Company Insights On BP Essay, Research Paper

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

broker?s 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 broker?s fee, making

the grand total spent $9,999.15.

BP is one of Britain?s biggest companies and one of the world?s largest

oil and petrochemical groups. Its origin dates back to May 1901.

BP owes its origin to one man, William Knox D?Arcy, 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 providence?s that bordered Russia. He, shortly after the turn of the

century, invested time, money and labor in the belief that worthwhile deposits

of oil could be found in Persia, which is now known as Iran. Having been granted

the concession; D?Arcy 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 D?Arcy?s 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-Persian?s formation, Burmah Oil Company owned 97 percent of its ordinary

shares. Lord Strathcona, the company?s 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 1940?s.

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 1940?s, 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 1970?s 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 1970?s. 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 1980?s, 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 1970?s 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-1970?s there was increased emphasis on

diversification into new areas of activity.

BP’s entry into the nutrition business originated in the 1950?s, 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-1970?s, 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-1970?s, 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-1970?s 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 1960?s, 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 1980?s, 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 diversification?s of the 1970?s and early 1980?s 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 1980?s, 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 1970?s, 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 1990?s 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 world?s 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 Amoco?s 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 Amoco?s 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 broker?s 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 broker?s

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 Company?s

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 IBM?s

new PC?s. This was Microsoft?s 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 IBM?s

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 1980?s. The company then began developing

databases, word processors, and other software packages that could run on its

operating system.

In the mid-1980?s Microsoft introduced Windows, an easier-to-use version of

MS-DOS that borrowed from Apple Computer?s point and click Macintosh.

Allen fell ill with Hodgkin?s disease and left Microsoft in 1983. He later

started his own software company, Asymetrix. Today, Allen owns 15 percent of

Microsoft?s stock and serves on its board.

By 1984 Microsoft?s 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 industry?s first millionaire in 1987. In 1990, Gates?

paper value surpassed $2 million.

In 1992 Microsoft won a key ruling in Apple?s suit over similarities

between Apple?s Macintosh interface and that of Windows. Windows? popularity

(more than 12 million copies shipped in fiscal 1992) had boosted sales of

Microsoft?s 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 1980?s to develop the OS/2

operating system. That effort?s 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 1990?s Microsoft first heard charges of ?monopoly!? from

both inside and outside the industry. In 1995 antitrust concerns scotched

Microsoft?s $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 Microsoft?s 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 broker?s 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 broker?s

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

Company?s 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

Company?s 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 Company?s 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 Digital?s

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 Digital?s founder resigned and the Company lost key customers.

The staid Emerson Electric Company had little appreciation for Western Digital?s

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 Digital?s 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 IBM?s

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 Digital?s 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 Digital?s 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.

It?s 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 industry?s 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 quarter?s 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 Computer?s move to low-cost PCs in 1992 changed the

landscape of PC marketing, making Western Digital?s 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. Haggerty?s team cemented Western Digital?s

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 Digital?s 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 broker?s 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 company?s 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 company?s 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

wouldn?t 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

333