Company Insights on BP Essay
On August 30, we all chose 5 stocks to evaluate before purchasing. At this time I chose BP AMOCO, Microsoft, Western Digital, Toys-R-Us, and Fortune Financial Incorporated. After a few weeks of tracking these stocks, I chose to keep BP AMOCO, Microsoft, and Western Digital, because the stocks were relatively stable and most of them were on the rise at this time. As you are aware, we were given $30,000.00 to invest in our three chosen stocks, which breaks down to $10,000.00 per stock. We also had to include a brokers fee of $500.00 for every $10,000.00 invested. My first stock was BP AMOCO. On September 8, I purchased 167 shares at $57.06 per share, which totaled $9,523.00 and incurred a $476.15 brokers fee, making the grand total spent $9,999.15. BP is one of Britains biggest companies and one of the worlds largest oil and petrochemical groups. Its origin dates back to May 1901. BP owes its origin to one man, William Knox DArcy, a wealthy Englishman, who obtained concession from the Muz-affaru’d-Din, Shah of Persia (1896-1907) to explore and exploit the oil resources of the country, excluding the five northern providences that bordered Russia. He, shortly after the
Having been granted the concession; DArcy employed an engineer, George Reynolds, to undertake the task of exploring for oil in Persia. For seven years, Mr. D’Arcy battled with severe weather, the absence of a developed infrastructure, the shortage of skilled local labor, the problems of dealing with neighboring tribes in the absence of a strong central government, difficult terrain, and an uncertain political situation. These conditions made Reynolds pioneering task an exceptionally difficult venture. Meanwhile, the costs mounted stretching DArcys resources to the point where e sought outside financial assistance. This came in 1905 from the Burmah Oil Company, which provided new funds for his venture. More exploration in Persia followed without success, until eventually, in May of 1908, Reynolds and his helpers struck oil in commercial quantities at Masjid-i-Suleiman in southwest Persia. It was the first commercial oil discovery in the Middle East, signaling the emergence of that region as an oil producing area. After the discovery had been made, the Anglo-Persian Oil Company was formed in 1909 to develop the oilfield and work the concessions.
At the top of Anglo-Persians formation, Burmah Oil Company owned 97 percent of its ordinary shares. Lord Strathcona, the companys first chairman, owned the rest. Although D’Arcy was appointed a director and remained on the board until his death in 1917, he was not to play a major part in the new company’s affairs. His role as the initial risk-taking investor was past and the daunting task of developing the oil discovery into a commercial enterprise shifted to others, amongst whom one stands out: Charles (later Sir Charles, then Lord) Greenway.
Greenway was one of Anglo-Persian’s founder-directors, becoming managing director in 1910 and chairman, after Strathcona, in 1914. Greenway, anxious to avoid falling under the domination of Royal Dutch-Shell, also turned to another potential source of revenue and capital: the British government. The basis of an agreement to mutual advantage lay in Greenway’s desire to find new capital and an outlet for Anglo-Persian’s fuel oil; and, on the government’s part, in the desire by the Admiralty (then headed by Winston Churchill as First Lord) to obtain secure supplies of fuel oil, which had advantages over coal as a fuel, for the ships of the Royal Navy. After lengthy negotiations, an agreement was reached in 1914 shortly before the outbreak of World War I.
Anglo-Persian contracted to supply the Admiralty with fuel oil and the government injected $2 million of new capital into the company, receiving in return a majority shareholding and the right to appoint two directors to Anglo-Persian’s board. Although the government undertook not to interfere in Anglo-Persian’s normal commercial operations, its shareholding introduced an unusual political dimension to the company’s affairs. In later years, the government shareholding was reduced and — apart from a tiny residual holding — ended in 1987. Further expansion followed in the decade after World War I. New marketing methods were introduced, with curbside pumps replacing two-gallon tins for the distribution of motor spirit (or, gasoline). Anglo-Persian also marketed its products in Iran and Iraq; it established an international chain of marine bunkering stations, and in 1926 began to market aviation spirit. New refineries, much smaller than the plant at Abadan, also came on stream — at Llandarcy in South Wales in 1921 and at Grangemouth in Scotland in 1924.
Moreover, the company’s majority-owned French associate had a refinery at Courchelettes, near Douai. On the other side of the world, in Australia, a new refinery at Laverton, near Melbourne, was commissioned in 1924. Exploration was carried out not only in the Middle East, but also in other areas, such as Canada, South America, Africa, Papua and Europe. By the time Greenway retired as chairman in March 1927, he had realized his main strategic goal of establishing Anglo-Persian as one of the world’s largest oil companies, with a substantial presence in all phases of the industry. In 1935, the company was renamed the Anglo-Iranian Oil Company. During the post-war reconstruction of Europe, the high demand for oil enabled Anglo-Iranian to expand its business greatly. The company’s sales, profits, capital expenditure and employment all rose to record levels in the late 1940s.
The refinery at Abadan was by this time the largest in the world. Moreover, crude oil production from the company’s Iranian oilfields kept Iran at the top of the league of Middle East oil producing countries. Meanwhile, Anglo-Iranian entered the field of petrochemicals. An agreement with the Distillers Company in 1947 resulted in the formation of a joint company, later to become known as British Hydrocarbon Chemicals, which produced basic materials from naphtha at Grangemouth. A second petrochemical complex was built at Baglan Bay in South Wales in 1961. While the company was expanding its operations in the late 1940s, it was also engaged in talks with the Iranian government about the terms of its oil concession. Long and complex negotiations failed to produce an agreement, and in 1951 the Iranian government passed legislation nationalizing the company’s assets in Iran, then Britain’s largest single overseas investment. The nationalization precipitated a major international crisis in which the British and US governments became deeply involved.
