Company Insights on BP, Microsoft, and Western Digital

Company Insights on BP, Microsoft, and Western Digital.
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
/>