Eisenhower Doctrine Definition and Analysis

The Eisenhower Doctrine was an official expression of U.S. foreign policy delivered to a joint session of Congress by President Dwight D. Eisenhower on January 5, 1957. Eisenhower’s proposal called for a more proactive economic and military role on the part of the United States in the increasingly tense situation threatening peace in the Middle East at the time. Under the Eisenhower Doctrine, any Middle Eastern country being threatened by armed aggression from any other country could request and receive economic assistance and/or military assistance from the United States. In a â€Å"Special Message to the Congress on the Situation in the Middle East,† Eisenhower tacitly pointed to the Soviet Union as the most likely aggressor in the Middle East by promising the commitment of U.S. forces â€Å"to secure and protect the territorial integrity and political independence of such nations, requesting such aid against overt armed aggression from any nation controlled by international communism.† Key Takeaways: Eisenhower Doctrine Adopted in 1957, the Eisenhower Doctrine was a key aspect of U.S. foreign policy under the administration of President Dwight D. Eisenhower.The Eisenhower Doctrine promised U.S. economic and military combat assistance to any Middle Eastern country facing armed aggression.The intent of the Eisenhower Doctrine was to prevent the Soviet Union from spreading communism throughout the Middle East.   Background The rapid deterioration of stability in the Middle East during 1956 greatly concerned the Eisenhower administration. In July 1956, as Egypt’s anti-Western leader Gamal Nasser established ever-closer ties to the Soviet Union, both the U.S. and the United Kingdom cut off their support for the construction of the Aswan High Dam on the Nile River. In response, Egypt, aided by the Soviet Union, seized and nationalized the Suez Canal intending to use ship passage fees to fund the dam. In October 1956, armed forces of Israel, Britain, and France invaded Egypt and pushed toward the Suez Canal. When the Soviet Union threatened to join the conflict in support of Nasser, its already delicate relationship with the United States crumbled. Israeli Tanks Occupy Gaza During Suez Canal Crisis of 1956. Hulton Archive / Getty Images Though Israel, Britain, and France had withdrawn their troops by early 1957, the Suez Crisis left the Middle East dangerously fragmented. Regarding the crisis as a major escalation of the Cold War on the part of the Soviet Union, Eisenhower feared the Middle East could fall victim to the spread of communism. In the summer of 1958, the Eisenhower Doctrine was tested when civil strife—rather than Soviet aggression—in Lebanon drove Lebanese president Camille Chamoun to request U.S. assistance. Under the terms of the Eisenhower Doctrine, nearly 15,000 U.S. troops were sent to put down the disturbances. With its actions in Lebanon, the U.S. confirmed its long-term commitment to protecting its interests in the Middle East. Eisenhower Foreign Policy President Eisenhower brought what he called a â€Å"New Look† to U.S. foreign policy, emphasizing the need to respond to the spread of communism. In that context, Eisenhower’s foreign policy was greatly influenced by his staunch anti-communist Secretary of State John Foster Dulles. To Dulles, all nations were either part of the â€Å"Free World† or part of the communist Soviet bloc; there was no middle-ground. Believing that political efforts alone would not stop Soviet expansion, Eisenhower and Dulles adopted a policy known as Massive Retaliation, a scenario in which the U.S would be prepared to use atomic weapons if it or any of its allies were attacked.  Ã‚   Along with the threat of communist expansion in the region, Eisenhower knew the Middle East held a large percentage of the world’s oil reserves, which were badly needed by the U.S. and its allies. During the 1956 Suez Crisis, Eisenhower had objected to the actions of U.S. allies—Britain and France, thus establishing the U.S. as the lone western military power in the Middle East. This position meant that America’s oil security was more at risk should the Soviet Union succeed in imposing its political will in the region.   Impact and Legacy of the Eisenhower Doctrine The Eisenhower Doctrine’s promise of U.S. military intervention in the Middle East was not universally embraced. Both Egypt and Syria, supported by the Soviet Union, strongly objected to it. Most of the Arab nations—fearing Israeli â€Å"Zionist imperialism† more than Soviet communism—were at best skeptical of the Eisenhower Doctrine. Egypt continued to accept money and arms from the U.S. until the Six-Day War in 1967. In practice, the Eisenhower Doctrine simply continued the existing U.S. commitment of military support for Greece and Turkey pledged by the Truman Doctrine of 1947. In the United States, some newspapers objected to the Eisenhower Doctrine, arguing that the cost and the extent of American involvement were left open-ended and vague. While the doctrine itself did not mention any specific funding, Eisenhower told Congress he would seek $200 million (about $1.8 billion in 2019 dollars) for economic and military aid in both 1958 and 1959. Eisenhower contended that his proposal was the only way to address the â€Å"power-hungry communists.† Congress voted overwhelmingly to adopt the Eisenhower Doctrine. In the long run, the Eisenhower Doctrine failed to succeed in containing communism. Indeed, the foreign policies of future presidents Kennedy, Johnson, Nixon, Carter, and Reagan all embodied similar doctrines. It was not until December 1991 that the Reagan Doctrine, combined with economic and political unrest within the Soviet bloc itself, brought the dissolution of the Soviet Union and the end of the Cold War. Sources The Eisenhower Doctrine, 1957. U.S. Department of State, Office of the Historian.Foreign Policy Under President Eisenhower. U.S. Department of State, Office of the Historian.Elghossain, Anthony. When the Marines Came to Lebanon. The New Republic (July 25, 2018).Hahn, Peter L. (2006). Securing the Middle East: The Eisenhower Doctrine of 1957. Presidential Studies Quarterly.Pach, Chester J., Jr. Dwight D. Eisenhower: Foreign Affairs. University of Virginia, Miller Center.

Ethics Code - 1617 Words

The Ethics Code is intended to support us in differentiating between suitable and deplorable behavior in regards to all individuals. When working with adolescents and children, the guidelines become a little more ambiguous. Adolescents require consent from a legal guardian in most cases to seek treatment, but confidentiality permits some information discussed from being released to the parent that requested the treatment. When working with youth the primary focus can include not only the ethical decision, but the legal and moral decisions, as well. In the article Vocal Cord Operation on a Constantly Screaming Autistic Teen there is reference made to Standard 3.10, informed consent. This article talks about a child named†¦show more content†¦We are to presume that an irate, nervous adolescent has brought a handgun to school where he has taken a classroom full of student’s captive. The principle has called in a SWAT team that devises to raid the classroom; ma rksmen center their laser sights on the armed youth. Now, presume that a psychologist employed by the police department consults with the parents of the captor. Based, alone, on the information collected from the parents, the psychologist contacts the hostage taker by means of a cell-phone, endeavors to create a bond, asks questions, and involves the teen emotionally. Due to the deliberate efforts of the psychologist, the teen eventually becomes distracted and briefly puts down his firearm, permitting the SWAT team to rush in and neutralize the captor. In a series of flawless situations this would be the outcome every time, but what if the exertion to have the firearm put down does not work? The psychologist would have to choose whether or not to change gears and entice the hostage taker into a SWAT shooter’s sights. When focusing on the weaknesses of this article I find it lacks substantial detail when describing the hostage situation. I felt that there were several m issing details that would have been useful for furthering the debate on when the standard to avoid harm would be tested. At the same time I felt that GeraldShow MoreRelatedCode Of Ethics : Code Ethics1334 Words   |  6 PagesRunning head: CODE OF ETHICS 1 CODE OF ETHICS 5 Code of Ethics Hieu Le Columbia Southern University Code of ethics is the most essential aspect of the society that organizations and individuals need to fulfill and apply this aspect in their workplaces and families in order to achieveRead MoreEthics Of The Code Of Ethics946 Words   |  4 PagesIt is a violation of the code of ethics and they don’t consequentially suggest lawful accountability or infringement of the law. Such strength of character can be capable of simply be situated in the perspective of lawful and official procedures. 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Knowledge acquisition free essay sample

