Caught in the Crossfire: Intel's Investor Relations Chief
(Here is a guest post from "Intel Free Press.")
In today's buy-low-sell-high and "show me the growth" environment on Wall Street, Kevin Sellers is caught in the crossfire as the man directly responsible for keeping Intel's investor community in the know with the latest financial information and future direction of his company.
Even with a market cap north of $100 billion, and billions more invested in staying innovative, Intel continues to perform week in and week out while its stock price has taken a pounding, spiraling mostly downward for more than a decade. Even as the company revealed record earnings for Q3 2010, announcing the first $11 billion quarter in the company's history and beating estimates for earnings per share, Intel's stock price wavered the next day, ending down.
"These are crazy, crazy times," said Sellers, Intel's vice president and director of Investor Relations.
Even in bad times, good performance doesn't seem to go unpunished. While a few companies in the tech industry seem to be enjoying celebrity status, most seem stuck in the mud, despite beating revenue, profit and even margin expectations.
Maybe billions of real dollars invested and generated from meaningful innovations and true manufacturing are simply not sexy enough for Wall Street any longer?
For the most part, Wall Street has kept its hands in its pockets since the world economy tanked a few years ago, even as companies such as Cisco, IBM, Intel, Microsoft and Oracle are delivering strong financial results.
"We're going through a long, painful market correction where valuations are being hammered," Sellers said. Inside the company, it's Sellers who sometimes feels hammered, balancing his day between talking to Wall Street analysts on one hand, and Intel executives on the other. It's a tough job.
Pushing through the worst economic downturn in recent history, Intel exited 2009 with record gross margins, and higher net income and earnings per share over 2008. Intel President and CEO Paul Otellini said at the time that microprocessors had become indispensible in today's world.
In July, Intel surprised Wall Street when it reported the best quarter in its 42-year history, predicting the demand for leading-edge technology would continue for the foreseeable future. And yet the stock only saw a tiny uptick. Revenue reached $10.8 billion, operating income was $4 billion and net income was $2.9 billion.
This seemed to validate what Otellini boldly told investors in March at an analyst meeting organized by Sellers and his team, that Intel's revenue and earnings would double in the next few years. It was a bold prediction.
Just two months later, trust in Intel's ability to forecast revenue suffered a setback when the company lowered third-quarter revenue projections to be $11 billion, plus or minus $200 million, compared to the previous expectation of between $11.2 and $12 billion.
Maybe not a major miss for some, but many read this correction as another reason to remain wary of Intel stock. Then, a solid third quarter with record results and a positive outlook ahead.
Looking Back, Moving Ahead
"For the past decade, Intel's annual revenues have only grown 2 percent," Sellers acknowledged.
Intel's stock price, which in August 2000 was over $60, today bounces around $19.
"In the 1990s, we saw the value of tech stocks climb steadily," Sellers said. "But for the past 10 years we've been experiencing what I call 'The Great Tech Unwind.'"
The tech bust of 2000 that was followed in more recent years by the U.S. recession and world economic downturn convinced investors to bet on future growth is the herculean task of many investor relations managers.
"Intel is a public company, so essentially it's owned by the shareholders," Sellers said. "It's my job to help our investors understand the company, how it's performing and its strategic vision for the future."
Similarly, he is helping Intell employees understand how Wall Street works, what they are looking for. He is known inside Intel as a straight talker, a no-spin kind of guy who also happens to be one of the most popular bloggers on the company's internal website.
His missives frequently generate dozens of comments because, according to one avid reader, "he tackles stuff head-on...openly and candidly...that some of the executives previously have not."
Sellers takes things in stride, compassionately keeping a watchful eye on key people and critical business aspects and trying to keep investors focused on the long term. He is on a first-name basis with many investors from such places as Vanguard, Morgan Stanley, Citibank and other firms that hold millions of shares in Intel.
With an MBA and an undergrad degree in finance, Sellers is an interesting mix of fast number cruncher and visual storyteller. He joined Intel as a financial analyst in 1991 and later moved to lead branding efforts in Japan. He was picked to co-lead a companywide efficiency program in 2005 that helped Intel drastically cut spending. He became vice president of Investor Relations in 2007.
Sellers said he believes that the more certainty investors can put around an idea, the more they are willing to invest in something. Even after delivering higher revenue through 2009 and beyond, sell side, buy side and retail investors by and large are not convinced it's time to buy Intel stock.
What's holding them back?
Sellers points to the cloudy world economy and inconsistent forecasting from tech companies and market analysts. But he also points out a conundrum in which many investor relations executives are stuck.