The company’s operations in Iran were brought to a halt. Only after three years of intensive negotiations was the crisis resolved by the formation of a consortium of oil companies, which, by agreement with the Iranian government, re-started the Iranian oil industry in 1954. Anglo-Iranian — which was renamed The British Petroleum Company in 1954 — held a 40 percent share in the consortium. One of the effects of the Iranian nationalization crisis was that the company was forced to broaden its operations to make good the loss of oil supplies from Iran, on which it had depended. Crude oil production in other countries, notably Kuwait and Iraq, was greatly increased; and new refineries were built in Europe, Australia and Aden. In another development, in 1952, the company commissioned its first lubricating oils plant at Dunkirk. Two years later, it began marketing BP Visco-Static, Europe’s first multi-grade-oil.
Although all of these events were important for the company, it was hydrocarbons under the North Sea and under the permafrost of Alaska that were to play the key role in transforming BP into the company it is today. Earlier, in 1959, the Dutch had discovered a giant gas field on the edge of the North Sea at Groningen. This discovery encouraged others to begin searching for hydrocarbons offshore. BP scored the first success in British waters when, in 1965, it found the West Sole gas field, which it brought on stream two years later. The search for oil spread farther north, and in 1970 BP discovered the Forties field — the first major commercial find in the UK sector. Meanwhile, in Alaska, BP was rewarded for ten years’ exploration effort when, in 1969, it announced a major oil discovery at Prudhoe Bay on the North Slope. When it became clear that, through its large share in Prudhoe Bay, BP owned part of the biggest oilfield in the USA, the company decided that its Alaskan oil could best be handled by a well-established US refining and marketing company.
Accordingly, it signed an agreement with the Standard Oil Company of Ohio in August 1969. This company, the original John D. Rockefeller Standard Oil, was the market leader in Ohio and was strongly represented in neighboring states. Under the agreement, which became effective from 1st January 1970, Standard took over BP’s leases at Prudhoe Bay and some East Coast downstream assets that BP had acquired in 1968. In return, BP acquired 25 percent of Standard’s equity, a stake that would rise to a majority holding in 1978 when Standard’s share of Alaskan production passed 600,000 barrels a day. The 1970s were the decade of the two great oil price shocks (1973 and 1979/80) that were to have serious effects on the world’s economies. It was also a decade when the major oil companies saw a decisive change in their old concessionaire relationships. Like its major competitors, BP lost direct access to most of its supplies of OPEC oil as the OPEC countries took control of production and prices. The 1973 price explosion had a dramatic effect on demand.
BP’s oil sales started falling for the first time since 1952 (with the exception of 1957, the year of the Suez crisis). By 1978, sales had recovered somewhat; but then the Iranian revolution came and another major rise in the price of oil. In 1979, BP suffered further blows when its assets in Nigeria were nationalized and its supplies from Kuwait cut back. By 1980, its sales were down again. The entire oil industry was affected by the events of the 1970s. But thanks to BP’s large investment program in areas outside the Middle East, the company showed as it had done in Iran in 1951, that it could survive. As noted, of key importance were the developments of its oilfield discoveries in the North Sea and Alaska. In the autumn of 1975, BP pumped ashore the first oil from the North Sea’s UK sector when it brought the Forties field on stream. This field development was financed by a bank loan of $370 million, then the largest wholly private bank advance ever arranged.
At its peak, Forties produced half a million barrels a day, equivalent to one-quarter of the UK’s daily oil requirement. Since the early 1980s, BP has developed many more oil and gas fields in the North Sea. Among these have been, in the UK sector, Magnus (commissioned in 1983), the Village gas fields (1988), Miller (1992) and Bruce (1993) and, in Norwegian waters, Ula (1986) and Gyda (1990). In Alaska, meanwhile, the construction of the 800-mile Trans-Alaska Pipeline System enabled the Prudhoe Bay field to come on stream in 1977. In 1981, the Kuparuk field also started production, and towards the end of 1987 the world’s first continuous commercial production from an offshore area in the Arctic was achieved when the Endicott field was commissioned. Today, BP’s other oil- and gas-producing countries include Abu Dhabi, Australia, Colombia, Norway and Papua New Guinea. The upheavals of the 1970s led BP to conclude that it should broaden its activities so that it could operate in the future with more balanced sources of income.
Accordingly, from the mid-1970s there was increased emphasis on diversification into new areas of activity. BP’s entry into the nutrition business originated in the 1950s, when the company’s French researchers began to develop a process for converting oil into protein. Although the process was later discarded, BP developed other interests in nutrition. From the mid-1970s, it became involved in animal feed, animal breeding and consumer foods and related products. As a result of the purchase in 1986 of the US Company, Purina Mills, BP Nutrition became one of the world’s largest feed millers. In 1990, it also took responsibility for BP’s household cleaning and personal care products — successors of the old detergents business. Another industry, which BP entered in the mid-1970s, was minerals. BP expanded its mineral interests considerably in 1980, when, in what was then the London stock market’s largest-ever takeover bid, it bought Selection Trust, the British-based mining finance house. In the following year, Standard Oil acquired Kennecott, America’s largest copper producer and a major force in other metals.