How Nike inc. in acquiring knowledge and developing it over the years since its stated first movement in shoes, sport apparel and equipment business . The knowledge is not just data or information it is a constantly changing mixture of experience, values, contextual information and expert insight that creates a background for evaluating and implementing new experience and information (Lynch, 2006). It originates and is applied in the minds of knower. Company tries to put this concept in the mind of every managers and employees. Nike implements it know-how to achieve great success consequently to great sale. Company uses divisional structure to allocate resource and tools to operate efficiently. It divided whole company to 5 departments: HR, Marketing Sale, Accounting, Production, and Design Development that have two distinct tacit and explicit forms of knowledge and tools to exploit. Tacit knowledge is difficult to specify. It is unclear, often complex, unwritten, and unrecorded. We will write a custom essay sample on Knowledge acquisition or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page And knowledge that can be given precise definition further analysis is called explicit knowledge. Every single department has unique way to operate individually and within organization. Knowledge in Marketing Sales Tacit knowledge Marketing and Sales staff has experience in creating sustainable relationship with customers that helps to generates positive outcomes in selling goods. Through dealing with customers, may quickly identify the needs and wants of customers and may understand customer’s feeling while young staff may not have those. Core competency in Nikes strategy is strong brand building through heavy advertising and sponsorship in local and international sport competitions. Nike employs very successfully images of popular athletes to make especially young people to associate every Nike branded products with successfull and stylish sport stars in order to promote its product to presuade cutomers to but them. For example, Michael Jordans athletic ability and the image of number one US basketball star was used to develop Nike Air shoes advertising capaign. Other sportmen have got sponsorship deals from Nike are famous tennises John McEnroe and Andre Agassi, golf star Tider Woods, and soccer players David Beckham and Ronaldo. One of the latest Nike’s brand promotion took in the London Olympic Games 2012, Nike cleverly used Olypic Games to it advantage, it choosed not to be the official sponsor instead it managed â€Å"ambush marketing† by delivering many game-changing products and attracted publicity through linking product to world’s famous athletes. Explicit knowledge Marketing Sales Department has to store new policies about future growth of company and based on it to develop new strategies. Moreover, it also requires sales data of company, the customer profile, and customer feedback to analyze the current situation of Nike. In 1976, the company hired John Brown and Partners as its first advertising agency and following year agency created the first brand ad for Nike under the name There is no finish line. But the most famous slogan Just do it was created in 1988 by Wieden+Kennedy ad agency and until now it remains Nikes primary as agency. Nikes Swoosh emblem is one of the most recognizable symbol in the world and it is presence in 46 counties gives huge advantages to operate in many markets and reach a lot of customer.

Institution Kentucky Christian UniversityInstruct Essays

Institution: Kentucky Christian UniversityInstructor: Bill Baumgardner Email: [emailprotected] Phone: 606-474-3151 Course Description A one-hour course required of all incoming freshmen at Kentucky Christian University provides both an introduction to higher education and a general orientation to the functions, values, and resources of KCU. The course is designed to help new students adjust to college; to develop a better understanding of the learning process and to acquire basic academic "survival skills"; culture and traditions of KCU; and, ethical and spiritual development. The course provides a "support group" for students in a critical year by examining problems common to new students, especially freshmen, in an atmosphere somewhat less formal and rigorous than traditional courses. Faculty, staff and administrative personnel who have a special interest in freshman education assist the course facilitator in teaching the class. Course Objectives Students will learn strategies for academic success including planning, time management, prioritizing, and study skills. Emphasis will be placed on discovering and adapting personal strengths to meet academic and personal goals. Students will be introduced to techniques that aid the comprehension of written non-fiction texts, and will practice these techniques during the course Students will review basic college-level academic standards as they relate to reading, writing, presentation, academic integrity and course requirements. The student will become familiar with the resources available at KCU to assist in academic success, spiritual support and development, health and wellness, and recreation and will be encouraged to participate in activities that will foster personal growth and success. 4.The student will become familiar with the social, cultural and religious aspects of life on the KCU campus, including ethical and behavioral standards. Course Textbooks: (required) Thriving at College by Alex Chediak Additional reading (optional): Lusby, J. Lowell. For the Good of the Cause. Kentucky Christian College 1986 Beck, John A and Marmy A Clason. Light on the path: A Christian Perspective on College Success. Thompson Wadsworth 2006 Course Requirements Class attendance and active participation is required. I expect you to be in class, on time and prepared for class. Please refer to the KCU student handbook pp11-12 for policies regarding absences. Papers must be typed, not handwritten. Class exercises should be completed in blue or black ink. No other color is acceptable. All assignments must include your name and KCU box number. Assignments may be submitted in person, via email at [emailprotected], or through the assignments tool on SAKAI. Class participation is a very important element of this course, and distractions affect everyone in the classroom. Personal electronics such as cell phones, mp3s, and other devices must be turned off during class time. Talking, texting, sleeping, chronic tardiness or other disturbances will negatively affect your grade. Students are expected to complete all assignments and attend lab sessions according to schedule. Late assignments will lose one point per day. This is a 10 week course and all work and competencies must be completed by the end of the 10 weeks. Course Grading This course is pass/fail. That means that you must meet all the requirements for passing in order to complete the course for credit. Failure to pass FND 101 means you will have to retake it the next semester. Attendance - Students are expected to attend FND 101. The latest revised policy and stated in the latest KCU Catalog allows no more than 20% of class to be missed - That means no more than 4 class sessions excused/unexcused absences will be allowed. You are allowed only 2 unexcused absences. Just because an absence is excused does NOT mean it doesn't count as one of the 4. If you're an athlete or part of a KCU music team, you must keep track of your absences. 4 excused absences means you cannot afford to be sick. If you find yourself with 4 absences, excused or otherwise, and you have a game, you'll have to miss that game in order to pass the course. Plan ahead! If absences occur, it is the student's responsibility to acquire any and all covered material (i.e., notes, assignments, etc.) that he/she missed and any assignments that were due will be due at the beginning of the next class meeting (along with any other already due assignments). Only excused absences will be allowed make-up work. If you are out of town on a school-sponsored

Economic Development in the Middle East

Cross-Cultural Film Analysis Gattaca Essay Example

Cross Cross-Cultural Film Analysis Gattaca Paper Cross-Cultural Film Analysis Gattaca Paper ‘GATTACA’ Film Summary Vincent is destined to be a second class citizen, conceived naturally, rather than in a laboratory. He is born into a world which discriminates against genetics, rather than religion, race or gender. In order to gain access into the Gattaca Corporation and reach his dream of going to Titan he takes on the identity of Jerome Morrow, a person with ideal genes but crippled from an accident. He uses Jerome’s hair, blood, urine and skin to pass all tests and is set to reach his lifelong desire when the mission director is murdered. He inadvertently loses one of his own eyelashes at the scene and becomes the main suspect in the case. The killer is determined to be another of Gattaca’s directors who is initially overlooked because his DNA profile indicates that violence is not in his nature. In the end Vincent takes off on his mission to Titan. Discussion Culture Shock due to contact with unfamiliar cultures (Stephen Bochner, 2003) Culture shock is something that Vincent experiences as he makes the transition from a culture comprising of second class citizens to a culture of superiority as he takes on the identity of the genetically superior Jerome. The first stage of culture shock is the honeymoon period (Bochner, 2003). Vincent experiences this before he meets Jerome for the first time and thoughts of fulfilling his life-long dream are active. He then goes through a period of fear and denial where he is not confident and actually refuses to go ahead with the plan. He is talked around by the real Jerome, who needs the money to pay for his alcohol addiction, and prepares himself to lie and cheat just to succeed. Situations similar to this are played out in organisations regularly where people are prepared to lie, cheat and steal to gain success, typically financial success; and management must deal with effectively. As time goes on Vincent gradually adjusts to the new expectations of within the Gattaca Corporation. A cross-cultural obstacle that needed to be overcome was the difficulty that Vincent has in accepting himself as Jerome which is essential if he is to succeed within Gattaca and not give up his cover. This is overcome by the real Jerome referring to Vincent as Jerome when they spoke. One thing that this framework does not discuss is the idea of never fully coming to grips with the new culture. The question I pose is: Can a person entirely take on a new culture or does their childhood culture remain with them for life? The film shows that people cannot fully accept a new culture and when forced upon them they show resistance. An example of this is when Vincent becomes aggressive towards one of the murder detectives in fear of being proven as the murderer. The implications of cultural shock for organisations can be seen when an employee is sent on sojourn, typically overseas, and needs to cope in an unfamiliar culture. Management could overcome some of these issues by educating the employee about the foreign culture and some expectations prior to leaving. Software of the Mind (Hofstede, 2005) Culture as mental programming: At the beginning of the film, during his childhood, Vincent’s patterns of thinking, feeling and acting are established in his mind. He learns to accept himself as inferior to his genetically ‘perfect’ brother Anton. When he finds a way of living his dream and must take on a new identity (Jerome) he finds it difficult to unlearn this mental programming. However, a person’s behaviour is only partially predetermined by their mental programming (Hofstede, 2005, p. 3), and this is seen as Vincent deviates from his culture and creatively takes on the identity of Jerome. Hofstede describes culture as being derived from exposure to the world rather than from one’s genes. Hofstede discusses the possibility of intelligence being attributed to genetics and suggests that on the basis of ethnic groups it is difficult to come to a conclusion. In the film it is clear that within Gattaca there is wide acceptance that yes a person’s genes do determine their intelligence. Vincent’s interview for entry into Gattaca entails solely a genetic test and not a physical or mental assessment. Manifestation of cultural differences: In the film we see the divergence of two very strong cultures. One belongs to the genetically gifted; and the other to the ‘degenerates’. The ways these cultures have divided themselves is explained well by Hofstede’s depiction of the ‘skins of an onion’ (Hofstede, 2005, p. 6). The heroes in the film (the genetically gifted) are highly valued and show model behaviour to inferiors or naturally conceived people. Depicted as the more capable members of society the heroes display symbols which carry specific meaning such as formal hair styles and very professional, clean clothing. The heroes display rituals such as the day on the treadmill where they assert themselves superfluous to reaching a desired end as assessors are solely interested in genetic make-up rather than fitness. Contrary to Hofstede’s view that values are acquired early in our lives we see Vincent’s values change significantly in the film. These values are a strong determinant of culture and as Vincent takes on the identity of Jerome he moves into the hero status of society, or as Hofstede describes it, from abnormal to normal (Hofstede, 2005). His move from second class status to hero status is a good example of how culture reproduces itself. His role models become the members of the Gattaca Corporation and he sees an opportunity to fulfil his aim in life. It appears that the hero’s culture is growing as more and more parents are opting for gene selection of their babies. Stereotyping The culture within the Gattaca Corporation shows clearly the human tendency to stereotype. Assessors discriminate against new applicants with undesirable genetics rather than testing each person individually to determine their capabilities. Genetics gives them a preconceived opinion of how people will perform and people are rejected or accepted accordingly. A specific example of stereotyping in the film is when the actual murderer of the mission director is excluded as a suspect because of his genetics. This would suggest that the idea of selection of people with ideal genetics and reliance on this for behaviour of people may be major a cause of stereotyping, not just a result of it. The implications that this has for managers of organisations are that they need to be aware of their stereotypes and ensure that this doesn’t affect their decisions or cause them to discriminate unnecessarily when dealing with people. References Bochner, S. (2003). Culture shock due to contact with unfamiliar cultures. Found in W. J. Lonner, D. L. Dinnel, S. A. Hayes, D. N. Sattler (Eds. ), Online Readings in Psychology and Culture (Unit 8, Chapter 7), Center for Cross-Cultural Research, Western Washington University, Bellingham, Washington USA. Accessed 1st September 2008, from ac. wwu. edu/~culture/Bochner. htm Francesco, A. M. and Gold, B. A. (2005), International Organizational Behaviour: Text, Cases, and Exercises, 2nd Ed, Pearson Prentice Hall, pp. 17-45 Hofstede, G. and Hofstede, G. J. 2005, Culture and Organisations: Software of the Mind, 2nd Ed, McGraw-Hill P. L. Duffy Resource Centre, 2006, Gattaca, Trinity College WA, Accessed 31st August 2008, from trinity. wa. edu. au/plduffyrc/subjects/english/media/gattaca. htm

