Computer Associates gets itself back on track after the doldrum years - Vendor

Rethink IT, March, 2004 by Caroline Gabriel

Its products have always been the least famous thing about Computer Associates. This is partly because there are so many of them--the company has built a huge and shifting software portfolio over its 28 years of history and still has about 1,200 offerings, and while individual products are well known in their markets, the overall picture of the CA range is often confusing.

The other reason is that there have always been more headline grabbing sides to the systems management, software development and applications giant. It spent the 1990s being best renowned for its heavy handed treatment of customers and its aggressive acquisition policy, laboring under an image for devouring innovative smaller companies, ruthlessly cutting back their assets and their staff and not considering their users' needs. It has bought over 50 companies in its history.

In the latter part of the decade it had some success in softening this public perception and also in rationalizing its product ranges into a more coherent strategy. But then it was overshadowed by a series of accounting investigations and scandals surrounding its controversial licensing and revenue booking practises, events that are still dogging it even after a strong last quarter, a change of many senior managers and some strong and creative moves into high profile sectors such as on-demand computing, web services and Linux.

Like most enterprise IT suppliers, CA is seeing a gradual upturn in the market and improved financial results. The company's last reported quarter, Q3, saw better than expected results with sales up 12% year-on-year to $844m and net income of $21m, reversing the previous year's $47m loss. CEO Sanjay Kumar said the company was seeing "real signs of growth" as customers started to take projects off the back burner, with storage and security the highlights.

But the company is still over dependent on mainframe software, after a decade of trying to reduce this, and is behind the market in many higher growth areas. On-demand or utility computing, which gives users a means to derive more performance from their existing systems, has a similar promise for vendors, enabling them to milk new revenues from well established software products. But CA will need to move swiftly if it is not to be leapfrogged by rivals, especially Hewlett-Packard's OpenView. The next two years will decide whether CA remains one of the giant names of software, moving forward and claiming new ground, or becomes a beached whale, languishing in a mainframe management backwater and watching the waters recede.

THE NEW CA

The company's persona is very different from how it was four years ago, when CA hit the $6bn a year revenue mark. At that time, it had moved from strings of acquisitions of smaller players to some really audacious takeovers of large competitors such as Ask/Ingres, Sterling and Platinum Technology. It was still primarily mainframe-focused, despite moves into Unix and PC platforms and its product range was at its most disparate. And it had a very bad customer reputation, known for withdrawing support for customers of the companies it acquired, raising prices, short changing users on technical support and putting them under undue pressure to upgrade software.

In 2003, revenue had halved and CA had slipped from the once lofty heights of being the number three software house behind Microsoft and Oracle. The revenue change was not just due to increased competition from the likes of BMC, Hewlett-Packard and IBM Tivoli, or the contraction of the market--it was also down to a new method of revenue recognition, deferring more revenue over time and abandoning the old practises that had landed CA in so much trouble and bringing recognition in line with the rest of the sector. In another change, it was focused on many platforms including Linux and Java as well as its traditional Unix and mainframe servers.

Also, the slower pace of acquisition and product launches and some major attempts to improve customer relations and public perception all helped to soften the company's image too, although this was also partly down to being less visible as its market weight and power waned. Its last major acquisition was Sterling in 2000, and in the past two years it has only bought a handful of small players such as Netreon, a SAN design software specialist, in February 2003; Adjoin, whose product has helped take Unicenrer into web services, last sum met; and asset management products from Intraware in 2002.

In 2004, as the market starts to pick up, the company is looking to various hot areas of technology to improve its fortunes and put it back in the forefront of decision makers' minds again as well as breathing new life into many of its 1,200 products. Web services, Java, Linux, storage area networking, business performance management--nearly all the current buzz phrases are there in the CA product plan. Most importantly of all, it aims to bring all these together and go up against IBM, HP and Sun in the on-demand computing arena.