The mid-1970s also saw the start of the build-up of BP’s coal business. By 1989, about half the group’s coal operations were in the US, the remainder being in Australia, South Africa and Indonesia, with some coal trading in Europe. Meanwhile, in the 1960s, BP had become involved in the information technology industry through its acquisition of Scicon. With a view to the effective management of this now much more diversified group, the company underwent major restructuring in 1981. The organization that resulted consisted of international business streams, national associate companies around the world, and, at the center, the supporting services and corporate head office. These elements were coordinated by a matrix system of management. Also during the early 1980s, BP’s refining, shipping and chemicals operations were suffering from the effects of industry-wide over-capacity and economic recession. Consequently, these activities were thoroughly rationalized. BP cut back its refining capacity, particularly in Europe, so that by the end of 1988 it was left with five main fuels refineries in the region, compared with 16 in 1981.
In chemicals, BP had augmented its interests substantially when, at the end of 1978, it acquired European assets from Union Carbide and Monsanto. But the difficult trading environment that emerged shortly afterwards led BP to make severe cuts in its operations. Between 1980 and 1984 it closed a number of chemicals plants and withdrew from certain products. The year 1987 was dominated by three historic events in BP’s development: the company’s $4.7 billion offer for the 45 percent of Standard Oil it did not already own; the sale by the British government of its remaining holding in BP; and, as the year ended, the start of BP’s successful bid to acquire Britoil, the UK-based oil exploration and production company. After acquiring Standard Oil outright, BP combined its existing interests in the US with Standard’s operations to form a new company: BP America. The merging of Standard Oil into BP gave the group access to the full potential of the world’s biggest market as well as to Standard’s considerable cash flow. Today, about one-third of BP’s fixed assets is in the US.
When the government came to sell its remaining 31.5 percent shareholding in BP in October 1987, few could have forecast the collapse in the world’s stock markets that was to occur between the opening and the closing of the offer. The outcome was naturally a disappointment to BP. But even if the hoped-for international broadening of the company’s ownership did not fully materialize, the number of names on BP’s share register more than doubled to around 600,000. The share sale did attract one large new investor — the Kuwait Investment Office, which, by early 1988, had built up a 21.6percent stake in BP. After an investigation by the UK’s Monopolies and Mergers Commission, the government endorsed the Commission’s findings that the KIO’s holding could operate against the public interest. The KIO was therefore required to reduce its stake to not more than 9.9percent of BP’s stock. In 1989, BP purchased (and then cancelled) 790 million BP shares from the KIO, so reducing the holding. The third major event of the year was BP’s bid for Britoil, whose purchase was completed in 1988.
The success of the $2.8 billion acquisition meant that BP almost doubled its exploration acreage in the North Sea and reinforced its position as the largest oil and gas producer in the area. After the diversifications of the 1970s and early 1980s BP found — like other companies which followed a similar course — that it experienced mixed success in managing its ‘new’ businesses. Towards the end of the decade, in a change of strategy, the company decided to concentrate on its core, hydrocarbon-based activities. To that end, it began a series of divestments. In early 1988, BP sold its subsidiary, Scicon, and so withdrew from the computing services industry. After developing its mineral interests successfully during the 1980s, the company sold most of the business to RTZ in 1989 and disposed of the balance during the next few years. Similarly, most of BP Coal was sold in 1989 and 1990. The company did not begin to sell its nutrition interests until 1992, but by the middle of that year the divestments program was well advanced.
From the early 1970s, BP’s center of gravity has shifted westwards, away from the Middle East where its origins were laid. Having diversified into other industries, the company is now focusing again on its core activities in petroleum and chemicals. In 1989, the company launched a campaign to introduce a stronger corporate identity, featuring a restyled BP shield and an emphasis on the color green. And in a complementary program that was to prove highly successful, BP started to re-image its global network of service stations in a new design and livery. At the same time, in the quest to find new sources of oil and gas, BP’s explorers began to focus their skills more and more on the regions of the world that for political or technical reasons remained relatively unexplored. For example: Colombia, the republics of the Former Soviet Union, and the deep-water areas of the Gulf of Mexico.
And in all its operations, BP maintained its policy of striving to be an industry leader in health, safety and environmental standards. To equip itself for the challenges of the 1990s and beyond, the company introduced, in a program called Project 1990, major changes in its organization and way of working to improve efficiency and flexibility. To help further in the running of BP, the roles of chairman and group chief executive were split in 1992. A new management, under Lord Simon of Highbury, Peter Sutherland and later Sir John Browne, set tough targets for debt reduction, profitability and cost cutting. Four years later profits trebled, and BP had managed a turn-around – moving from the bottom of the industry into the top quarter. Then, on December 31, 1998, BP and Amoco completed a $53 billion merger after winning regulatory approval from the Federal Trade Commission. The Chicago-based Amoco was the nation’s fifth-largest oil company with 9,300 gasoline stations, and the London-based BP, was the world’s third-largest oil company, and sold its products through a network of 17,900 gasoline stations.
Now, 97 years after William Knox D’Arcy set off to explore the Iranian desert, the company has transformed itself into BP Amoco, one of the world’s largest oil producers, and Britain’s largest company. The BP Amoco of today is one of the worlds leading oil companies. It is an international company that has operations in seventy countries, including the U.S., with its U.S. headquarters located at 535 Madison Avenue, New York, New York 10022-4212. BP Amocos key strengths are in oil and gas exploration and production; the refining, marketing and supply of petroleum products; and the manufacturing and marketing of chemicals. For the first six months of this year, BP Amocos turnover rose 81percent to $60.87 Billion. Net income according to the U.S. GAAP, totaled $5.29 Billion, up from $1.58 Billion in 1999. As I stated earlier, I purchased 167 shares in this companies stock for $57.06 each. This stock now sells for $51.56 a share, which for me means a loss of $5.50 per share. Then with the 5 percent brokers fee of $430.53 included, equals $8,179.99. This total subtracted from the original money spent of $9,999.15 puts me $1,819.16 in the red. The next stock I chose was Microsoft.