Financial Management Principles Essay Example | Topics and Well Written Essays - 500 words - 2

Financial Management Principles - Essay Example It should be noted that a lender cannot simply lend his excess fund to potential borrower without making sure that the latter will not default on his payment. In this situation, an intermediary should exist in order to gather information about both parties and mitigate risk (Mishkin 2004). Financial institutions are able to minimize the risk of information asymmetry by building their reputation in the industry. Thus, individuals are not cautious in putting their money in a bank’s savings account which are then lend to parties who are in need of funds. Financial institutions like banks, as stated above, carry out the important function of making financial resources available to parties who need them. By building expertise in information search and reputation in undertaking their financial functions, financial institutions serve as a great help for individuals and business organizations which require help in financing. On the other hand, individuals and companies who want to invest their money can trust in the efficiency of financial institutions in ensuring return to their investments. As the illustration above shows, as financial institutions carry out their role in the financial system, they take on the risk which should be handled by the borrower and lender. Thus, financial institutions also take measures in minimizing the risk that they take by ensuring that their borrowers will not default on their payment obligations. This scrutiny is even more highlighted when a company which borrows from the financial institution conducted its Initial Public Offering. As the company becomes public, it exposes itself from the critical eye of its current and potential creditors. A company can cope with this increased financial intermediation scrutiny by adhering to the standards set by accounting institutions. It should also instill tighter measures in ensuring the truthfulness of its financial reports and accounts.

2500 Essay Example | Topics and Well Written Essays - 1000 words

2500 - Essay Example The bearing used for this specific case of wind turbine is ball-bearings. The ball-bearings are used for low load and high speed machines. The ball bearings are generally manufactured from steel material. This material is preferred choice due to its high strength, and resistance of corrosion and high fatigue strength. As per standard practice, the outer race of the ball bearing is manufactured from high alloy steel bar, in most of the cases the inner races, wear rings are also manufactured from the same material. The recommended steel alloy for such manufacturing is BMS-931 and 8720H. The manufacturing process begins with the forging of the steel bar, the material is forged into different shapes like cups, cones etc. The forging process is generally hot forging; this process shall release thermal stresses from the material during the process. The forging process can be explained as, "exposure of the steel bar in the induction heater system, the heating process is halted after the temperature reaches the melting point of the material; at this temperature maximum formability for hot forging is attained". After the completion of hot forging, the material is pierced. The material used for the manufacturing is SAE-521000; the material is used in the form of forged rings. The centre-less grinding is applied on the material, which is extremely rough machining process. The material is then treated at high temperature, after which the hardness of the material is checked. The grinding on the material is conducted to secure smooth surface finish. During the process the material undergoes "honing and super finishing followed by washing; later anti-rush agent is applied on the object" (Bruce, 1997). The heat treatment process is extremely critical, and during this process the ample exposure to the heat will release thermal stresses within the object. The process is conducted "to

Equity and Debt Assignment Example | Topics and Well Written Essays - 1000 words

Equity and Debt - Assignment Example The advantages of choosing equity financing reveal the compelling reasons why AMSC management felt the need to adopt floating shares in the market. Firstly, equity financing allowed the company to obtain a long-term relationship with investors ready to commit money in the company’s projects. Such an arrangement avoids short-term risks where the financial security offered by the funding party comes to an end after some time, such as in a loan agreement. Similarly, most investors in equity deals have preferences in the choice of projects to invest in, which attracts professional entrepreneurs. In this regard, equity relationships have safer business linkages by pulling passionate investors who add value in terms of business succession. Another advantage of equity financing relates to the overall reduction in outward cash-flow challenges that shrink liquidity. As opposed to debt financing, equity financing adds money to the business in the long-term, thereby reducing outflow challenges. Evans and Mellen (2010) noted a closely related advantage that touches on the long-term outcomes of additional investment without repayment obligations, which increases chances of growth. The long-term element of the equity relationship secures the growth prospects of a business as opposed to a debt that requires fixed repayment periods. Similarly, the investor bears the risk element of the investment made, which reduces the pressure of compulsory liability as seen in debt financing. The sharing outcomes of the partnership and shared ownership raises the confidence of the equity arrangement in facing risks. From these advantages, the management could have found grounds to make a decision to on engaging shareholders. As mentioned, equity financing also presents a fair share of disadvantages emanating from the opportunity cost against debt financing and other sources of capital. Firstly, equity financing implies

