CA reforms hit profits

Computer Associates is working to overcome a less-than-satisfactory image with users and the markets.

Computer Associates is working to overcome a less-than-satisfactory image with users and the markets.

It is seen by some as having resources scattered unproductively among 1244 products - a monster bent on acquisition of one large company after another, which further dissipates its efforts. And its licensing scheme, like many in the industry, has meant more attention on achieving financial targets and less perhaps to the development of new technologies, and the value of those technologies to the customer, says marketing vice-president – and former head of the New Zealand operation – Stephen Richards.

One of the major changes is to make available more flexible software licences, which will permit users to contract for separate items of software as they are needed. Previously, even though the software was acquired at different times, CA would put all elements of the deal, present and future, under one contract, and was obliged by the US Securities Commission to account for all its revenue on the deal at the date of signing the contract.

This led to a distortion of negotiation schedule. “First we had to sell [the components of the contract] then we had to embark on another phase to induce them to buy it for five years,” says Richards. That in turn pushes conclusion to the ends of the quarter, when companies traditionally try to wrap everything up in the last two weeks, so they can file good figures, he says.

Conversion to a flexible licensing scheme will lead CA to post losses, for two or three years, as the big contracts disappear to be replaced by smaller “first episodes” of a long-term deal.

“But the cash position of the company will not change,” Richards says. “That will continue to be very positive.”

The New Zealand office of CA is already posting hevay losses on paper. Wall Street and the shareholders will wear this as the cost of change, he says, optimistically. CA has done a model, assuming it had implemented flexible licensing from the beginning; “and on that basis, we would be profitable [in the next two years]", he says.

This aspect of the move was concluded in October last year, but it took until early this year to get thoroughly into the Australia/New Zealand arms of the company. Salespeople are, for the most part, accommodating well to the change in the way they work, he says. Last week was the first chance Richards had to spread the gospel personally to this end of the world.

There have already been results in improving customer relationships, he says. How does he measure this? “Not so many of them yell at me now,” he says.

Richards identifies the last-quarter rush as a disorder of substantial parts of the IT industry. He expects other IT companies to follow CA’s lead, “but I hope they will take a long time to make up their mind.”

The broader new CAS strategy is one of concentration on six key areas, says Richards – though as broad areas of the market, they don’t seem to narrow the company down much.

The areas are:

- Enterprise management – the sphere of Unicenter TNG

- Security

- Storage management

- e-business “transformation and education”

- intelligence and visualisation, providing extraction and graphing for summarised business data.

- Portals and knowledge management, the area of Sterling Software, one of CA’s acquisitions.

He expects storage to be a particularly lucrative and growing business. “Serverless backup has become an area of great interest to customers, he says.

Richards almost got to the point of promising no further large-scale acquisitions. “Acquisitions, if we do them, will be based on the six areas of focus,” and will be of smaller specialist firms with some technology that fills a blank in these fields. “But I can’t say we’ll do no more large acquisitions,” he says.

“We have been involved in fields as diverse as insurance and medical,” he says, adding that users of these products cannot be left entirely on their own. He leaves it unclear whether the products will be sold or CA will found a unit to support them for the remainder of their useful life.

At the same time, CA will be breaking out some of its businesses into separate, but wholly-owned units. The first of these is Ican ASP, whose field is ASP management chiefly by effective management of service level agreements.

The rationale behind this move is to achieve broader recognition from the US markets for its broad range of activities. “Wall Street thinks of us as a mainframe company. If the mainframe figures are right – or wrong – they don’t look any further.”

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