On September 8, I purchased 136 shares at $70.16 per share, which totaled $9,523.00 and incurred a $476.15 brokers fee, making the grand total spent $9,999.15. Microsoft Corporation develops, manufactures, licenses and supports a wide range of software products for a multitude of computing devices. Microsoft software includes operating systems for intelligent devices, personal computers and servers; server applications for client/server environments; knowledge worker productivity applications; and software development tools. The Companys online efforts include MSN network of Internet products and services; e-commerce platforms; and alliances with companies involved with broadband access and various forms of digital inter-activity. Microsoft also licenses consumer software programs; sells PC input devices; trains and certifies system integrators; and researches and develops advanced technologies for future software products. It all started with the dream of “a computer on every desk and in every home.” In just 25 years, Microsoft turned this revolutionary idea into a reality, creating a new industry and transforming how we work, live, learn and play.
In January 1975 a programmer brought a Popular Mechanics’ advertisement for a microcomputer kit–along with an idea–to his friend’s college dorm room. Their partnership eventually evolved into the world’s most valuable company, with a market capitalization that surpassed $260 billion on Sept. 14, slightly ahead of General Electric Corp.’s valuation of $257.4 billion. The boy was Paul Allen. The friend was Bill Gates, whom he had met while they were classmates at the exclusive Lakeside School in Seattle. The school was Harvard University and the idea was to build software for the machine. The result is Microsoft Corporation, and the rest is history. Microsoft Corporation was founded as a partnership by William H. (Bill) Gates and Paul G. Allen on April 4, 1975. The word Microsoft first appeared with a hyphen between micro and soft (Micro-Soft) meaning “microcomputer software”. This name was first used in a letter to Paul Allen from Bill Gates to refer to their partnership. This name has been used officially after it registered in November 1976 with the officer of the Secretary of the State of New Mexico. On June 25, 1981, Microsoft reorganized into a privately held corporation with Bill Gates as President and Chairman of the board, and Paul Allen as Executive Vice President. Microsoft became Microsoft, Inc, an incorporated business in the State of Washington.
Their business objective was to develop languages for the Altair and for other microcomputers that were bound to appear soon on the market. Thus, Microsoft was the first company formed for the specific purpose of producing software for such computers. The core of Microsoft today centers around five main product lines: operating systems, languages, business software, hardware, and computer “how to” books. It all began with Bill Gates in 1975. He developed Microsoft Basic interpreter for the first microcomputer while he was an undergraduate at Harvard University in 1975. His foresight into personal computers and continuing improvement has been the essential to Microsoft. In 1975 after dropping out of Harvard University at age nineteen, Gates teamed with high school friend Paul Allen to sell a condensed version of the programming language BASIC. While Gates was at Harvard, the pair had written the language for the Altair, the first commercially available microcomputer sold by MITS, an Albuquerque-based maker of electronic kits.
Gates and Allen moved to Albuquerque and set up Microsoft in a hotel room to produce the program for MITS. Although MITS folded in 1979, Microsoft continued to grow by modifying its BASIC program for other computers. Microsoft moved to Bellevue, in the Seattle area in 1977, where it developed software that enabled others to write programs. The modern PC era dawned in 1980 when Microsoft was chosen by IBM to write the critical operating system for IBMs new PCs. This was Microsofts big break. Given the complexity of the task, Microsoft bought the rights to an operating system called QDOS (quick and dirty operating system) for $50,000 from a Seattle programming, Tim Paterson, and converted it to Microsoft Disk Operating System (MS-DOS). The popularity of IBMs PC made MS-DOS a huge success. And because other PC makers wanted to be compatible with IBM, MS-DOS was licensed to over 100 companies, making it the standard PC operating system in the 1980s. The company then began developing databases, word processors, and other software packages that could run on its operating system. In the mid-1980s Microsoft introduced Windows, an easier-to-use version of MS-DOS that borrowed from Apple Computers point and click Macintosh.
Allen fell ill with Hodgkins disease and left Microsoft in 1983. He later started his own software company, Asymetrix. Today, Allen owns 15 percent of Microsofts stock and serves on its board. By 1984 Microsofts sales had exceeded $100 million. Microsoft went on to develop software for IBM, Apple, and Radio Shack computers. Microsoft went public in 1986. Gates retained 45 percent of the shares, making him the PC industrys first millionaire in 1987. In 1990, Gates paper value surpassed $2 million. In 1992 Microsoft won a key ruling in Apples suit over similarities between Apples Macintosh interface and that of Windows. Windows popularity (more than 12 million copies shipped in fiscal 1992) had boosted sales of Microsofts business software developed for Windows. The FTC then invested claims that Microsoft engaged in unfair practices to gain dominance in the Windows market. Gates has played an important role in the technical development as well as the management of the company. His significant contribution was so highly appreciated that he was awarded on June 23, 1992. President George Bush awarded Bill Gates the National Medal of Technology for Technological Achievement, at a White House Rose Garden ceremony.
