Computer Associates moves fast forward

Islandia, New York: It's nearly April at the Long Island campus of CA Inc. - historically the cruellest month for those caught up in the top-to-bottom reorganisations that annually rocked this compound.

But a stroll through the building in February offered little hint of the trepidation that seeped from cubicles when the business-software giant erased and rewrote the organisation charts each year.

Sitting in the CA cafe on the ground floor of the building, chief executive John Swainson suggested in a recent interview that he had little time or tolerance for the motivational tricks of the old CA. "It's a very different place," he says. "We're not spending our time deliberating upon unproductive stuff."

Re-engineering effort

To be sure, Swainson, CEO since 2004, and his management team have been on a two-year "re-engineering" effort that has included consolidation of office space, an overhaul of the sales force, staff cuts and, importantly, cost cutting. That effort has accompanied five consecutive quarters of generally positive financial results.

Less often acknowledged, CA, as Swainson renamed the old Computer Associates, has managed that streak with no bombshell disclosures of corporate missteps of the sort that frustrated his early tenure.

Swainson is quick to admit that many people have walked out since he took over, many at top levels and by their own choice (although he notes half of his employees have been at CA more than five years).

That's not to say the work in progress, that is CA, will stop anytime soon. Swainson notes two directors will resign from the CA board in coming months and be replaced. "It feels very different now than it did a couple of years ago. Some of the stuff we were dealing with wasn't very normal," he says. "We're still in the middle of some of these things. The past five quarters have been good, positive quarters. Morale is up."

After nearly a decade of turmoil, financial scandal and an effort to fly beneath the publicity radar, CA might be on the verge of becoming a normal software company. It's not routinely accused in lawsuits of cooking the books, customers aren't reporting that they've been railroaded into signing contracts and even the Yahoo finance bulletin board for CA - once a hotbed of salacious company gossip - is routinely derided as dullsville.

When he raised CA's rating to "outperform" last month, RBC Capital Markets analyst Thomas Curlin increased his target stock price to $27, pointing to stability in the company's operations in an otherwise unstable business climate. CA shares have ranged between $20 and $28 for the past year. Four financial analysts now rate the stock a "buy," compared with just one three months ago. Eleven analysts rate it a "sell," versus 13 three months ago.

Robert Stimson, who tracks CA for WR Hambrecht, agreed with Swainson there's work to be done, first on the company's financial model. He met with management five months ago: "I said you've got so many iterations of accounting that there's no comparability in your model." Because CA is not viewed as a cutting-edge tech company, Stimson said, the CA story amounts to one of drawing more cash flow from a client base, rather than explosive growth from a breakthrough.

Stimson said his belief, ultimately, is that Swainson and his team, including former investment banker Michael Christenson (recently named president), are priming CA for a possible sale. IBM and Symantec would make a good match, he said.

While CA has reworked its branding strategy by relabeling products with the CA name, a relatively large stable of products brings in the bulk of revenue. A little less than 100 products represent almost 100 per cent of new product sales, Swainson said, but the effort to maintain and enhance the 1,100 others continues, including through an India software development centre.

And while divesting products isn't necessarily part of the strategy, Swainson pointed to a venture with HCL Technologies, a India-based development company, as a potential new model for maintaining a presence in non-core markets. In November, CA announced that HCL would handle research and development for its consumer-based threat-management business, including antivirus, antispyware, firewall and internet security suite products. Many were acquired with the purchase of Pest Patrol several years earlier.

"We didn't think we were doing it as well as we could," Swainson said of development efforts. CA still handles sales efforts, and about 200 of its former employees now work for HCL in a "virtual joint venture."