High Technology Semiconductor Company Acquisitions

High Technology Semiconductor Company Acquisitions The fast rate of technological change was one of the most important trends in the 1990s and this brought an increasing complexity and cost to the development of new technologies. Companies used their innovative assets as a major source of competitive advantage to quickly introduce new products and adopt new processes (Sen and Egelhoff, 2000). Acquisitions are completed in many industries for reasons that are aligned with the dominant competitive driving forces for that industry. In the area of high technology and seminconductors, the competitive drivers are short product life cycles and process advancement. Process advances are required to both support the incremental changes to existing products and to allow the creation of radically new one. The number of acquisitions rapidly increased through the decade for several reasons: the product life cycle was getting shorter; participating in the creation of industry and product standards was crucial; early entry helped capture market shar e; and R D risk could be reduced. Hagedoorn (1993) found the reduction in innovation time and acquisition of needed technologies as the most important reasons for one company to pursue another. Several researchers have written about the radical and incremental innovation capabilities, their distinguishing factors and the important consequences to the corporation. It has also been argued that large firms are effective with incremental innovations and small firms are better at radical innovations. (Ettlie, Bridges, and OKeefe, 1984; Dewar and Dutton, 1986; Christensen, 1992). Corporate decision to acquire or not acquire another company embodies a high level, serious management strategy decision toward repositioning a company in the competitive landscape. The decade from 1990 to 2000 was chosen as an important time for acquisition activity. There was frequent activity in acquisitions during a time of stable economic conditions creating good conditions for analysis. In 1990, the dollar value of all acquisitions and mergers in the United States was two percent of the Gross Domestic Product (GDP). In 2000, the value reached over 15% of the GDP (Mergerstat, 2003). In the first 10 months of 2000, in the technology sector alone, there were 2,019 acquisition and merger deals worth $573 billion (Reason, 2000). This occurred despite studies done in the 1980s and 1990s that found little positive effect financially for the acquiring company. The magnitude of the activity strongly suggests that some positive relationship could be found if examined in a different way o r using new metrics. This research uses a different methodology by exploring a single industry, selecting profitability growth as the metric from theoretical industry driving forces and analyzing profitability over time as a statistical repeated measures model using SPSS software. The results from this work may have strategic implications for remaining competitive in high technology, high-velocity industries. It should be noted here that the term acquisition, mergers and acquisitions and M A will be used interchangeably in this research and are defined in Appendix A along with other important terms. In high technology industries, such as semiconductors, a firm interested in new product innovation must aggressively invest to stay at the leading edge. Creating or acquiring new offerings can be dependent on a combination of efforts directed either internal or external to the company. Internal efforts include primarily Research and Development (R D) or newly formed affiliates, termed greenfields (Vermeulen Barkema, 2001; Sonenclar, 1984; Bradley Korn, 1981). External efforts can take the form of acquisition or mergers to best capture the intellectual property (IP) that is maintained in the categories of trade secret and proprietary know-how. Acquisitions, when done well, appear to have the advantage of capturing this kind of IP as compared to the other forms of external efforts. Acquisitions also potentially offer faster repositioning with less risk and lower cost than pursuing internal company endeavors (Singh Montgomery, 1987). A high technology companys success hinges on crea tion of innovative ideas, availability of creative personnel, speed of new product execution and cost effectiveness. Mergers and acquisitions are a highly favored management avenue for growth and competitive positioning. The importance of this management consideration and the impact of mergers and acquisitions continue to expand with billions of dollars involved. The importance in the technology sector becomes apparent when looking at the 724 firms that made their initial public offering (IPO) in 1992, but were not acquired or merged. Of these companies, 58% were selling at less than their IPO price six years later (Small Business Statistics, 2000). Product and service offering must constantly evolve and change (Thompson Strickland, 2001). High velocity innovation is fundamental to the growth and survival of high technology businesses. Organizations that are successful have a regular stream of unique products and services. Hewlett-Packard had over 50% of revenue in 1999 coming from products introduced in the previous two to four years. In high technology companies, the highest profit levels come from the newest products. Consequently, it is imperative to accelerate the innovation cycle, often through mergers and acquisitions, and this is critically important to remaining competitive. Entrepreneurial firms consistently outperform larger firms in both market and earnings growth on the Inc. 500 and Forbes 200 lists (Imparato Harari, 1994). There are several potential reasons for making an acquisition that have been identified and studied in the literature. In addition to the reasons for actually acquiring, there are a number of factors following the event that will influence the degree of success or failure that these efforts may experience. These elements that play a part in determining the outcome have been the focus of studies that are summarized in the Literature Review. WHAT MAKES HIGH-TECH COMPANIES AND THEIR ACQUISITIONS UNIQUE Both the popular business press as well as recent academic research seems to uniformly accept the unique nature of high-tech stocks. Kohers and Kohers (2000) state: The high-growth nature of technology-based industries distinguishes them from other types of industries. In addition to their high-growth potential, however, another distinctive feature of high-tech industries is the inherent uncertainty associated with companies whose values rely on future outcomes or developments is unproven, uncharted fields (p. 40). In fact, many pure technology stocks are young companies, underfunded and without prospects for generating any cash flows in the near future. Nevertheless, despite the inherent uncertainty of high-tech industries, investors seemed to disregard most equity fundamentals when valuing technology stocks, especially during the market upturn in the late 1990s. As a result, even though high-tech stocks were in general extremely volatile, many of them were trading at remarkable pre miums. The exploding rate of growth in M A activity that involved high-tech industries can be partly attributed to those overly optimistic valuations. Puranam (2001) argues: On the acquirers side, booming stock market valuations have made acquisitions for stock feasible for several relatively small (revenue wise) firms, as well as the more established larger ones. On the targets side, an increasing preference for the ready liquidity offered, by an acquisition, as opposed to the paper profits from an IPO have created an environment conducive to acquisitions of small start-ups. At the same time many of these acquisitions were also motivated by the acquirers need to obtain critical technologies and expertise in order to quickly enhance their own technological competence. Despite the burst of the high-tech market bubble and the failure of most of these acquisitions, investors continue to show an extreme faith on these stocks. Americans still believe that technology can create a better world. Each time the U.S. tech sector falls into a trough, new technologies and companies emerge to lead it forward again (Business Week, August 27, 2001). PROBLEM MOTIVATING THIS STUDY This research effort seeks to understand the relationship between acquisitions and profitability by looking at the industrial sector for high technology semiconductor companies. Many prior studies have shown little financial benefit to the acquiring company in research conducted beginning in the 1980s and extending to today using a variety of variables, measures and company sample selection. These studies will be discussed in more detail in the Literature Review. The researchers Rumelt (1984), Ravenscraft and Scherer (1987), Porter (1987) and Kaplan and Weisbach (1990) separately found that acquisitions that could be categorized as unrelated, or diversifications, did not lead to profitability improvements, but most of these studies obviously included a cross-section of divergent industries. The importance of innovation and new products in high velocity, competitive environments is discussed in literature and high velocity innovation is fundamental to the growth, profitability and sur vival of these businesses (Thompson and Strickland, 1999; Betz, 2001; Burgelman, Christensen and Wheelwright, 2004). The competitive advantage of capturing intellectual property through acquisition has also been discussed more recently. More clear evidence is beginning to emerge concerning the drive to acquire technology and the unique features of doing so (Prentice Fox, 2002). This research examines the correlation between the event of acquisition and subsequent company performance and growth of profitability in the decade of 1990-2000. Practicing managers in the area of management of technology are faced with the challenge of high velocity innovation being a requirement to maintain competitive positioning (Thompson Strickland, 2001). Two methods for constant innovation include internal efforts, such as Research Development (R D), and external efforts, such as acquisitions, on which this paper focuses. Prior studies have been cross-sectional across different industries and analyzed the benefits gained in terms of patents and R D (Bettis 1981), stock price (Matsusaka, 1990; Schleifer and Vishny, 1990; and Lubatkin, 1982) or increase in company size versus the cost of acquisitions. These studies have not captured one of the most unique features of the high technology industry where innovation and new products are dependent on intellectual property (IP) that is maintained in the categories of trade secret and proprietary know-how. Because of this characteristic, the high technology industry would be expected to yield different results. The importance of IP and know-how has been an area of academic focus working to clarify the concept of absorptive capacity in the 1990s, but empirical work to tie these concepts to firm performance was not pursued (Cohen and Levinthal, 1990; Barney, 1991; Prahalad and Hamel, 1990). The use of patents as a measure, as used in prior research (Acs and Aud retsch, 1988; Pakes and Griliches, 1980; Hitt, Hoskisson, Ireland and Harrison, 1991), does not capture the IP benefits in these categories or measure the success resulting from these external efforts. Acquisitions, when done well, should be expected to have an advantage on capturing this kind of IP. Acquisitions potentially offer faster positioning with less risk and lower cost than internal company endeavors which include primarily Research and Development (R D) (Gulati, 1995; Singh Montgomery, 1987). STUDY OVERVIEW This research effort focuses on one high technology industrial sector of semiconductors and studies the correlation between acquisitions, profitability, survivability and RD intensity over time. Many prior studies (Rumelt, 1984; Ravenscraft and Scherer, 1987; Porter, 1987; and Kaplan and Weisbach, 1990) have shown little financial benefit to the acquiring company, but most of these studies included a cross-section of divergent industries. The importance of innovation and new products in high velocity, competitive environments is widely discussed in literature. High velocity innovation is fundamental for the theory of growth, profitability and survival of these businesses. The competitive advantage of capturing intellectual property through acquisition has also been