CA Picks Up Pace in Public Sector

By Richard McCaffery, Staff WriterWhen Yousef Lasi installed new software from Computer Associates International Inc. on his company's network last summer, he figured he was getting another network management tool.Turns out he got a layer of software he now uses in government outsourcing contract bids."All we knew at [first] was it sounded pretty good," said Lasi, principal systems engineer at NCI Information Systems Inc. of McLean, Va. But after a few weeks, he said, the Neugents software unearthed glitches in payroll software, which would have crashed the system, and expanded the company's ability to police networks."It's going to make it easier for us to get larger clients," because the company now can bid large outsourcing jobs without necessarily having to hire more people, Lasi said. The Neugents software is one of many network management products Computer Associates of Islandia, N.Y. sells to the federal government and commercial customers.The software maker is pushing hard on several fronts in the public sector. For example, NCI and CA must now put Neugents and their partnership to the test on the General Services Administration's $10 billion Seat Management contract. The team of NCI, Litton-PRC Inc. of McLean, Va., and InaCom Corp. of Omaha, Neb., won the GSA's first Seat Management task order in December, a 10-year deal worth $114 million. Litton-PRC is the prime contractor.As a subcontractor on Seat Management, NCI is providing a full suite of CA's software including Neugents, a so-called neural net technology the firm released in December. Charles Wang, CA's billionaire chairman and chief executive officer, visited Washington Jan. 20 to kick off the company's annual federal information officer's conference."We can do much more with technology than save money," Wang said in his keynote address. The next generation of technology should also add value, he said.Founded in 1974, Computer Associates is the world's third largest independent software company, behind Microsoft and Oracle. CA finished its fiscal year last March with revenues of $4.7 billion and income of $1.2 billion, up a blistering 219 percent from 1997.The company, which has had a team devoted to the public sector since 1983, doesn't break out its government numbers. But 1998 sales were a little more than 5 percent of the company's revenue, said Michael Miller, senior vice president and general manager of North American sales. His goal: To double that, or reach at least $450 million, by 2001. "It's because we have products that can be implemented quickly," he said.True? Yes and no, said Jim Mendelson, an analyst at Soundview Technology Group Inc., Stamford, Conn. Mendelson said installing performance management software is notoriously difficult, something CA and its competitors struggle with. "They need to make it simpler, easier and faster," Mendelson said. "This is an issue for a lot of companies. Computer Associates has actually done a decent job."CA competes with some of the biggest names in the business: IBM Corp., Armonk, N.Y.; BMC Software Inc., Houston; and Candle Corp., Santa Monica, Calif., Miller said. To stay competitive, the company is looking more and more to the sales channel to drive growth. CA announced a plan in the first half of 1998 to boost its channel sales 30 percent by 2000. In other words, Wang wants 50 percent of company sales going through the channel.Miller is pushing the same goal in the government market. He said about 25 percent of government revenue goes through the channel, up from less than 5 percent in 1995. "We want to get that to where it's 50 percent," he said.The company's biggest integrator partners include Science Applications International Corp., San Diego; Vanstar Government Systems, Fairfax, Va.; Electronic Data Systems Corp., Plano, Texas; and Computer Sciences Corp., El Segundo, Calif. Miller said the company is always looking to increase the breadth and depth of its partnerships.Other new government deals include a slew of year 2000 work. Last fall, CA signed a franchise agreement with the National Business Center, a division of the Interior Department, to offer agencies year 2000 validation and verification work. The center signed a year 2000 contract worth about $2 million with the Education Department in September. The National Business Center signed a similar contract shortly afterward with the GSA worth over $1 million. CA is providing most of the services work the GSA on that contract."Computer Associates is one of the vendors — right now they're the primary vendor — we're dealing with to provide services we can't provide because of lack of staff," said Charles Nethaway Jr., deputy director of the center. The National Business Center, which offers financial, procurement and IT services to other federal agencies, gives agencies a quick way to buy Y2K services. "This looks like a service people are really going to need in the next few months," Nethaway said.Despite growth, the company took a few whacks last year. In March, it dropped a takeover bid for Computer Sciences Corp. when the systems integrator fought the tender. And in July, Wang warned the Asian flu could weaken CA's high-end server business. The company's stock dropped like a rock, from over $61 a share to a low of $26 in September. The company has beaten analysts' adjusted expectations each quarter since then, but the stock hasn't returned to previous levels. It closed Jan. 27 at $49.12."The results posted in September and December were, for the most part, what people expected, and they haven't done much to encourage people it's changing," said Mendelson. But he's convinced CA's market will grow steadily, and he rates the stock a buy — not his strongest rating, but still a buy. "I think, on balance, they're going to have a decent year," he said.As far as Neugents, Mendelson said the product by itself isn't magic, but it adds a lot to the company's portfolio and helps position CA as a technology leader.Finding skilled workers is one of the few obstacles to growth, Miller said. "That's one of the biggest challenges we face," he said. "I know there are contracts we could be earning if we had more people."To bolster CA's government work force, Miller said he's using talent brought in by the firm's Global Professional Services business, a services division created when the company's bid for Computer Sciences collapsed. The division, based in Islandia, now has a work force of 2,000 and expects to generate $2 billion in revenue by 2001, Miller said."The key thing for us is we have a resource group like GPS focused on deployment of the product set," he said.Increasing services has become a corporate goal. In November, CA acquired LDA Systems Inc., a Cleveland-based information management services firm to add to its Global Professional Services division. Terms were not disclosed. In addition, the company formed a business assessment and consulting group within GPS to better serve clients.Thomas Meagher, an associate at Boles, Knop & Co., a Middleburg, Va., investment banking firm, said the company's move to acquire services companies is a step in the right direction. "I think for Computer Associates to be successful, they need to develop integrator skills," he said.