In addition, Microsoft Corporation has been awarded in 1992 to 1995 for its recent achievements. Microsoft and IBM teamed again in the late 1980s to develop the OS/2 operating system. That efforts failure resulted in Gates commitment to Windows NT (short for New Technology), as an alternative to the Unix operating system popular on high performance computers. Windows NT was introduced in 1993. In the early 1990s Microsoft first heard charges of monopoly! from both inside and outside the industry. In 1995 antitrust concerns scotched Microsofts $1.5 billion deal to buy personal finance software maker, Intuit, so the company set its sights on startup companies and the leading-edge technologies they possessed. By adding heavy development dollars, and selling the resulting products cheaper than its foes, the company expanded its reach. When the rise of the Internet began to transform the way companies did business, Gates at last embraced the medium. In 1996, Microsoft licensed the Java Web programming language from Sun and introduced its Internet Explorer Web browser.
The following year, Sun alleged in a lawsuit that Microsoft had violated its licensing agreement by creating an incompatible version of Java; Microsoft countersued. In October of 1998 the Justice Department and the attorneys general of twenty states sued Microsoft, accusing the company of stifling both Internet browser competition and consumer selection to extend its operating system dominance. Perhaps the greatest footnote left by Microsoft upon the software industry is that it has created one standard for the PC. Since the inception of MS Windows in 1989, Microsoft has created order in an industry prior characterized by proprietary technology, competing standards and lack of interoperability between applications. However, in order to achieve Bill Gate’s mandate to have Windows in every household, Microsoft has been accused of breaking the barriers that encompasses what the Federal Trade Commission considers fair play. The Federal Trade Commission defines “fair play” through laws and regulations that promote and maintain competition in an industry.
The Sherman Antitrust Act outlawed agreements to fix prices, limit output, or share the market and declared that monopolies and attempts to monopolize are illegal. The Clayton Antitrust Act forbade mergers between competitors where the impact of a merger would be to substantially lessen competition. The Federal Trade Commission Act created the Federal Trade Commission (FTC) and empowered it to initiate and decide cases involving “unfair competition.” With respects to the software industry, the issue stands as to whether Microsoft’s marketing, pricing and acquisition strategies impeded the level of competition in the industry. Though Microsoft is not a monopoly in the software market, it is a highly contested debate whether Microsoft wields monopolistic power. Like John D. Rockefeller’s Standard Oil in 1991, Bill Gate’s Microsoft commands a 90% market share of operating systems. In a federal complaint to the Justice Department, Netscape accused Microsoft of using “strong-arming tactics” and “a wide variety of predatory pricing and bundling behavior that violates the antitrust laws.” Original Equipment Manufacturers (OEMs) have anonymously complained that if OEMs were distributing competing Microsoft products, such as the Netscape Navigator, Microsoft would offer higher pricing arrangements for them than for others who offered only Microsoft software.
As part of Microsoft’s pricing for Internet Explorer, OEMs are given discounts on the license price of the Windows operating system if the OEM not only continues to feature the Microsoft browser on its desktop but also makes competitors’ browsers far less accessible to users. OEMs estimate that it will cost $10 million to offer their customers non-Microsoft Internet software. To further gain footing in the “Browser Wars,” Microsoft is making its browser free to all users, whereas Netscape’s Navigator is available for retail purchase for non-academicians. Some businesses are given cash for each browser they replace with Microsoft’s Internet Explorer. On the surface, it appears that the customers will be the winners of the free software given by Microsoft. However, Bill Gates best conveys Microsofts true intention in an interview with Financial Times, “Our business model works even if all Internet software is free. We are still selling operating systems.
What does Netscape’s business model look like if that happens? Not very good.” A Microsoft representative was quoted as saying, “Our intent is to flood the market with free Internet software and squeeze Netscape until they run out of cash.” On June 7, 2000, a federal judge, calling the world’s largest software maker “untrustworthy, ordered Microsoft to be broken into two smaller companies to prevent it from violating state and federal antitrust laws in the future. In a scathing memorandum that accompanied his 14-page decision, U.S. District Judge Thomas Penfield Jackson said he was ordering the breakup because the company was totally unwilling to admit that it had violated federal antitrust law and has shown no willingness to modify its business conduct. The court has “reluctantly come to the conclusion that a structural remedy has become imperative: Microsoft as it is presently organized and led is unwilling to accept the notion that it broke the law or accede to an order amending its conduct,” the judge’s memorandum said.
If Judge Jackson’s breakup order survives the appeals process, it would be the largest court-initiated split since AT&T agreed to be broken into a long distance company and seven regional phone companies under a 1984 consent decree. Today, Microsoft is the largest software manufacturer in the world, with more than 18,700 employees across the United States and at 48 worldwide subsidiaries. With Gates’ leadership, Microsoft’s mission is to develop products that meet the evolving needs of consumers and provide leading products for global commitment with organizations worldwide. Microsoft is a huge company, in the top of its industry. To help give you an idea of how big a company Microsoft Corporation is, here are some brief facts. In Microsoft’s 25-year history, both revenues and profits have increased in every year.
Microsoft is the world’s greatest independent producer of computer operating systems and software, resulting in being the world’s richest software company. Nearly 1/2 of world’s total PC software revenue goes directly to Microsoft. The company’s DOS and Windows programs run on 80% to 90% of all personal computers. Net Revenues for fiscal year ending June 30, 1995 were up 28% at $5.94 billion dollars and for the fiscal year ending June 30, 1996. Net revenues were up 46% at $8.67 billion dollars. Revenues in the U.S. and Canada have grown substantially while growth rates of revenue have been lower in Europe due to the general economic slowness. But in other international areas, revenue’s growth rate has been very strong. Microsoft has heavily invested in research and development. In 1995 they increased spending for research and development by 41% and in 1996 research and development expenses increased 67%. Total operating expenses were for 1994, 1995, and 1996 respectively: $2.92 billion dollars, $3.90 billion dollars, and $5.59 billion dollars. Net Income as a percent of revenues decreased in 1995 while in 1996 it increased.
