What’s Up with Computer Associates?

  • Written By: M. Reed
  • Published On: October 24 2000



What’s Up with Computer Associates?
M. Reed - October 24, 2000

Event Summary

In a series of radical moves, Computer Associates (NYSE: CA) appears to be trying to re-direct its gargantuan operations (it is the third largest software firm in the United States, behind Microsoft and Oracle). After missing its numbers in the first calendar quarter (CA's 4th fiscal quarter), its stock was down 59% at one point.

Here is a partial summary of the moves CA has made:

  • Charles Wang (one of the founders of CA over 20 years ago) stepped down as Chief Executive Officer in August. He was replaced by Sanjay Kumar, formerly the Chief Operating Officer. The exact effect this will have on corporate leadership is unknown at this point, since Mr. Wang is still the Chairman of the Board.

  • CA has made a major change to its business model. Throughout its corporate history, CA has gained new products through the acquisition of the companies that owned or developed them (examples being Sterling Software, Platinum Technology, Legent, Cheyenne, and Cullinet). It has bought over 60 companies in the last ten years, and many of those companies had made major acquisitions themselves. Its new strategy, according to Mr. Kumar, is to "spin off businesses rather than make acquisitions in an effort to bolster [CA's] sales and stock price". It has already announced the sale of Sterling Software's Federal Systems Group to Northrop Grumman, the number five U.S. defense contractor. CA has only owned Sterling since mid-2000 (for more information see Resistance is Futile: Computer Associates Assimilates yet another Major Software Firm)

  • CA has reorganized into 4 divisions:

    • Federal Sales, being sold to Northrop Grumman

    • interBiz Solutions, including ACCPAC, Supply Chain, and BizWorks

    • Viewpoint Digital, a new subsidiary which will work on 3D for the web

    • DistribuPro, the products that apparently didn't fit anywhere else, such as the offerings from Platinum Technology and Centura (formerly Gupta)

  • CA has de-emphasized its consulting and education practices. The company was experiencing difficulty selling these offerings and staffing the practices with qualified personnel. In addition, the delays in the release of Windows 2000 affected the profitability of the Mastering Computers education arm (acquired with Platinum) drastically.

Market Impact

Computer Associates announced on October 3rd that preliminary results for the second quarter ending September 30, 2000 should be between $1.67 billion and $1.70 billion. Analysts' expectations varied widely due to market uncertainty with respect to the enterprise software marketplace. This uncertainty comes as no surprise based on the beating taken by CA's competitors in this market. These included BMC Software (currently priced at $16 after a 52-week high of $86) and Compuware (trading at $6 versus a 52-week high of $40). For more information see: System Software Suppliers Slip Seriously.

In an attempt to put a positive spin on the situation, Mr. Kumar stated, "We are very pleased with our performance given the current business environment. As preliminary results would indicate, the entire CA team pulled together to deliver approximately $400 million of sequential growth in contract value quarter over quarter. Our software products and services continue to deliver tremendous value to customers around the globe, as more and more enterprises turn to CA to support their mission critical eBusiness requirements. While we are pleased with the progress that we have made against our recovery plan, we intend to stay focused on the challenges and opportunities that are ahead."

TEC believes that the major impact of this reorganization will be to allow CA to "move at the speed of e-business" (the current buzzphrase in the market). If they execute properly, they will be more nimble, and be able to 1) see trends coming sooner, 2) design and execute marketing and development plans more quickly based on those trends, and 3) most importantly, get the product(s) to market before their competitors.

User Recommendations

Customers should consider Computer Associates products, especially in the mainframe arena, on a list of potential candidates. Indeed, given the breadth and depth of their product offerings, CA will be difficult, if not impossible, to ignore.

Careful negotiations should take place to make sure the contract carefully spells out per-CPU pricing models, tiered pricing (i.e., the bigger the computer the more it costs for the same software), per-seat versus concurrent user licensing, and, most importantly, the structure of the software maintenance agreement(s). Leverage can also be applied by attempting to close the contract close to the end of a quarter or CA fiscal year, when the sales representative is desperate to make his quota and be invited to the annual "President's Club" extravaganza.

Editor's Note:
This article has been modified from its original form since the original publication date.

 
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