discussed more recently. More clear evidence is beginning to emerge concerning the drive to acquire technology and the unique features of doing so (Prentice Fox, 2002). This paper researches the correlation between the ev ent of acquisition and subsequent company performance, survivability, the growth of profitability and R D spending. CHAPTER 2 LITERATURE REVIEW ON HIGH-TECH COMPANIES Most research on high-tech companies is relatively recent and has its origin in various business fields. Chaudhuri and Tabrizi (1999) study the practices of 24 high-tech companies involved in acquisitions, and try to identify the key factors in capturing the real value in high-tech acquisitions. They conclude that in order to make a successful acquisition managers need to move beyond the traditional model of acquisitions where the people acquired are secondary to physical assets and brands. High-tech acquisitions need to focus on the people since technological capabilities tied to skilled people are the key to long-term success in these industries. Arora, Fosfuri and Gambardella (2000) examine how the growth of markets for technology affected the corporate strategies of the leading companies, which can now sell technologies that they do not use in-house and increase their potential returns to R D. They argue that globalization, along with the low transportation costs of technologies, has made large R D intensive companies realize that they have the potential to exploit their technology on a very large scale by licensing. However, in deciding how to exploit their technology small firms and technology-based startups face a different set of challenges. According to the authors they need to trade off the costs of acquiring capital and building in-house production, distribution and marketing capability against the rents that would be lost or shared with their partners in a licensing deal. Also, the authors argue that integration may reduce the innovative potential of the firm, because the acquisition of the complementary assets in evitably increases the size of firms and induces important changes in the culture of the firm and in the speed and fluidity of information flows. Finally, they claim that evaluating technologies and being able to use them requires substantial in-house scientific and technological expertise and therefore internal and external R D can be reviewed as complements and not substitutes. Liu (2000) focuses on a different issue by examining the markets reaction to innovation news announcement made by the U.S. biotech firms during the 1983-1992 period. He finds that the average AR to the announcements is as high as 3.98 percent for a three-day event window and biotech stocks trading volumes almost double on the day of the news announcement. The announcement period ARs are negatively related to firm-size and underwriter reputation, while positively related to the firms technology depth as measured by R D intensity. However, during the months following the announcement the average three-month post announcement AR is 2.73 percent. The negative drift in stock prices appears to be mainly driven by the firms weak science and technology (less R D intensive), firms with high Book to Market (B/M) ratios and large firms. In explaining his findings the author proposes an expectation error hypothesis. According to this hypothesis it is hard for investors or even managers to prec isely evaluate the economic value of innovations which in turn leads to the possibility of forming erroneous expectations. In high-tech industries the erroneous expectation is reflected in the investors over-optimism towards high-tech firms innovation news. Eventually, the stock prices adjust itself to reflect the firms fundamentals, especially its technology depth. The author attributes the observed evidence to the costly information required to value a high-tech firms innovation. Prentice and Fox (2002) provide a comprehensive review of the merger and acquisition process while focusing on the distinctive characteristics of high-tech companies. They argue that technology mergers are different from traditional mergers because of the importance that must be placed on people and their ability to innovate. Targets must be evaluated on intangible assets such as intellectual property and human capital. At the same time managers need to consider the issues of retention, culture and integration strategy from the beginning of the merger process to ensure success. There are two studies that are most relevant to this research. The first one is by Kohers and Kohers (2000) who examine the value creation potential of 1,634 mergers in the various high-tech areas between 1987 and 1996. They find that acquirers of high-tech targets experience significantly positive Ars at the time of the merger announcement, regardless of whether the merger is financed with cash or stock. Othe r factors influencing bidder returns are the time period in which the merger occurs, the ownership structure of the acquirer, the ownership status of the target and the high-tech affiliation of acquirers. They conclude that the market appears to be optimistic about such mergers and expects that acquiring companies will enjoy future growth benefits. The second related study is also by Kohers and Kohers (2001) who examine the post-merger performance of acquirers that purchase high-tech targets in order to determine whether the high expectations regarding the future merits of these investments are actually justified. Their results indicate that compared to non acquirers, acquirers perform poorly over the three-year period following the high-tech takeover announcement. Furthermore, glamour bidders show significantly lower long-run ARs, while value bidders do not experience significant post-merger ARs. Also, glamour bidders with a higher risk of agency problems show even worse post-merger performance while institutional ownership in the acquiring firm has a positive influence on acquirer long run ARs. Overall, the authors conclude that the market tends to exhibit excessive enthusiasm toward the expected benefits of high-tech mergers but many of these benefits do not materialize. CHAPTER 3 HYPOTHESES, METHODOLOGY AND DATA SOURCES STATEMENT OF HYPOTHESES Previous research in the literature has generally found little financial benefit for the acquiring companies that were associated with occurrence of the acquisition activity (Rumelt, 1974; Ravenscraft and Scherer, 1987; Porter, 1987; and Kaplan and Weisbach, 1990). Consequently, the first and second questions for this study are focused using the single industry of semiconductors, are stated in the null hypothesis format. First, firm profitability growth rates are compared in two groups, one that does acquire and one that does not. Secondly, individual firm profitability growth is examined before and after an acquisition event looking for a change in growth rate that is significant. Hypothesis 1 (H1): There will be no significant difference in profitability growth when firms making acquisitions are compared to firms not making acquisitions in the high-tech sector. Hypothesis 2 (H2): Acquiring firms making acquisitions are expected to have no significant change in profitability growth before and after the acquisition event. The literature yields less empirical work in analyzing the relationship between merger and acquisition actions and the longevity of a corporation. Theory certainly recognizes the close link between competitive capability and company survival. For the high technology industry of semiconductors, high velocity innovation is a requirement for remaining competitive. Research questions three and four are also stated in the null hypothesis format. Company longevity, or survival rate in number of year, is compared in two groups also, where one group does acquire and one does not. Lastly, an individual firms spending rate on R D is examined before and after an acquisition event looking for a significant change in the rate compared to the trend for the company. Hypothesis 3 (H3): Firms making acquisitions are expected to have no difference in survivability in this industry than firms who do not make acquisitions. Hypothesis 4 (H4): A companys R D intensity will show no significant change following the event of acquisition within this industry. SELECTION OF VARIABLES This research was conducted in a concentric approach by starting with one independent and one dependent variable initially to define the relationship and guide the next treatment in the study. As work continued, variables were selected and the methodology expanded to assess both within-subject and between-subject effects. The variables used in this study for Hypothesis 1 (H1) include profitability growth rate and a dummy variable to represent the presence or absence of the event of acquisition. The event of acquisition is represented by a dummy variable with a zero (0) representing no acquisition and with a one (1) representing an acquisition event. An acquisition event is identified by using a firms reported cash flows attributed to acquisition as stated in the Compustat database. The profitability growth rate is calculated from the total gross profit margin reported by year and cumulated over three years, then averaged to reduce fluctuations and facilitate identification of trends. The variables used for H2 analysis of profitability growth rate before and after an acquisition were the dummy variable for the presence of acquisition, the gross profit margin percentage (GPM %) calculated as a three (3) year cumulative average growth rate (CAGR) to smooth fluctuations and better identify a trend. This relationship was studied for three (3) years prior to the actual acquisition and five (5) years following the action. As the study progressed, a second dummy variable was used for company size to separate the effect of this independent variable as well. A repeated measures matrix was designed with two dummy independent variable as well. A repeated measures matrix was designed with two dummy independent variables, each with two levels and one dependent variable with repeated measures over nine years for a 2 x 2 x 9 repeated measures analysis using the SPPS software. The variables used for H3 analysis of acquisition relation to firm longevity were the acquisition dummy variable and the data from Compustat for the number of years that the company did financial reporting during the period of this study. H4 looks for the effects between acquisition and RD spending or intensity by using the acquisition dummy independent variable and R D intensity as the dependent variable. R D intensity is calculated using the R D expense reported as such by the companies and in the Compustat database. This Compustat item represents all costs incurred during the year that relate to the development of new products or services. This amount is only the company`s contribution and includes software and amortization of software costs and complies with Financial Accounting Standard Board (FASB) standards. This item excludes customer or government-sponsored research and development (including reimbursable indirect costs) and ordinary engineering expenses for routine, ongoing efforts to define, enrich, or improve the qualities of existing products. Methodology This study encompasses the time period of ten years from 1990-2000, inclusive. Semiconductor companies were selected as an entire group according to their NAICS/SIC codes. Using the Standard Poors Compustat database, there are 153 semiconductor companies included that were identified as active companies at the end of the calendar year 2000 by Compustat. These companies are listed in Appendix B. Active reporting for one year. Companies are designated as inactive and reclassified in the Compustat database when it is no longer actively traded on a stock market exchange due to bankruptcy, becoming a private company, leveraged buyout or merging. The research effort started with analysis one independent variable and one dependent variable in order to initially establish what the relationship was that existed, if it was significant and how to proceed with analysis. Exploratory work on Hypothesis 1 showed that there was a statistically significant and positive correlation between acquisitions and gross profit margin (GMP) growth broadly over the decade which differs from prior research. Hypothesis 2 moves toward a more detailed analysis of this finding. Consequently, in this chronology of discovery, the next step presented in Section 4.2 look at one dependent variable of profit margin growth and two independent variables of company size and acquisition activity. 