The percent decrease in 1995 was because of increased relative research and development, sales and marketing, and general and administrative expenses which were offset by the lower relative cost of revenues and the higher relative net non-operating income. The percent increase in 1996 was because of the lower relative cost of revenues, sales and marketing expenses, general and administrative expenses, and non-operating expenses, which were offset by higher relative research and development expenses and the higher tax rate. Net income in 1994 was $1.15 billion dollars while in 1995 it was $1.45 billion dollars and in 1996 net income was $2.20 billion dollars. The company mainly holds cash and short-term investments which in fiscal year ended June 30, 1996 was $6.94 billion dollars. Most investments the company makes are liquid and short term to minimize interest rate risk and enable rapid deployment in case of immediate need for cash.
Additionally Microsoft has no long-term debt. Cash from operations has been sufficient in funding Microsoft’s investment in research and development and facilities expansion. This will continue in the future and the company will also use cash to acquire technology and to fund ventures and other strategic opportunities. For the first quarter of Fiscal Year 1997, July 1 – September 30, there were revenues of $2.30 billion dollars, which was 14% more than the same quarter last year. During the same time period Microsoft had a net income of $614 million dollars, up from $499 million dollars the previous year’s first quarter. This is despite the fact that the same quarter last year involved the introduction of Windows 95. During 1997’s first quarter, version 4.0 of Window NT came out and sales of Windows NT Server grew at nearly double the rate of other operating systems environments. Growth rate in revenues was flat in Europe and at a 9% increase in U.S. and Canada. Both areas were lower in growth rate but in other international areas, there was a 32% increase in revenues.
Also royalties from original equipment manufacturers who preinstall Microsoft products on PCs reached the highest ever with $663 million dollars in the September quarter. Research and Development expense continue to grow faster than revenues at $432 million dollar, 43% increase in the September quarter. Microsoft has a repurchase program that allows employees to buy and sell the company’s stock. All employees are allowed to purchase company shares at 15% discount. Common stock can be sold back to the company on certain dates at specified prices. This has made over 30% of Microsoft employees millionaires. In the 1997 September quarter, the company repurchased 5.8 million shares of Microsoft common stock for $697 million dollars. On November 12, 1996 the Board of Directors approved a 2-for-1 stock split where shareholders will receive one additional share for every share held on the record date of November 22, 1996. On October 31, 1996 there were about 600 million Microsoft shares outstanding and after the split there will be 1.2 billion shares outstanding. For the first six months of 2000, revenue rose 16 percent to $22.96 billion.
Net income applicable to Common rose 21 percent to $9.42 billion. As I told you earlier, I purchased 136 shares in this companies stock for $70.16 a share. This stock now sells for $70.56 a share, which for me means a gain of 40 cents per share. Then with the 5 percent brokers fee of $479.81 included, equals $9,116.35. This total subtracted from the original money spent of $9,999.15 puts me $882.80 in the red. The last stock I chose was Western Digital. On September 8, I purchased 1638 shares at $5.81 per share, which totaled $9,523.00 and incurred a $476.15 brokers fee, making the grand total spent $9,999.15. Western Digital Corporation is a manufacturer of hard drives used for information storage in desktop computers and home electronic products. The Companys hard drives are designed for the PC market and the high-end hard drive market and recently, for the emerging market for hard drives specially designed for audio-visual applications, such as new video recording devices. The Companys hard drive provides currently includes 3.5 form factor hard drives ranging in storage capability from 4.3 gigabytes to 27.3 gigabytes.
The Company sells its products worldwide to computer manufacturers for inclusion in their computer systems or subsystems and to distributors, resellers and retailers. The Companys products are currently manufactured in Singapore and Malaysia. Through its Connex subsidiary, the Company serves users of network-attached storage systems and enterprise-wide storage area networks. The company, originally called General Digital Corporation, was founded in California on April 23, 1970 by Alvin B. Phillips. Mr. Phillips had 20 years of semi-conductor experience, which included setting-up IC facilities for Motorola, GTE Sylvania and North American Rockwell. The original officers included Mr. Phillips, Larry Alves, Albert Dall, Henry Rodeen, Richard Sirrine, and Joseph Baia. Mr. Baia, also a former Rockwell employee, was an original investor and was to remain with Western Digital for 18 years before retiring as Vice Chairman. With the financial backing of individual investors and Emerson Electric Company of St. Louis, which provided a major portion of the venture capital, this group of pioneers set up their first headquarters in a 3000-square foot building at 1612 South Lyon in Santa Ana, California. Company operations began in June of 1970 and by September of 1970 the design and development of MOS/LSI had commenced.
In March of 1971, the company moved to its new facility at 3128 Redhill in Newport Beach. Shortly thereafter, the first Spartan 770 LSI test system was completed and the company changed its name to Western Digital Corporation in July of 1971. One of the first highly successful products produced was the 1402A UART, the result of a bid on a Digital Equipment Corporation project. A bid made, incidentally, at a time when the company lacked a facility in which to build the product. Although initially losing the contract, Western Digital later produced the part for DEC. It became the world’s first, single-chip, universal asynchronous receiver/transmitter (UART) to provide more affordable data communications. Given the Rockwell connection and extensive semiconductor experience of both Alvin Phillips and Joe Baia, it is not surprising that Western Digital began as a specialized semiconductor manufacturer. And like Rockwell, Western Digital became heavily involved in calculator chips. In those early years, 80 percent of Western Digital’s business was comprised of calculator chips.
