CA spells out some big plans

Showing renewed optimism, company talks of expanding its retail reach, rethinking costs and investments

BY MARK HARRINGTON | STAFF WRITER

October 22, 2004

With a deferred-prosecution agreement and improved financial results in pocket, Computer Associates yesterday acted like a company with a new lease on life and one determined to make up for years of lost ground.

At an analyst conference, it offered specifics on its plan to reinvigorate sales and operations. The strategy includes working to increase the amount of software its sells to existing Fortune 2000 clients, while attacking untapped markets such the consumer retail sector, where its security products are being sold at Wal-Mart and CompUSA.

CA officials also announced plans to more vigorously examine costs and investments for increased returns, consider a stock buyback plan, alter the method it uses to pay its sales force, and continue the hunt for acquisitions.

Separately, CA said Sun Microsystems has agreed to resell its Enterprise Infrastructure Management suite of products, and that Standard & Poor's has removed CA from its Credit Watch. Securities firm Janney Montgomery Scott also raised its rating on CA to buy from hold.

The growth initiatives come even as CA officials described a technology spending market that remains constrained, and in which the company is facing a more competitive environment than one official said he has encountered in 30 years in the business. Despite a second-quarter revenue increase of 6 percent, CA described the broader measures of cash flow from operations and customer billings as having shown only modest first-half increases.

But "the environment is improving," said interim chief executive Kenneth Cron. "I see a three to five year window of improving spending, albeit conservative."

Cron said sales through third-party channels, which currently make up around 10 percent of sales, are slated for up to a third.

Part of the effort includes sales to consumers. CA for the past year has offered security products for free directly to consumers via its Web site. With the one-year offers beginning to end next month, CA plans to begin marketing to those who have downloaded the software at a rate of 13,000 people a day, to re-up for a $29 fee. It also plans to supplement the offer with its new anti-spyware offerings, from recently acquired PestPatrol.

All will become part of CA's retail store offerings, and CA is examining other lines, including computer storage, said Gary Quinn, executive vice president of sales. Current retailers, including those online such as buy.com and Amazon.com, include BJ's Wholesale Club, Best Buy and Circuit City. CA shares revenue from subscriptions with the retailers, Quinn said.

Clarke said CA was "vigorously" looking at all investments and expenditures to make sure it's getting the most from them - not done vigorously in the past, he said. The company will centralize procurement-the $1.3 billion in products and services it buys from others- as part of the effort. Sales people starting Oct. 1 receive commissions based on a formula that includes their customers' billing increase, booking increases and profitability and expense management.