3-way ANNOVA and regression treatments of the data are conducted using the data analysis tool available under Microsoft Excel Software looking at individual years in the ten year study period. The results show significance again and suggest that other interactions betwe en variables would yield additional understanding. The next step in the research was set up to look at one dependent variable, again gross margin (GPM) growth, repeatedly measured over time for each subject or company was entered for the nine (9) years 1995-2000 inclusive to capture acquisition effects giving 2 x 2 x 9 repeated measures design. The two independent variables were used in the dummy format with non-acquires given a code zero 0 and acquires assigned at one (1). Company size was the second dummy variable with firms less than $100M in sales per year coded zero (0) and if greater than $100M in sales, assigned a one (1). The statistical analysis using a repeated measures design analyzed the variable interactions and their relationship to GPM growth using the SPSS software. These results are presented in Section 4.5 Repeated Measures Analysis that was done using SPSS software. Descriptive statistics were an important first treatment of the data sets created. This includes the values for the following parameters: mean, median, range variance, standard deviation, kurtosis, and skewness. This treatment looks at characteristics of the data and the degree of normal distribution. The 3-way ANOVA investigations and regression treatment of the data were initially done using the data analysis tool software available in Microsoft Excel. Generally, the data sets for this study vary somewhat from the classical normal distribution, but ANOVA and MANOVA (multivariate ANOVA) within a repeated measures analysis are considered robust to violations of the normal distribution assumption (Maxwell Dealney, 1990; Stevens, 1996) SPSS Advanced Models 11.0 software was used to create general linear models of the data and conduct analysis of variance (ANOVA), regression, and analysis of covariance (ANCOVA) for the multiple variables in this model with repeated measures. The factors or independent variables were used to divide the population of 153 active semiconductor companies into groups. There were two independent variables used that were designated as dummy variables. The first variable of acquisition separated companies that did complete acquisitions from those that did not complete acquisitions during the decade of study. The second variable grouped the companies by size of sales at the end of the decade by either greater than $100 million or less than $100 million. Then the general linear model procedure was used to test the four null hypotheses, as stated above, regarding the effects of the independent variables on the dependent variable of gross profit margin growth as a repeated measure over the perio d 1992-2000. The investigation included looking at interactions between factors as well as the individual factors and the effects and interactions of covariates. This model specifies the independent variables as covariates for regression analysis. The SPSS repeated measures model creates a matrix for the sums of squares due to the model effects, gives the approximate F statistics and estimates parameters in addition to testing hypotheses. When an F test shows significance, SPSS performs post hoc tests to evaluate the differences between the means. This yields a predicted mean value for the cells of the model. Analysis of variance (ANOVA) was applied to named variables to study the portion of variance in the each variable that could be identified as explained and unexpected with regard to the event of acquisition. A covariance tool was also used when looking at the variables described above such as acquisition occurrence, company size and profitability growth changes. This compares whether the two ranges of data move together à ¢Ã¢â€š ¬Ã¢â‚¬Å" that is, whether large values of one set were associated with large values of the other (positive covariance), whether small values of one set were associated with large values of the other (negative covariance), or whether values in both sets were unrelated (covariance near zero). DATA SOURCES Standard Poors Compustat database was used for data collection in this research. The database contains fundamental financial, statistical and market data derived from publicity traded companies trading on the NYSE, NASDAQ, AMEX, OTC and Canadian stock exchanges. The calendar year for a company is the year in which the fiscal year ends and is the time period used as standard in this research. Companies with fiscal years ending in January through May are assigned by Compustant into the year in which the fiscal year begins. Companies with fiscal years that end in June through December are assigned to the year in which the fiscal year ends. The EDGAR (Electronic Data Gathering, Analysis and Retrieval) System database maintained by the United Stated Security and Exchange Commission (SEC) was also used. The EDGAR data is also collected from the same sources that are used to generate the Compustat database. Data from these controlled and verifiable sources were corroborated and augmented with information collected from semiconductor trade journals, company annual reports and the Mergers Acquisitions Journal that tracks statistics in this area. CHAPTER 4 RESULTS AND DISCUSSION HI à ¢Ã¢â€š ¬Ã¢â‚¬Å" ACQUISITON AND PROFITABILITY RELATIONSHIP A strong positive relationship was found to exist between the presence of acquisition activity and the growth in gross profit margin (GPM) by the end of the ten year study period. The statistical analysis is detailed below and is a departure from previous findings. This finding addresses the central question of this research endeavor to look for a relationship between acquisition events and profitability growth within the one industry of semiconductors. A positive financial effect is found and opens the path for additional analysis in this direction. Consequently, this information forms the foundation for the additional work presented in this research. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON ANALYSIS GOING ON >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> High Technology Semiconductor Company Acquisitions High Technology Semiconductor Company Acquisitions The fast rate of technological change was one of the most important trends in the 1990s and this brought an increasing complexity and cost to the development of new technologies. Companies used their innovative assets as a major source of competitive advantage to quickly introduce new products and adopt new processes (Sen and Egelhoff, 2000). Acquisitions are completed in many industries for reasons that are aligned with the dominant competitive driving forces for that industry. In the area of high technology and seminconductors, the competitive drivers are short product life cycles and process advancement. Process advances are required to both support the incremental changes to existing products and to allow the creation of radically new one. The number of acquisitions rapidly increased through the decade for several reasons: the product life cycle was getting shorter; participating in the creation of industry and product standards was crucial; early entry helped capture market shar e; and R D risk could be reduced. Hagedoorn (1993) found the reduction in innovation time and acquisition of needed technologies as the most important reasons for one company to pursue another. Several researchers have written about the radical and incremental innovation capabilities, their distinguishing factors and the important consequences to the corporation. It has also been argued that large firms are effective with incremental innovations and small firms are better at radical innovations. (Ettlie, Bridges, and OKeefe, 1984; Dewar and Dutton, 1986; Christensen, 1992). Corporate decision to acquire or not acquire another company embodies a high level, serious management strategy decision toward repositioning a company in the competitive landscape. The decade from 1990 to 2000 was chosen as an important time for acquisition activity. There was frequent activity in acquisitions during a time of stable economic conditions creating good conditions for analysis. In 1990, the dollar value of all acquisitions and mergers in the United States was two percent of the Gross Domestic Product (GDP). In 2000, the value reached over 15% of the GDP (Mergerstat, 2003). In the first 10 months of 2000, in the technology sector alone, there were 2,019 acquisition and merger deals worth $573 billion (Reason, 2000). This occurred despite studies done in the 1980s and 1990s that found little positive effect financially for the acquiring company. The magnitude of the activity strongly suggests that some positive relationship could be found if examined in a different way o r using new metrics. This research uses a different methodology by exploring a single industry, selecting profitability growth as the metric from theoretical industry driving forces and analyzing profitability over time as a statistical repeated measures model using SPSS software. The results from this work may have strategic implications for remaining competitive in high technology, high-velocity industries. It should be noted here that the term acquisition, mergers and acquisitions and M A will be used interchangeably in this research and are defined in Appendix A along with other important terms. In high technology industries, such as semiconductors, a firm interested in new product innovation must aggressively invest to stay at the leading edge. Creating or acquiring new offerings can be dependent on a combination of efforts directed either internal or external to the company. Internal efforts include primarily Research and Development (R D) or newly formed affiliates, termed greenfields (Vermeulen Barkema, 2001; Sonenclar, 1984; Bradley Korn, 1981). External efforts can take the form of acquisition or mergers to best capture the intellectual property (IP) that is maintained in the categories of trade secret and proprietary know-how. Acquisitions, when done well, appear to have the advantage of capturing this kind of IP as compared to the other forms of external efforts. Acquisitions also potentially offer faster repositioning with less risk and lower cost than pursuing internal company endeavors (Singh Montgomery, 1987). A high technology companys success hinges on crea tion of innovative ideas, availability of creative personnel, speed of new product execution and cost effectiveness. Mergers and acquisitions are a highly favored management avenue for growth and competitive positioning. The importance of this management consideration and the impact of mergers and acquisitions continue to expand with billions of dollars involved. The importance in the technology sector becomes apparent when looking at the 724 firms that made their initial public offering (IPO) in 1992, but were not acquired or merged. Of these companies, 58% were selling at less than their IPO price six years later (Small Business Statistics, 2000). Product and service offering must constantly evolve and change (Thompson Strickland, 2001). High velocity innovation is fundamental to the growth and survival of high technology businesses. Organizations that are successful have a regular stream of unique products and services. Hewlett-Packard had over 50% of revenue in 1999 coming from products introduced in the previous two to four years. In high technology companies, the highest profit levels come from the newest products. Consequently, it is imperative to accelerate the innovation cycle, often through mergers and acquisitions, and this is critically important to remaining competitive. Entrepreneurial firms consistently outperform larger firms in both market and earnings growth on the Inc. 500 and Forbes 200 lists (Imparato Harari, 1994). There are several potential reasons for making an acquisition that have been identified and studied in the literature. In addition to the reasons for actually acquiring, there are a number of factors following the event that will influence the degree of success or failure that these efforts may experience. These elements that play a part in determining the outcome have been the focus of studies that are summarized in the Literature Review. WHAT MAKES HIGH-TECH COMPANIES AND THEIR