A 60 year-old company that had been so successful at remodeling its technology that it had become almost the apotheosis of the silicon chip age, Motorola revamped its entire investor relations effort when Ed Gams took the position back in 1990. Before then, as he says, ‘Motorola had a passive IR function. Basically, it responded to inquiries into the company in quite a conservative manner, not doing anything at all proactive about making investors-at-large acquainted with the company’s finances or processes.’
However, Motorola’s new management team recognized the importance of IR and, to turn this new page, Gams was called upon to head the program as an officer of the company. The newly empowered IR department can look with some satisfaction on a five-fold increase in stock price despite a hiccup in the semiconductor industry in 1996. And with only 2 percent of the world’s population yet holding a mobile phone to its global ear, there is, as the annual report suggests, more than enough room for expansion.
Gams had been with Motorola in various financial management positions for a dozen years before moving into his new position. Like so many in the profession, he found the transition to IR invigorating: ‘I enjoy it thoroughly. It allows me to learn a great deal more about the company – and we have a very diverse company. Obviously, I had become intimately acquainted with the business units I’d worked in for over a decade, but I didn’t know that much about the company as a whole, so IR has given me a broader perspective.’ He also cites the satisfaction of working with senior management, ‘which has been a big plus.’
Gams’ combination of corporate experience and finance expertise as a DePaul University CPA were decisive in his conscription for the job. ‘We thought this kind of transition was much more likely to succeed than attempting to plug a technical person into the job and expecting them to understand finance, or putting in a public relations person who’d have to learn both the finance and the technical side of the job,’ Gams says.
Modest IR
The IR department, fairly modest for a company with a market cap approaching $36 bn and $28 bn sales, consists of just Gams, his assistant Jeff Stoner, and two administrative assistants. By principle, both executives handle all fields without specializing, since, as Gams says, ‘I don’t think specializing is the correct way to approach this. People who contact us should feel comfortable talking to either one of us, and we wouldn’t like to have them wait if one of us isn’t available. Investors could lose out if they thought one person knew nothing about a subject, and so had to call the other guy.’
Both IROs spend about a fifth of their time on the road, so it’s not so unlikely that one of them will be out of the office.
Apart from one-on-ones and similar smaller scale meetings, they have found that the most cost-effective vehicle for the Motorola message is high visibility at industry investment conferences. ‘We probably do on average about two per month,’ he says.
Gams stresses that ‘if it’s a sector specific conference, we only talk about that aspect of our business. We won’t go to the semi-conductor conference and talk about cellular phones.’
The usual level of representation is Gams or Stoner with the appropriate operating executives from the individual business units. ‘The CFO never goes to these conferences.’ The CFO does, however, attend the annual analyst meeting that Motorola itself hosts near its Chicago headquarters and which attracts around 200 analysts.
Gams estimates the current individual/institutional investor breakdown at about half and half-down from the more traditional 70 percent institutional ownership of two years ago. Most of the reason is that lower than usual results in 1996 meant that some institutions bailed out. He eschews targeting anyway: ‘My objective is to make sure I’m communicating appropriately to all investors – whether institutions or individuals – to allow market forces to work and institutions to make the sales decisions they are going to make, and individuals to do the same.’
Comms Revolution
With so many analysts covering the company (73 according to Nelson’s Publications – one of the most heavily covered telecoms companies after AT&T and MCI), Motorola does not, Gams says laconically, have ‘a struggle to get visibility from the sell-side, as some companies may need to. I’m quite honestly blessed with the fact that Motorola’s very well known and very well respected all around the world, so I can focus on the communication of results and strategies, without having to spend too much time worrying about inadequate exposure.’
As befits one of the companies to whom we owe the communications revolution, he adds: ‘We’ve developed a reasonably good presence on the Internet. I don’t control it entirely but I have a segment that we are obviously going to work to improve.’ Gams has the impression that most of the interest in the IR section of Motorola’s Web site comes from individual investors, but he is not bean-counting. ‘I don’t intend to judge the adequacy of what we put out there by the number of hits we get. I think this is gradually going to be an expanding form of communication, primarily with individual investors. It may eventually be used aggressively by professionals, but I don’t see that happening for quite some time.’
The site has the quarterly and annual reports from the company, as well as links to various outside services that can provide up-to-date stock prices.
More important in Gams’ eyes are the up to ten press releases issued by Motorola each week. These are often product-oriented, with the major ones of corporate significance sent out over a fax service and posted on First Call. ‘We work very closely with the PR people and the law department. Our functions require close coordination with them because we’re all involved with preparing annual reports, stockholders’ meetings, SEC filings and so on.’
Foreign Vagaries
The company has a dividend reinvestment program and employee stock ownership plan but, Gams reports, ‘We don’t actively promote shareholding within our employee base in particular.’ He is more concerned with the foreign holdings that ‘are lower than I would like – under 10 percent. I certainly would like to see the level closer to 20.’
Gams’ efforts to increase Motorola’s foreign ownership are generally targeted on the major money centers with annual, week-long roadshows to Asia and Europe. He admits that it will be a daunting task, since despite 60 percent of the company’s business coming from outside the US, and although listed in London and Tokyo as well as on the NYSE and Chicago, the company is still firmly seen as American, subject to Big Board prices and the usual problems of foreign exchange vagaries.
