CA's New CEO Faces Big Balancing Act

When the youthful Michael Gregoire takes over as CEO of CA Technologies on April 1, he will find he's inherited a large company in a state of transition.

CA is caught between breaking away from dependence on mainframe products, which still provide 60% of its revenues, and initiating new cloud and virtual infrastructure management products, which have not yet taken off. Riding these two horses in tandem may prove a tricky balancing act for any CEO.

Gregoire, 46, was selected by CA's board Thursday to succeed William McCracken, who initiated the company's transition when he took office in January 2010. He is stepping down at the age of 70 before the transition can be brought to full bloom. Gregoire is the former of chairman, president and CEO of Taleo, the talent management software firm acquired by Oracle in February for $1.9 billion. Gregoire took Taleo from $78 million to $324 million over a seven year period. He will join CA on Jan. 7.

He will have his work cut out for him. He only needs to turn to latest quarterly earnings report to spot the trouble.

[ Want to learn more about how CA took an acquisition path to move into new product areas? See Fruit of CA Cloud Acquisitions Adds Up. ]

On Oct. 25, McCracken told investors that second quarter fiscal 2013 "was short of our objectives in several areas. We are disappointed in our performance." Mainframe revenues were off 5% at $619 million, enterprise solutions were down 2% and services were down 1%.

License renewals, always a source of strength for CA, were running "in the high 80% range" when they usually renew close to 90%. In another part of the recorded remarks, McCracken said, "the renewal portfolio (was) down year-over-year" without saying how much. North American revenues were down for the second quarter in a row. The one bright spot was mainframe products, previously on a steady decline, were up 10%. New product sales, in contrast, were down 25%.

New products include the infrastructure management and cloud management products that CA has been adding to its product catalog during the last three years through acquisition. For example, at CA World in 2010 it launched Cloud Connected Management Suite.

More recently in its second quarter, CA launched Nimsoft Monitor 6 for visibility into on-premises and in-the-cloud workloads, and its service-building product from the ITKO acquisition. Lisa can provide a "mock up" of a variety of systems that a service needs to be connected to, saving developers from actually needing physical resources, such as a mainframe, with which to test a new service.

CA has charged into virtualized server management through its CA Server Automation and CA Automation Suite. It has its own strong heritage in systems management based on CA Unicenter and boasts a cross-hypervisor approach that includes Microsoft's Hyper V systems, Citrix XenServer as well as VMware ESX Server.

But it appears to be fighting stiff headwinds as VMware, Microsoft and Citrix Systems continue to roll up the virtualized part of the data center with their own product lines. Virtualization customers so far show a greater willingness to get their management tools from their virtualization vendor than from a traditional systems management supplier such as BMC, HP or CA.

CA moved into more robust virtual machine capacity management about the same time VMware did, through its late 2010 purchase of Hyperformix. VMware introduced vCenter Operations Management, which combines configuration, capacity and performance management for virtual machines and their hosts, in March 2011, with the second version released in January of this year.

Gregoire is coming out of a small, fast-growing company atmosphere to take the helm at CA, unlike McCracken, who was a 36-year-veteran of IBM before taking over the reins. The contrast was also drawn by Art Weinbach, CA chairman of the board, in a memo sent to employees Thursday upon the announcement of Gregoire's appointment. "Mike is a successful entrepreneur" and "has demonstrated an impressive ability to drive growth in both small and large companies.

"He knows how technologies such as cloud and SaaS are revolutionizing the value we deliver to customers," Weinbach continued. "Most of all, Mike has been a winner at everything he's done in his business and personal life. He is the ultimate competitor and has a fierce desire to succeed."

To succeed, Gregiore will have to bridge the gap between an existing and largely mainframe customer base and an emerging set of companies that are going to be heavily invested in virtualization and cloud computing. He will need as many new customers as he can gather up to keep revenues flowing, while the mainframe users play catch up with their cloud initiatives in the changing world around them.

Note: Story updated to clarify CA's license renewal rates.