ACQUISITIONS UNIQUE Both the popular business press as well as recent academic research seems to uniformly accept the unique nature of high-tech stocks. Kohers and Kohers (2000) state: The high-growth nature of technology-based industries distinguishes them from other types of industries. In addition to their high-growth potential, however, another distinctive feature of high-tech industries is the inherent uncertainty associated with companies whose values rely on future outcomes or developments is unproven, uncharted fields (p. 40). In fact, many pure technology stocks are young companies, underfunded and without prospects for generating any cash flows in the near future. Nevertheless, despite the inherent uncertainty of high-tech industries, investors seemed to disregard most equity fundamentals when valuing technology stocks, especially during the market upturn in the late 1990s. As a result, even though high-tech stocks were in general extremely volatile, many of them were trading at remarkable pre miums. The exploding rate of growth in M A activity that involved high-tech industries can be partly attributed to those overly optimistic valuations. Puranam (2001) argues: On the acquirers side, booming stock market valuations have made acquisitions for stock feasible for several relatively small (revenue wise) firms, as well as the more established larger ones. On the targets side, an increasing preference for the ready liquidity offered, by an acquisition, as opposed to the paper profits from an IPO have created an environment conducive to acquisitions of small start-ups. At the same time many of these acquisitions were also motivated by the acquirers need to obtain critical technologies and expertise in order to quickly enhance their own technological competence. Despite the burst of the high-tech market bubble and the failure of most of these acquisitions, investors continue to show an extreme faith on these stocks. Americans still believe that technology can create a better world. Each time the U.S. tech sector falls into a trough, new technologies and companies emerge to lead it forward again (Business Week, August 27, 2001). PROBLEM MOTIVATING THIS STUDY This research effort seeks to understand the relationship between acquisitions and profitability by looking at the industrial sector for high technology semiconductor companies. Many prior studies have shown little financial benefit to the acquiring company in research conducted beginning in the 1980s and extending to today using a variety of variables, measures and company sample selection. These studies will be discussed in more detail in the Literature Review. The researchers Rumelt (1984), Ravenscraft and Scherer (1987), Porter (1987) and Kaplan and Weisbach (1990) separately found that acquisitions that could be categorized as unrelated, or diversifications, did not lead to profitability improvements, but most of these studies obviously included a cross-section of divergent industries. The importance of innovation and new products in high velocity, competitive environments is discussed in literature and high velocity innovation is fundamental to the growth, profitability and sur vival of these businesses (Thompson and Strickland, 1999; Betz, 2001; Burgelman, Christensen and Wheelwright, 2004). The competitive advantage of capturing intellectual property through acquisition has also been discussed more recently. More clear evidence is beginning to emerge concerning the drive to acquire technology and the unique features of doing so (Prentice Fox, 2002). This research examines the correlation between the event of acquisition and subsequent company performance and growth of profitability in the decade of 1990-2000. Practicing managers in the area of management of technology are faced with the challenge of high velocity innovation being a requirement to maintain competitive positioning (Thompson Strickland, 2001). Two methods for constant innovation include internal efforts, such as Research Development (R D), and external efforts, such as acquisitions, on which this paper focuses. Prior studies have been cross-sectional across different industries and analyzed the benefits gained in terms of patents and R D (Bettis 1981), stock price (Matsusaka, 1990; Schleifer and Vishny, 1990; and Lubatkin, 1982) or increase in company size versus the cost of acquisitions. These studies have not captured one of the most unique features of the high technology industry where innovation and new products are dependent on intellectual property (IP) that is maintained in the categories of trade secret and proprietary know-how. Because of this characteristic, the high technology industry would be expected to yield different results. The importance of IP and know-how has been an area of academic focus working to clarify the concept of absorptive capacity in the 1990s, but empirical work to tie these concepts to firm performance was not pursued (Cohen and Levinthal, 1990; Barney, 1991; Prahalad and Hamel, 1990). The use of patents as a measure, as used in prior research (Acs and Aud retsch, 1988; Pakes and Griliches, 1980; Hitt, Hoskisson, Ireland and Harrison, 1991), does not capture the IP benefits in these categories or measure the success resulting from these external efforts. Acquisitions, when done well, should be expected to have an advantage on capturing this kind of IP. Acquisitions potentially offer faster positioning with less risk and lower cost than internal company endeavors which include primarily Research and Development (R D) (Gulati, 1995; Singh Montgomery, 1987). STUDY OVERVIEW This research effort focuses on one high technology industrial sector of semiconductors and studies the correlation between acquisitions, profitability, survivability and RD intensity over time. Many prior studies (Rumelt, 1984; Ravenscraft and Scherer, 1987; Porter, 1987; and Kaplan and Weisbach, 1990) have shown little financial benefit to the acquiring company, but most of these studies included a cross-section of divergent industries. The importance of innovation and new products in high velocity, competitive environments is widely discussed in literature. High velocity innovation is fundamental for the theory of growth, profitability and survival of these businesses. The competitive advantage of capturing intellectual property through acquisition has also been discussed more recently. More clear evidence is beginning to emerge concerning the drive to acquire technology and the unique features of doing so (Prentice Fox, 2002). This paper researches the correlation between the ev ent of acquisition and subsequent company performance, survivability, the growth of profitability and R D spending. CHAPTER 2 LITERATURE REVIEW ON HIGH-TECH COMPANIES Most research on high-tech companies is relatively recent and has its origin in various business fields. Chaudhuri and Tabrizi (1999) study the practices of 24 high-tech companies involved in acquisitions, and try to identify the key factors in capturing the real value in high-tech acquisitions. They conclude that in order to make a successful acquisition managers need to move beyond the traditional model of acquisitions where the people acquired are secondary to physical assets and brands. High-tech acquisitions need to focus on the people since technological capabilities tied to skilled people are the key to long-term success in these industries. Arora, Fosfuri and Gambardella (2000) examine how the growth of markets for technology affected the corporate strategies of the leading companies, which can now sell technologies that they do not use in-house and increase their potential returns to R D. They argue that globalization, along with the low transportation costs of technologies, has made large R D intensive companies realize that they have the potential to exploit their technology on a very large scale by licensing. However, in deciding how to exploit their technology small firms and technology-based startups face a different set of challenges. According to the authors they need to trade off the costs of acquiring capital and building in-house production, distribution and marketing capability against the rents that would be lost or shared with their partners in a licensing deal. Also, the authors argue that integration may reduce the innovative potential of the firm, because the acquisition of the complementary assets in evitably increases the size of firms and induces important changes in the culture of the firm and in the speed and fluidity of information flows. Finally, they claim that evaluating technologies and being able to use them requires substantial in-house scientific and technological expertise and therefore internal and external R D can be reviewed as complements and not substitutes. Liu (2000) focuses on a different issue by examining the markets reaction to innovation news announcement made by the U.S. biotech firms during the 1983-1992 period. He finds that the average AR to the announcements is as high as 3.98 percent for a three-day event window and biotech stocks trading volumes almost double on the day of the news announcement. The announcement period ARs are negatively related to firm-size and underwriter reputation, while positively related to the firms technology depth as measured by R D intensity. However, during the months following the announcement the average three-month post announcement AR is 2.73 percent. The negative drift in stock prices appears to be mainly driven by the firms weak science and technology (less R D intensive), firms with high Book to Market (B/M) ratios and large firms. In explaining his findings the author proposes an expectation error hypothesis. According to this hypothesis it is hard for investors or even managers to prec isely evaluate the economic value of innovations which in turn leads to the possibility of forming erroneous expectations. In high-tech industries the erroneous expectation is reflected in the investors over-optimism towards high-tech firms innovation news. Eventually, the stock prices adjust itself to reflect the firms fundamentals, especially its technology depth. The author attributes the observed evidence to the costly information required to value a high-tech firms innovation. Prentice and Fox (2002) provide a comprehensive review of the merger and acquisition process while focusing on the distinctive characteristics of high-tech companies. They argue that technology mergers are different from traditional mergers because of the importance that must be placed on people and their ability to innovate. Targets must be evaluated on intangible assets such as intellectual property and human capital. At the same time managers need to consider the issues of retention, culture and integration strategy from the beginning of the merger process to ensure success. There are two studies that are most relevant to this research. The first one is by Kohers and Kohers (2000) who examine the value creation potential of 1,634 mergers in the various high-tech areas between 1987 and 1996. They find that acquirers of high-tech targets experience significantly positive Ars at the time of the merger announcement, regardless of whether the merger is financed with cash or stock. Othe r factors influencing bidder returns are the time period in which the merger occurs, the ownership structure of the acquirer, the ownership status of the target and the high-tech affiliation of acquirers. They conclude that the market appears to be optimistic about such mergers and expects that acquiring companies will enjoy future growth benefits. The second related study is also by Kohers and Kohers (2001) who examine the post-merger performance of acquirers that purchase high-tech targets in order to determine whether the high expectations regarding the future merits of these investments are actually justified. Their results indicate that compared to non acquirers, acquirers perform poorly over the three-year period following the high-tech takeover announcement. Furthermore, glamour bidders show significantly lower long-run ARs, while value bidders do not experience significant post-merger ARs. Also, glamour bidders with a higher risk of agency problems show even worse post-merger performance while institutional ownership in the acquiring firm has a positive influence on acquirer long run ARs. Overall, the authors conclude that the market tends to exhibit excessive enthusiasm toward the expected benefits of high-tech mergers but many of these benefits do not materialize. CHAPTER 3 HYPOTHESES, METHODOLOGY