IBM October 29 1929 Stock Market Performance
Although IBM was incorporated in the state of New York on June 16, 1911 as the Computing- Tabulating- Recording Company (C-T-R), its origins can be traced back to developments at the close of the 19th century. For example, the first dial recorder was invented by Dr. Alexander Dey in 1888, and Dey’s business became one of the building blocks of C-T-R.
Similarly, the Bundy Manufacturing Company was incorporated in 1889 as the first time recording company in the world, and it, too, later became a key component of C-T-R.
The International Time Recording Company (ITR) was formed in 1900 and the Computing Scale Company of America was incorporated in 1901 – and these two businesses were two of the three chief components of C-T-R a decade later. ITR itself acquired other companies, such as the Dey Time Register Company, during this period, broadening the time recording equipment product line.
When the diversified businesses of C-T-R proved difficult to manage, the former number two executive at the National Cash Register Company, Thomas J. Watson, Sr. joined the company as general manager in 1914 at 40 years old.
Watson boosted company spirit with employee sports teams, family outings and a company band. He preached a positive outlook, and his favorite slogan, “THINK,” became a mantra for C-T-R’s employees. Within 11 months of joining C-T-R, Watson became its president.
In 1921, the company acquired the business of the Ticketograph Company of Chicago, and certain patents and other property of the Peirce Accounting Machine Company.
The growth and extension of C-T-R’s activities made the old name of the company too limited, and, on February 14, 1924, C-T-R’s name was formally changed to International Business Machines Corporation.
IBM did not initially go public (IPO) as the company we know today. It was formed by a merger of three companies in 1911 under the name Computing Tabulating Recording Corporation which was listed on the NYSE in 1916 and changed its name to IBM in 1924.
International Business Machines was a hot young tech company in the late 1920’s — a Google of its era. It was trading in 1927 at $54 per share, and at its peak in 1929, it was more than four times that — over $216 per share. It wasn’t until 1932 when IBM found a bottom of $9.125 per share.
IBM was a NYSE component when the stock market crashed on October 29, 1929. If you held just 1 share of IBM back in 1924 when it changed its name, you would currently own 3,460 shares and it would be worth $539,379.40 adjusted for stock splits as of March 18, 2011, earning $8,996.00 in dividends per year.
Monday, Nov. 18, 1929, Thomas Watson called his top executives into the boardroom at headquarters. They came gladly, anxious to hear anything from Watson. He had disappeared (from meetings) after the stock market crash 20 days earlier.
They had built their lives and finances on IBM stock, which so far had almost exclusively gone up. As it hit new highs in the summer of 1929, some executives used their holdings as collateral for margin loans to buy other stocks. But now, the value of their IBM holdings had been cut in half, and the share price kept falling.
Watson told the group. “I have now opened up on the IBM company with a vengeance, and I want all of you to get your heads up and tails over the dashboard,” he said. “We have a big job to do, a hard job to do, and the only way is thinking and working constructively, and we must start it immediately.”
He put the situation on the table. IBM’s business was going to dip, Watson admitted. Every U.S. business was about to experience, as he put it, “a temporary slowing up.” But IBM would not sit still and await its fate. “We are not going to wait for something to happen — we are going to make something happen,” Watson said.
Watson’s actions backed up his words. He made two dangerous decisions. One, he would keep the factories running and lay off no one. Two, he would increase spending on research and development, even as companies around the world slashed their R&D budgets.
Watson would keep the factories building machines and parts, stockpiling the products in warehouses. In fact, between 1929 and 1932, he increased IBM’s production capacity by one-third.
Watson’s greatest risk was running out of time. If IBM’s revenue dropped off or flattened because of the Depression, the company would still have enough money to keep operating for two years, maybe three.
Watson’s logic led him to make what looked to outsiders like another insane wager. On Jan. 12, 1932, during the worst of the Depression, Watson announced that IBM would spend $1 million — nearly 6% of IBM’s total annual revenue — to build one of the first corporate research labs. The colonial-style brick structure in Endicott, N.Y., would house all of IBM’s inventors and engineers. Watson played up the symbolism. He would create instead of destroy, despite the economic plague.
Watson nearly ruined the company, but in the end, it shot IBM past competitors and looked like a brilliant strategy. The decisions came within a sliver of ruining the company. The IBM Depression gamble paid off. CEO’s today face many of the same challenges that IBM’s Thomas Watson Sr. did in the Depression. What did he do? He expanded.
On Aug. 14, 1935, (President Franklin) Roosevelt signed the Social Security Act. No single flourish of a pen had ever created such a gigantic information processing problem. To make the system work, every business had to track every employee’s hours, wages, and the amount that must be paid to Social Security.
Overnight, demand for accounting machines soared. Every business that had them needed more. An officer of the store chain Woolworth’s told IBM that keeping records for Social Security was going to cost the company $250,000 a year. Businesses that didn’t have machines wanted them. The government needed them by the boatload.
Only one company could meet the demand: IBM. It had warehouses full of machines and parts and accessories, and it could immediately make more because its factories were up and running, fine tuned and fully staffed. Moreover, IBM had been funding research and introducing new products, so it had better, faster, more reliable machines than Remington Rand or any other company. IBM won the contract to do all of the New Deal’s accounting — the biggest project to date to automate the government. Maybe Watson’s relationship with FDR helped, but what other company could the government have turned to? IBM was the only real choice.
This period of time became IBM’s slingshot. Revenue jumped from $19 million in 1934 to $31 million in 1937. It would climb unabated for the next 45 years. From that moment until the 1980s, IBM would utterly dominate the data processing industry — a record of leadership unmatched by any industrial company in history.
Watson was asked years later if he had anticipated the Social Security Act. Watson said he hadn’t. Of course, the act was debated and written about well before it was passed. But Watson said he had no idea it would impose such a record-keeping burden on business and the government. No one did — otherwise, Congress would never have passed the act. Watson did not foresee that the act, combined with IBM’s readiness, would not only save IBM, but propel it toward tremendous growth.
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