Carlos. Within two years, Varian outgrew its ramshackle offices and relocated to Stanford Industrial Park, now Stanford Research Park.
Varian Associates Inc. was the first company to create a commercial link between private business and researchers in the Stanford physics department.
But much of Varian's success is due to one invention the brothers made earlier in their career: the klystron, a vacuum tube that generates and simplifies microwave signals. On Jan. 30, 1939, shortly after their invention was announced, the Palo Alto Times called the klystron "an invention so breathtaking in its possibilities that it may alter the future radio development of aeronautics."
The invention lived up to its billing. The company now has about 10,000 employees worldwide and annual sales of $1.3 billion.