They rapidly became the largest independent manufacturers of calculator chips in the world one million chips manufactured by 1975. By 1975 Western Digital’s fortunes changed for a number of reasons. The worldwide oil crisis had brought on a recession; the original Emerson leadership was replaced by an outsider with no ties to Western Digital. Western Digitals largest customer, Bowmar Instruments, went bankrupt and the market for calculator chips slumped due to excess inventory and severe price competition. Gillette Company backed out of an ambitious calculator program. Between 1975 and 1976 Western Digitals founder resigned and the Company lost key customers. The staid Emerson Electric Company had little appreciation for Western Digitals problems, which finally resulted in the filing of Chapter XI Bankruptcy in 1976. Emerson wanted to close the doors, but Western Digital would not go easily. In 1977 Charles W. Missler, a turn-around specialist who was brought in to scrub up the company for resale, convinced United California Bank, the principal secured creditor, that Western Digital possessed the core strengths to reestablish itself in the semiconductor industry.
Missler became CEO and Chairman of a newly structured Board of Directors as part of the refinancing agreement. Although he acted as Western Digitals President and CEO, he regarded his position as Chairman and visionary as his primary function. By 1980, the year of the Phoenix, Western Digital turned the corner and revenues doubled to $20.6 million. Missler’s financial acumen and unusual Product Sponsorship Program, a tax-sheltered investment partnership to obtain funds for much needed research and development, put Western Digital back on its feet. During the early Eighties, Western Digital shifted its focus to the newly emerging PC market. There were a few important events that helped propel Western Digital in this direction: the development of the floppy disk and IBMs introduction of the PC/XT. Al Shugart of Shugart Associates, later known as Seagate, developed the first 8-inch and 5.25-inch floppy interfaces and form factors. Through Western Digitals involvement in the design of floppy disk controller chips, they gained much expertise. In August of 1981, IBM introduced the PC, later followed by the PC/XT.
Unfortunately, Western Digital underestimated the success of the PC/XT and the importance of developing a floppy controller for the PC and XT markets. In the meantime, Shugart had also developed the ST-506 drive and interface. In 1982, Roger W. Johnson became President and Chief Operating Officer. His critical contribution to Western Digital was to provide the business structure and focus for a young company of engineers and mavericks. He recognized the importance of cultivating business relationships with major OEMs. While they had failed to be on time with an XT hard drive controller, they were ready for the IBM PC/AT in 1983. In 14 days Western Digital produced a wire-wrapped prototype controller to meet with IBM’s approval. Negotiations were conducted during a February thunderstorm in Boca Raton. Nearby, while Roger Johnson awaited IBM’s decision, he relaxed with a game of Solitaire. The autographed Joker from that fateful deck of cards hangs in Dave Schafer’s office today. Western Digital combined the PC/AT controller design with the WD1010. The 1003-register set, which the company developed, became the standard compatibility set used for all disk controllers.
Since XT controllers were based on the SASI protocol developed by Shugart, which was the precursor of SCSI, it was logical that the protocol for AT controllers might develop along the same lines. With the introduction of the WD1010, the personal computer industry veered away from the SASI protocol. By the middle of 1985, nearly 90 percent of Western Digital’s revenue was derived from storage controller products, the rest from communications products. Western Digitals success was founded on the decision to become a PC products company in an industry where product compatibility is all-important to success. Success was also due to early entry into the major supplier market (IBM, Compaq, Tandy, Hewlett-Packard) of a hugely successful, evolving industry standard. Through their efforts, Microsoft became a dominant supplier to major OEMs. They also saw the importance of setting up a good distribution network to serve the many start-up companies as well as expanding their sales force into Europe and Japan. Its important to note that during this time period, controllers were not the only product Western Digital was working on.
They worked with the Massachusetts Institute of Technology to develop an artificial intelligence machine called the Nu machine which was later sold to Texas Instruments and became the Explorer LISP machine. The Nu bus was developed by MIT and licensed to Western Digital. It was instrumental in opening up the Macintosh box to accept peripherals and was chosen over several internally developed Apple buses. The years from 1986 through 1990 was a period of aggressive acquisition, expansion, and risk taking. In 1986 earnings soared to $21 million and sales more than doubled due to a refocus on efficiency, strategy, and recruitment of top talent. It was at this time that Western Digital began working on the concept of IDE disk drives. The fact that drive companies were somewhat contemptuous of controller companies and unwilling to partner the development of an IDE drive forced Western Digital to a momentous decision. With the purchase of the disk drive assets of Tandon Corporation in 1988, Western Digital’s Senior Vice President and General Manager of Storage, Kathryn Braun, cast the die in favor of supplying hard disk storage to OEMs.
Starting up in the drive manufacturing business was a major undertaking fraught with difficulties. The Singapore team worked hard to transform the former Tandon drive facility into one of the drive industrys most efficient manufacturing operations. Thanks to their efforts, Western Digital can claim to be a quality and time-to-market/volume leader in the data storage industry today. Having elected to become a drive manufacturer, they essentially participated in the demise of stand-alone storage devices and controllers. Fortunately, the demand for storage was great, and the transition from manufacturing controller boards for ST-506 drives to manufacturing IDE drives, though difficult, was a sound one. Their strong desire to succeed and a willingness to sacrifice carried them through. IDE became the standard for the PC market. By the quarters end in December of 1990, hard disk drives represented 50percent of corporate revenue. Besides the Tandon acquisition, they made several other acquisitions, which brought in new technology and highly skilled talent. Adaptive Data Systems contributed skilled engineers and knowledge of SCSI devices. Paradise and Verticom brought in video graphics expertise. Faraday contributed core logic expertise and ViaNetix added software development for LAN systems.