AND DATA SOURCES STATEMENT OF HYPOTHESES Previous research in the literature has generally found little financial benefit for the acquiring companies that were associated with occurrence of the acquisition activity (Rumelt, 1974; Ravenscraft and Scherer, 1987; Porter, 1987; and Kaplan and Weisbach, 1990). Consequently, the first and second questions for this study are focused using the single industry of semiconductors, are stated in the null hypothesis format. First, firm profitability growth rates are compared in two groups, one that does acquire and one that does not. Secondly, individual firm profitability growth is examined before and after an acquisition event looking for a change in growth rate that is significant. Hypothesis 1 (H1): There will be no significant difference in profitability growth when firms making acquisitions are compared to firms not making acquisitions in the high-tech sector. Hypothesis 2 (H2): Acquiring firms making acquisitions are expected to have no significant change in profitability growth before and after the acquisition event. The literature yields less empirical work in analyzing the relationship between merger and acquisition actions and the longevity of a corporation. Theory certainly recognizes the close link between competitive capability and company survival. For the high technology industry of semiconductors, high velocity innovation is a requirement for remaining competitive. Research questions three and four are also stated in the null hypothesis format. Company longevity, or survival rate in number of year, is compared in two groups also, where one group does acquire and one does not. Lastly, an individual firms spending rate on R D is examined before and after an acquisition event looking for a significant change in the rate compared to the trend for the company. Hypothesis 3 (H3): Firms making acquisitions are expected to have no difference in survivability in this industry than firms who do not make acquisitions. Hypothesis 4 (H4): A companys R D intensity will show no significant change following the event of acquisition within this industry. SELECTION OF VARIABLES This research was conducted in a concentric approach by starting with one independent and one dependent variable initially to define the relationship and guide the next treatment in the study. As work continued, variables were selected and the methodology expanded to assess both within-subject and between-subject effects. The variables used in this study for Hypothesis 1 (H1) include profitability growth rate and a dummy variable to represent the presence or absence of the event of acquisition. The event of acquisition is represented by a dummy variable with a zero (0) representing no acquisition and with a one (1) representing an acquisition event. An acquisition event is identified by using a firms reported cash flows attributed to acquisition as stated in the Compustat database. The profitability growth rate is calculated from the total gross profit margin reported by year and cumulated over three years, then averaged to reduce fluctuations and facilitate identification of trends. The variables used for H2 analysis of profitability growth rate before and after an acquisition were the dummy variable for the presence of acquisition, the gross profit margin percentage (GPM %) calculated as a three (3) year cumulative average growth rate (CAGR) to smooth fluctuations and better identify a trend. This relationship was studied for three (3) years prior to the actual acquisition and five (5) years following the action. As the study progressed, a second dummy variable was used for company size to separate the effect of this independent variable as well. A repeated measures matrix was designed with two dummy independent variable as well. A repeated measures matrix was designed with two dummy independent variables, each with two levels and one dependent variable with repeated measures over nine years for a 2 x 2 x 9 repeated measures analysis using the SPPS software. The variables used for H3 analysis of acquisition relation to firm longevity were the acquisition dummy variable and the data from Compustat for the number of years that the company did financial reporting during the period of this study. H4 looks for the effects between acquisition and RD spending or intensity by using the acquisition dummy independent variable and R D intensity as the dependent variable. R D intensity is calculated using the R D expense reported as such by the companies and in the Compustat database. This Compustat item represents all costs incurred during the year that relate to the development of new products or services. This amount is only the company`s contribution and includes software and amortization of software costs and complies with Financial Accounting Standard Board (FASB) standards. This item excludes customer or government-sponsored research and development (including reimbursable indirect costs) and ordinary engineering expenses for routine, ongoing efforts to define, enrich, or improve the qualities of existing products. Methodology This study encompasses the time period of ten years from 1990-2000, inclusive. Semiconductor companies were selected as an entire group according to their NAICS/SIC codes. Using the Standard Poors Compustat database, there are 153 semiconductor companies included that were identified as active companies at the end of the calendar year 2000 by Compustat. These companies are listed in Appendix B. Active reporting for one year. Companies are designated as inactive and reclassified in the Compustat database when it is no longer actively traded on a stock market exchange due to bankruptcy, becoming a private company, leveraged buyout or merging. The research effort started with analysis one independent variable and one dependent variable in order to initially establish what the relationship was that existed, if it was significant and how to proceed with analysis. Exploratory work on Hypothesis 1 showed that there was a statistically significant and positive correlation between acquisitions and gross profit margin (GMP) growth broadly over the decade which differs from prior research. Hypothesis 2 moves toward a more detailed analysis of this finding. Consequently, in this chronology of discovery, the next step presented in Section 4.2 look at one dependent variable of profit margin growth and two independent variables of company size and acquisition activity. 3-way ANNOVA and regression treatments of the data are conducted using the data analysis tool available under Microsoft Excel Software looking at individual years in the ten year study period. The results show significance again and suggest that other interactions betwe en variables would yield additional understanding. The next step in the research was set up to look at one dependent variable, again gross margin (GPM) growth, repeatedly measured over time for each subject or company was entered for the nine (9) years 1995-2000 inclusive to capture acquisition effects giving 2 x 2 x 9 repeated measures design. The two independent variables were used in the dummy format with non-acquires given a code zero 0 and acquires assigned at one (1). Company size was the second dummy variable with firms less than $100M in sales per year coded zero (0) and if greater than $100M in sales, assigned a one (1). The statistical analysis using a repeated measures design analyzed the variable interactions and their relationship to GPM growth using the SPSS software. These results are presented in Section 4.5 Repeated Measures Analysis that was done using SPSS software. Descriptive statistics were an important first treatment of the data sets created. This includes the values for the following parameters: mean, median, range variance, standard deviation, kurtosis, and skewness. This treatment looks at characteristics of the data and the degree of normal distribution. The 3-way ANOVA investigations and regression treatment of the data were initially done using the data analysis tool software available in Microsoft Excel. Generally, the data sets for this study vary somewhat from the classical normal distribution, but ANOVA and MANOVA (multivariate ANOVA) within a repeated measures analysis are considered robust to violations of the normal distribution assumption (Maxwell Dealney, 1990; Stevens, 1996) SPSS Advanced Models 11.0 software was used to create general linear models of the data and conduct analysis of variance (ANOVA), regression, and analysis of covariance (ANCOVA) for the multiple variables in this model with repeated measures. The factors or independent variables were used to divide the population of 153 active semiconductor companies into groups. There were two independent variables used that were designated as dummy variables. The first variable of acquisition separated companies that did complete acquisitions from those that did not complete acquisitions during the decade of study. The second variable grouped the companies by size of sales at the end of the decade by either greater than $100 million or less than $100 million. Then the general linear model procedure was used to test the four null hypotheses, as stated above, regarding the effects of the independent variables on the dependent variable of gross profit margin growth as a repeated measure over the perio d 1992-2000. The investigation included looking at interactions between factors as well as the individual factors and the effects and interactions of covariates. This model specifies the independent variables as covariates for regression analysis. The SPSS repeated measures model creates a matrix for the sums of squares due to the model effects, gives the approximate F statistics and estimates parameters in addition to testing hypotheses. When an F test shows significance, SPSS performs post hoc tests to evaluate the differences between the means. This yields a predicted mean value for the cells of the model. Analysis of variance (ANOVA) was applied to named variables to study the portion of variance in the each variable that could be identified as explained and unexpected with regard to the event of acquisition. A covariance tool was also used when looking at the variables described above such as acquisition occurrence, company size and profitability growth changes. This compares whether the two ranges of data move together à ¢Ã¢â€š ¬Ã¢â‚¬Å" that is, whether large values of one set were associated with large values of the other (positive covariance), whether small values of one set were associated with large values of the other (negative covariance), or whether values in both sets were unrelated (covariance near zero). DATA SOURCES Standard Poors Compustat database was used for data collection in this research. The database contains fundamental financial, statistical and market data derived from publicity traded companies trading on the NYSE, NASDAQ, AMEX, OTC and Canadian stock exchanges. The calendar year for a company is the year in which the fiscal year ends and is the time period used as standard in this research. Companies with fiscal years ending in January through May are assigned by Compustant into the year in which the fiscal year begins. Companies with fiscal years that end in June through December are assigned to the year in which the fiscal year ends. The EDGAR (Electronic Data Gathering, Analysis and Retrieval) System database maintained by the United Stated Security and Exchange Commission (SEC) was also used. The EDGAR data is also collected from the same sources that are used to generate the Compustat database. Data from these controlled and verifiable sources were corroborated and augmented with information collected from semiconductor trade journals, company annual reports and the Mergers Acquisitions Journal that tracks statistics in this area. CHAPTER 4 RESULTS AND DISCUSSION HI à ¢Ã¢â€š ¬Ã¢â‚¬Å" ACQUISITON AND PROFITABILITY RELATIONSHIP A strong positive relationship was found to exist between the presence of acquisition activity and the growth in gross profit margin (GPM) by the end of the ten year study period. The statistical analysis is detailed below and is a departure from previous findings. This finding addresses the central question of this research endeavor to look for a relationship between acquisition events and profitability growth within the one industry of semiconductors. A positive financial effect is found and opens the path for additional analysis in this direction. 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