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:
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.