As CA Beats Street, CEO-Elect Swainson Outlines Key Priorities

John Swainson, the CEO-in waiting at Computer Associates, has gotten off to a flying start in his first two months with the company.

Jeffrey Schwartz, Contributor

January 26, 2005

3 Min Read

John Swainson, the CEO-in waiting at Computer Associates, has gotten off to a flying start in his first two months with the company. CA beat expectations for its third fiscal quarter ended Dec. 31 with a revenue boost of 9 percent and its profit doubling for the period, year-over-year. Yet Swainson acknowledged that the company has some work ahead of it to improve its channels -- one of four key initiatives Swainson has identified as critical in CA's turnaround.

Speaking on Tuesday's earnings call, Swainson gave the company's overall channel effort a C+.

"We are making slow, steady progress on channels," Swainson said, "understanding and knowing that was going to be a long, difficult process for us to build channels that would really drive a lot of business, particularly in the SMB."

CA has a long-term goal of moving 30 percent of its overall business through the channel, up from 10 percent today.

Toward that end, the company last week launched its Enterprise Solution Provider (ESP) program, an effort to bring partners into large accounts and sell products such as Unicenter and the higher end Brightstor products, which heretofore the company has primarily offered through its direct sales force. As part of ESP, the company is realigning its commission structure so that its salespeople will be compensated in the same manner, regardless of whether a partner or CA employee closed the deal.

Citing progress, COO Jeff Clarke noted that CA has launched a new Customer Interaction Center and has added Avnet to its list of distributors.

"We are signing new agreements with partners to distribute our products through alternate channels," Clarke said.

The second area Swainson defined as critical to turning around CA's business is acquisitions. Its most recent ones, Netegrity and Pest Patrol, boosted revenue for the most recent quarter, particularly as the former deal unexpectedly closed a month earlier than expected. Toward that end, Swainson promoted Mark Barrenechea to the position of executive vice president of strategy and chief technology architect. In that role, Swainson has asked Barrenechea to find other companies that would make good acquisition candidates.

Third, CA is looking to expand geographically, notably in high-growth areas such as India and China, an effort that so far has been challenging, Swainson said.

"While that has not yet paid a revenue dividend, we are optimistic about the future," he said. "It's taken longer than we may have hoped."

The fourth area is product development, an area Swainson said is going well, noting CA will have a new release of two key products -- Unicenter and eTrust -- within the next six months.

Swainson talked up the company's plan to move to a business-unit model, as reported earlier this week.

"Business units have proven to be a highly effective way to organize companies in the technology industry, and this is a sensible model for Computer Associates," he said.

The company said it expects revenue for its fourth quarter, which goes through March 31, to be in the range of $900 million to $920 million. For the most recent quarter, revenue was $911 million, sharply higher than its higher-end guidance of $865 million. Non-GAAP earnings per share was up 19 percent for the quarter year-over year, while cash flow from operations of $366 million was up 8 percent.

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