Many of these companies were based in the Silicon Valley region of Northern California, establishing to this day a significant Western Digital presence in this high technology hotbed. The early Nineties began with a harsh test of corporate resolve to withstand the vicissitudes of the market and an economy in recession. Western Digital now had to pay the price for the rapid demise of the stand-alone storage controller and the transition to IDE drives, a new standard, which Western Digital had pioneered. In 1991 and 1992 the Company weathered record losses which forced it to lay off employees, endure substantial write-offs and restructure its debt. In this darkest hour, the storage product team decided to design a family of disk drive products for the desktop PC market that would offer lower cost and higher performance. Compaq Computers move to low-cost PCs in 1992 changed the landscape of PC marketing, making Western Digitals positioning of the Caviar drive family a fortunate, well-timed move. Today, the Caviar line enjoys enormous recognition for high quality, reliability, and performance at a cost-effective price. With Roger Johnson departing to Washington, D.C. in 1993 to work for the Clinton administration as head of the General Services Administration, Chuck Haggerty, President and Chief Operating Officer, stepped to the helm, bringing along 28 years of experience with IBM Corporation.
Western Digital has been very fortunate throughout its history to find the right leader for every critical juncture in its corporate life. Haggertys team cemented Western Digitals return to profitability and facilitated its transition to a large corporation by establishing controls and disciplines that re-enforced the Company’s commitment to quality products and superior customer service. To maintain focus on this commitment, the Company introduced a guiding set of values with emphasis on quality, customer satisfaction and integrity. The Company has established technology leadership in the 3.5-inch hard drive business for desktop PCs as well as in the development of graphics devices for portable applications. Revenue has grown to a $2 billion annualized run rate and Company operations are worldwide with more than half of its 7000 people employed outside of the United States. Once more, Western Digital has risen from the ashes to become a stronger, more mature company, fiercely rededicated to its goals and even more competitive. Western Digital has traveled a long distance from the early days when Alvin Phillips and Joe Baia, their investors, and a few employees opened the doors for business.
From an entrepreneurial startup and close-knit family of employees, Western Digital has grown to a Fortune 500 company that is a leading supplier to the Personal Computer industry. Although the Company has matured into a large, multinational corporation, that founding spirit has sustained itself and still guides the Company. The markets they serve and the technologies that they employ are moving rapidly towards enabling convergence of many industries. Western Digital is uniquely positioned to serve many facets of these emerging markets as the digitization of data accelerates. Central to all of them is information storage management, which is one of Western Digitals most important strengths. Collectively, their leading position in personal storage, their strong position in I/O products for high-performance storage systems, and the addition of their investment in high-performance disk drives, provide Western Digital an opportunity to take the lead in all facets of information storage management. Throughout its 25 years of history Western Digital has proved itself to be a resilient, innovative company that from its inception has attracted talented people with imagination and a can-do spirit. The legacy of a unique corporate history and the contributions of its outstanding people have made Western Digital what it is today.
For the first six months of this year, revenues fell 29 percent to $1.96 billion. Net loss before extraordinary items fell 28 percent to $354.9 billion. The results reflect reduction in average selling prices due to competition. As I told you earlier, I purchased 1638 shares in this companies stock for $5.81 each. This stock now sells for $5.56 a share, which for me means a loss of 25 cents per share. Then with the 5 percent brokers fee of $455.36 included, equals $8,651.92. This total subtracted from the original money spent of $9,999.15 puts me $1,347.23 in the red. This assignment has definitely been a learning experience for me. It was really surprising to see how quickly money can be made and/or lost in the coarse of just one-day. My three chosen stocks shares lost a total of $4,049.19. I lost $1,819.16 on my BP Amoco PLC stock; lost $882.80 on my Microsoft stock; and lost $1,347.23 on my Western Digital stock for a total of $4,049.19 lost.
My stocks could come back and triple in price tomorrow, but no one really knows. I feel three primary factors impacted the price of my stocks. The Microsoft anti-trust ruling in the summer of 2000 left the nation wondering what would become of Microsoft and made people question how the judges decision would effect them. Also, the gas price hikes should have sent most of the larger gas and oil companys stock prices soaring, but President Clinton stepped in to try to release more oil from the Federal Reserves. And last but not least, this never-ending presidential election has impacted the stock market by lowering the price of stocks because of political instability. No one really knows what the stock market will do from one day to the next, but the best way to play the market successfully is with lots of research and patience.
My outcome might have been better had I done more homework into the companys background. You must know about the companies you choose: the history and stability of the company, the stock price fluctuation for the past few years, and the risks involved. Also, if this were a real-life situation, you wouldnt have a set day to sell, so you could ride out the lull and wait for a high time to sell. Another helpful hint would be to get a broker that you trust to council you on the risks involved or to buy and trade for you. Overall, I may have lost some money but I gained a valuable experience in the game of life. Now I know why my father always says, To win at card, you first have to know how to play the game. References http://www.finance.yahoo.com/ http://www.hoovers.com http://www.bp.com http://www.microsoft.com http://www.wdc.com