CA sees acquisitions, some product cuts

Wei Gu

SAN FRANCISCO: Computer Associates International Inc. will buy companies to drive growth, but it aims to slowly whittle down its products portfolio, Chief Operating Officer, Jeff Clarke said.

"The industry is consolidating, there are lots of opportunities," Clarke told the Reuters Technology Summit in San Francisco, adding that the company is particularly interested in management software and identity-control products.

Computer Associates, one of the world's largest software makers, has grown over the years through more than 50 acquisitions, but it has refrained from large deals as it contended with government investigation into its accounting. Clarke said CA aimed for more acquisitions.

The company, based in Islandia, New York, has accelerated the consolidation of its existing portfolio of more than 2,000 products. Clarke said the company plans to shave about 5 percent to 10 percent of products annually, and more than that for the next couple of years. It plans to more than make up the lost revenue through organic growth and acquisitions.

Analysts have said the strategy makes sense because Computer Associates' main businesses -- system management and storage software -- are not growing much.

"Growing the business itself is very hard," said Nistan Hargin, an analyst with Friedman, Billings, Ramsey.

Clarke said Computer Associates' balance sheet is the strongest it has been in eight years. CA recently named two executives to focus on acquisitions.

"We've traditionally used our cash for acquisitions," Clarke said. "For acquisitions under $1 billion it will be more accretive to our shareholders if we use cash."

CA's stock has risen since it settled federal accounting fraud charges in September. But Clarke said he believes the stock is still undervalued, so he prefers to use cash to buy companies. Computer Associates will look for deals that would add to its cash flow cash flow within a year or two, he said.

Susquehanna Financial Group analyst Gregg Moskowitz said, "As long as they pay attention to the return on capital, then an acquisition is likely to be a positive."

In the past year, Computer Associates has changed most of its executive suite, bringing in IBM veteran John Swainson as its CEO and Dell's Chief Accounting Officer Robert Davis as CFO.

Its former CEO Sanjay Kumar was indicted and former CFO Ira Zar pleaded guilty to charges related to the accounting problems last year.

(Additional reporting by Peter Henderson and Reed Stevenson)