Computer Associates Sees Revised Unit Spurring Sales

Computer Associates Sees Revised Unit Spurring Sales

By Nick Wakeman, Staff Writer

A revamped government unit that coordinates sales, marketing and services efforts will help Computer Associates International Inc. boost its government business and win new customers, according to company officials.

The new unit, to be based in Herndon, Va., takes advantage of recent acquisitions that Computer Associates of Islandia, N.Y., has completed, said Otto Guenther, who was named president of the new CA Federal Group. Guenther is a retired Army lieutenant general and former Army chief information officer.

About 1,700 to 2,000 personnel will work for the new unit, according to CA officials.

CA acquired Sterling Software Inc. of Dallas April 3 for $4 billion in stock and Applied Management Systems Inc. of Rockville, Md., March 29 for an undisclosed amount. The acquisition brings new intelligence customers from Sterling and added government management consulting services from Applied Management Systems, Guenther said.

Sterling had $807 million in 1999 revenue. Revenue for privately held Applied Management was not disclosed by the companies.

Sterling had one government division that is being integrated with the CA unit, and Applied Management has about 100 consultants that worked almost exclusively with government clients, he said.

CA did about $6.3 billion in 1999 revenue, with about 5 percent of that coming from the government.

The company is going after the government and commercial markets with a strategy that focuses on software and services for mainframe computers, network infrastructure management and information management, Guenther said.

The new government unit puts sales, services and marketing into one organization, he said. "Previously, we just had a product division (in the government) and a service support division from CA just for the products," he said.

But with the added capabilities from Sterling and Applied Management, CA will go to market with broader services offerings, which is important because government customers want to buy solutions and not just products, Guenther said.

"What is important now is going in and looking at the total infrastructure," he said.

The government's growing concern with security is fueling the need for a broader view of information systems and network infrastructures, Guenther said.

"When you are addressing security problems, you are really looking at the entire environment and not just the little pieces," he said. "You aren't securing just a PC or a set of servers, you have got to look at the whole thing."

To bring this capability to the government market, CA had to pull together product sales and services into a single organization, Guenther said.

Increasing the focus on the government market makes good sense for a software company the size of CA, said David Moy, an analyst with the investment banking firm Chapman Co. of Baltimore.

Most of CA's development and other costs are covered by sales in the commercial market. Once those costs are covered, software sales are almost "pure margin," Moy said. "If you can squeeze out some incremental sales and it doesn't cost you much, you should do it."

CA's government business also should get a boost from the personnel at Sterling who have security clearances, Moy said.

Indeed, Guenther said he sees a huge opportunity in the intelligence market. "We didn't have as much presence in the intel area, because we didn't have the services people engaged with the clearances and so forth that you need," he said.

But the services business CA is picking from Sterling is not problem-free, said Paul Rodriguez, an analyst with the investment banking firm, C.E. Unterberg, Towbin of New York. "Sterling had a services business that had a problem with low margins, so [CA is] going to have to re-engineer that business," he said.

But CA faced similar challenges with the services business of Platinum Technology Inc. when it bought that software company in May 1999 and "that has worked for the most part," Rodriguez said.

For the last two years, CA has been trying to build its services business, and service people can play an important sales function, Moy said.

"Your services people can identify leads that then get passed back to the software sales people," he said.

But even though CA is building its services capabilities, the company has no plans to turn its back on existing partnerships with systems integrators and other IT services providers, Guenther said.

"It is critical to maintain great relationships with our integrator partners," he said. "With Sterling, we may do some additional priming but that will not be the preponderance of our business."

CA's services capabilities can actually help its relationship with its partners, said David Tondreau, president and chief executive of Object Services Corp. of Herndon, Va. Object Services is a professional services firm and a CA "Preferred Services Provider." The two have worked together on modernizing legacy mainframe systems for agencies such as the Transportation Department.

"A lot of things still need to be shaken out," Tondreau said of the new government unit. "But the focus on solution selling is probably the most important move."

The reorganization also shows that CA wants to put more focus on the government market, he said. "They want to go after it lock, stock and barrel, and we are excited about that."

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