Computer Associates to cut 800 jobs

NEW YORK: Computer Associates will cut 800 jobs, the software maker said, reducing its work force 5 percent in its biggest cost-cutting effort since 2001, amid slack demand and falling prices for software and services.

Shares of Computer Associates, whose former chief executive was indicted last week on charges related to a $2 billion accounting scandal, fell 1.4 percent. Analysts voiced disappointment that the new cutbacks will not take savings beyond the $110 million detailed in an earlier plan.

"I was widely anticipating that any cuts would have an additional benefit," said Friedman Billings Ramsey analyst, Nitsan Hargil, who rates the stock "market perform."

Chief Operating Officer, Jeff Clarke told investors on a conference call that annual savings of $70 million from the job cuts and other savings of $40 million were already included in the company's full-year operating earnings target of 70 cents to 75 cents per share on revenue of $3.4 billion to $3.5 billion.

Computer Associates, which agreed to pay shareholders $225 million to settle criminal charges and is currently under government oversight, has seen less than robust demand for its system management and storage software. In July, the company trimmed its full-year revenue and earnings outlook.

The job reduction is the largest since October 2001, when the company slashed 900 jobs to better align its staffing levels with its new business model.

One analyst questioned the timing of the job cuts.

"The obvious thought is that CA has missed its quarter and therefore views this as an ideal time to take a restructuring charge," Smith Barney analyst, Tom Berquist said.

The company would not comment on its outlook.

CA said the job cuts will cost $40 million, or 4 cents a share, with $25 million of the total charge being taken in the fiscal second quarter ending Sept. 30.

The market for business software has been hurt by falling prices and customer delays in purchases. Two dozen software makers had sales shortfalls last quarter and analysts expect the slow demand to continue in the September quarter.

But Hargil said he does not believe CA's job cuts signal a wider trend in the technology sector. Berquist said software companies have increased hirings recently, mostly in the area of business software integration.

SALES FORCE NOT AFFECTED

The company said the biggest percentage of job cuts will be in marketing. Software development will have the largest share of job losses, but the proportion will be roughly in line with the overall five percent, CA said.

Sales and financial controls staff will be little affected, Clarke told investors, adding that 70 percent of the cuts, which affect North American employees, should be completed by the end of October.

Computer Associates also said it intends to add staff in call centers and send some development work offshore to India.

The company, based in Islandia, New York, said the job cuts would not affect an agreement made last week that could lead it to avoid prosecution for fraud if it makes some internal changes.

Its former CEO, Sanjay Kumar, pleaded not guilty last week to charges of fraud and obstruction of justice stemming from a long running accounting investigation.

Computer Associates hopes to be able to name a permanent CEO in the next 30 to 45 days, interim CEO Kenneth Cron said on the call.

(Additional reporting by Sinead Carew, Derek Caney and Martha Graybow)