Gams surmises that overseas investors have an asset allocation approach which generally runs along geographic lines. That leaves a small percentage of a foreign institution’s assets to be distributed across the whole US investment spectrum. You have to cover a lot of ground to get to a 10 percent foreign ownership level,’ Gams explains.
‘There are US institutions that have sometimes held as much as 5 percent of Motorola. Foreign institutions just can’t commit – won’t commit – a significant part of their portfolio to any one US company. That’s why you have to try and get a lot of small commitments from international investors to get the aggregate international percentage higher,’ he says.
Being seen as a US company is not the only possible confusion of categorization for a multinational giant like Motorola. Gams admits that ‘if you did a survey of analysts, you’d find that a reasonable number of them would say we’re a difficult company to follow. But that simply makes the need for clear and concise communication that much more pressing. We’re not the only high-tech company that is large and diversified.’ He concludes dryly, ‘it’s another challenge, that’s all.’
Indeed it is not a minor challenge, since the company’s core electronic expertise now reaches its silicon tentacles into almost every traditional investment category. It even has a ‘new enterprises’ organization looking for new segments to digitalize and stamp with the company’s ubiquitous Batman-like logo.
Continual Stream
The IR department reports to CFO Carl Koenemann, who Gams sees as ‘often as necessary.’ Gams can also tap a continual stream of information, much of which is proprietary – ‘which we don’t share with the outside world. But I see it so that I can be as informed as possible about what’s going on inside the company. Then it’s up to me to make the appropriate judgments about what information to share externally and how to do so.’
While Gams declines to share any war stories about crisis management, not all relationships with analysts seem to have been happy. He enjoys dealing with them ‘as a group,’ but ‘as with any group of individuals, there are some in the group that you enjoy being with more than others.’
In particular he has vehemently expressed rules about their behavior.
His rule is equal and courteous dealing with all, ‘but if there is a particular person who has demonstrated a lack of professionalism, then I don’t feel I have an obligation to provide that individual with the same kind of courtesies I provide to everyone else, if those courtesies aren’t being returned.’
He stresses that his rule does not apply to the content of analysts’ reports but to how they compile them.
‘We have a policy, which is widely communicated to our staff, that people from the financial community are to be directed to the IR office when they seek information. If we find an analyst who knows of this policy but continues to violate it by attempting to go around this office, demonstrating a lack of respect for our policies, then I will not give access to this office.’
A long time member of Niri, Gams is candidly not an active member. ‘I think they do a good job,’ he says, ‘but it’s directed towards companies that are just developing IR programs, or companies that have ongoing IR programs but have new people in them. I just don’t think that Motorola or I fit into either of those categories.’
In fact one scion of Motorola may fall into the ‘needs Niri aid and support’ category. When the Iridium satellite communications subsidiary is floated later this year, its launch will surely be more successful than the similar rocket that ditched with a military satellite last year.
‘Iridium will handle its own IR work,’ says Gams, who happily points out that Iridium’s first five satellites soared into orbit without a hitch. Asked if he will play a part in lighting the IR fuse under the Iridium launch, he replies cautiously, ‘I don’t know that I’ll be asked. We’ll see.’
What the Analysts Say Jack Geraghty
Credit Suisse First Boston
Geraghty confirms that Motorola took its IR much more seriously after 1990. He comments, ‘They have two senior people who can talk for the company. It’s certainly helpful to get feedback from either of them instead of waiting for just one to return your phone call.’
He adds that they are struggling against tough IR odds, however: ‘They’re doing the best they can bearing in mind that they have two groups of analysts following them – the old crew, who are more semiconductor-oriented, and the new telecom and cellular analysts. Motorola is undergoing a transition from a semiconductor company to more of a telecom equipment maker and supplier, which makes it more difficult to categorize.’
Despite that inherent difficulty, he says, ‘I think their general presentations are well organized and balanced, and most analysts think they have a reasonable idea of what the company is doing in each of its constituent parts.’
Geraghty refers to just one slight disappointment. ‘They’ve become a little reticent, maybe in their best interests, as far as making forecasts and so on. They tend to shy away from that. I can understand why, but let’s face it, we analysts like a little bit of that.’
Michael Ching
Merrill Lynch
‘At Merrill Lynch we’ve recently moved coverage of Motorola from semiconductors to telecoms,’ Ching points out. ‘Since 1995 we’ve followed them as a wireless communications business.’ Nonetheless, he suggests that the IR department has taken the switch in its stride.
‘I don’t think anyone could complain about reaching these guys or their knowledge of the underlying trends of the business. They do a very good job, especially for a company that is so complex,’ Ching says.
‘They are very responsive, and also very knowledgeable for a company so complex.’ he continues. ‘Ed Gams is doing a very solid job in tracking down important aspects of the business and keeping up with current trends. In areas where they are not so current they go out of their way to track information down or make people available. There are some areas they are more comfortable with, and some they’re not à like most of us I suppose.’
David Powers
Edward Jones
Powers notes that Motorola is the number one holding of investment clubs, and agrees that the complexity of the product mix can cause problems. ‘There’s a lot of work at brokerage firms consulting between telecom and semiconductor analysts to try to get a comprehensive picture of the company.’
However, he acknowledges that they are helped in this by the investor relations department. ‘Ed Gams and I always get along fairly well together à he always returns calls promptly with the information that I need. He always cuts to the chase, he’s very helpful and when I do need to speak to someone else in the company, he’s always arranged those opportunities for me. If you ask for it and it’s reasonable, you’ll get what you want.’