Even after delivering record-breaking financial results and beating analyst expectations, according to Sellers, "Investors seem to be saying that it can't get any better than this, that this is unsustainable. It's like a curse."
Wall Street's buy-low-sell-high mentality and ability to crunch massive amounts of current and historic data are making it difficult for investors to believe Intel will keep growing. Numbers don't lie.
"It feels like trying to change the laws of gravity," Sellers said.
Sellers is a family man, who at home wakes up hours before his children get out of bed and get ready for school, and he's often the one locking the door and shutting off the lights at night. He brings a hunger for listening and understanding and has a knack for inspiring people around him.
"Investors want actual numbers, but they also want comfort and conviction about the future," he says.
So Sellers is raising the stakes on how he delivers good financial numbers by sharpening how the company tells and sells what he calls Intel's amazing innovations. He personally travels often to New York and Boston and can be seen roaming the halls of Intel on his wireless headset engaged in intense conversations with investors and analysts.
He routinely arranges for Intel CEO Paul Otellini, COO Andy Bryant, CFO Stacy Smith, EVP Dadi Perlmutter and others to meet with investors at Intel headquarters, at financial firms in NY, and industry events like the Consumer Electronics Show, Computex, Mobile World Congress. It's a constant challenge, especially given Intel's "quiet period" restrictions that prevent any Intel employee from sharing new insight or information on results too close to earnings.
Beyond the PC
Sellers sees many opportunities for the industry to build new, affordable connectable devices with smart, efficient and secure Intel chips inside.
"A billion processors a year," he said. "Within the next 5 years, we want to be shipping a billion processors annually. Today we ship less than half a billion."
That number includes its Core and Xeon family of processors, plus the company's recent tiny Atom chip with its derivations specifically built for netbooks, handhelds, Smart TVs and such embedded devices as auto infotainment systems.
Intel spent about $10 billion in acquisitions in the early part of September when it purchased security software McAfee, the TV set-top business of Texas Instruments and mobile wireless chip maker Infineon. Sellers has been steadfastly explaining to investors that these moves are not a growth strategy in and of themselves.
Is there new business coming to Intel? Intel's Embedded Computing and Communications Group, which designs compute engines that connect TVs, cars, digital retail signs and other things to the Internet, reported that 40 percent of its customers are new to Intel.
"We are a growth company," Sellers said. "If we don't innovate, we're dead. We need to invest in innovation in order to constantly bring out something that's better than anything that's come out before. At the same time, we are managing our capital expenditures very efficiently. Our 'cap ex' has been flat for years, while output and revenue have grown."
Intel's investment in research and development and its "one generation ahead" of the competition manufacturing is needed not only to keep pace with Moore's Law, but also to help the company bring new innovations to market like its reinvented super-fast and energy-efficient high-k metal gate transistors used in its Core processors.
These investments in cutting-edge manufacturing tools and techniques have helped Intel lower chip production costs while shortening the time it takes to make a batch of new chips from 20 weeks just 4 years ago down to 7 or 8 weeks.
It's a "vision and deliver" act Sellers has to manage by showing how Intel's strategies are the recipe for attaining real growth and multi-million-dollar results.
"We need to get better at telling the right story," Sellers said. "We have to show we can compete and win not only in consumer and enterprise computing, but also in cloud computing and to Smart TVs, tablets and handheld devices."
There is some evidence the message is being heard. Chip analyst Craig Ellis of Caris & Co recently told MarketWatch that Medfield - the next-generation Atom platform for smartphones and tablets -- might change the company's ability to play in those segments. "If our assessment of Medfield (codename for Intel's future Atom processor) is correct, by mid-2011 Intel should begin to become a more significant alternate APU (application processors) supplier."
What do investors think of ARM vs. Intel today? ARM stock is up 200 percent while Intel is flat since last year.
"Our stock is caught in a cyclical-bear puddle of mud," wrote Sellers in a blog to Intel employees in January. "Many investors are looking backwards (they're very astute students of history) and our task is to get it out of that mud to be viewed more as a structural growth story. This will require execution into new markets and products."
Success weighs heavily on Intel's transformation from being solely a semiconductor designer and manufacturer into a company that competes with innovations across all kinds of Internet-connected devices.
Sellers and investors know that the success Intel needs won't be reached with world-class tech innovations alone. It will also take world-class marketing and real demand generation across many sectors and global markets.
"I like what Pete Drucker once said, that only two functions of business generate customers: marketing and innovation. Apple gets both sides very well. Our marketing has to be as good as our innovation so it can be a better value creator."
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Kevin Sellers, Intel VP of Investor Relations - Getting Buy-In from Tech Investors.