Is CA Really Screwed This Time?

    May 31, 2006

Computer Associates did it again – they have to restate earnings.

The company looked like it had all its past sins behind it – former CEO’s going to jail kind of stuff, and new top dog John Swainson being very frontal and brutally honest in the early going. This new setback is a kick in the pants, for sure, but should be weatherable.

Here’s the problem – it doesn’t matter if it was a normal accounting error or gross misconduct – the market has reacted with typical panic by shorting the stock into the pits. The consumers, who have mostly not even noticed, are in two camps. The first are the big shops, where CA has been steadily making gains and lets face it – actually doing smart things over the last year or so. These guys are the prime target of the majority of the competition – and the most business savvy – so expect every competitor with a pulse to be in these accounts saying “once CA is out of business, our professional services folks will help you with the migration to our stuff”. FUD will run amok. If a big shop is considering a large CA purchase, it will be in jeopardy. EMC or Symantec sales guys are frothing at the mouth when stuff like this happens. The IBM guy is already practicing his “I told you so” speech. Now CA will compared with Sun as one of the “screwed up” ones. Not good.

On a positive side, the bulk customer, like the 300,000 or so ArcServe backup customers, probably have no idea anything is going on. Unless they are in the middle of a proposed move – it won’t have any bearing at all on CA. The maintenance checks will keep rolling in. Should Symantec’s mid-market unit run by Jeremy Burton go on the offensive here – sure they should, but it will be expensive and the gains hard to come by simply by the nature of this market. If it works, and they know how to use it, they won’t be looking to leave, regardless of the marketing hype. We all saw what happened in France last year, with the riots ET AL, and some of us were interested, but none of us altered our daily lives due to it. Same kind of thing.

So, Mr. Swainson needs to get out in front of this one and mitigate the potential damage at the big bread and butter accounts. He should immediately go public – overly public – about the cause of the reporting screw up, the rectification of it – remind the world that this probably occurred because they are HYPER conservative now when it comes to reporting – allude to the fact that many of his competitors may not have even raised it as an issue (whether true or not is not relevant here), and then talk about how all the clean up over the last 2 years has resulted in stunning victories, by big name account, by market growth, or by the fact that speech classes have resulted in a 9% drop in annoying Long Island accents – anything that is positive. The good news is the company has actually done well, by most any metric, since streamlining businesses, dropping 9874985 products (only a slight exaggeration), changing their financial controls and systems, and focusing the sales force.

It would be a shame to have what appears to be a minor hiccup derail the train that finally started moving in the right direction.

I’m giving them the benefit of the doubt that this is, in fact, not a big financial deal, and that Wall St. is overreacting as is their nature. I’ll wait to hear from smarter folks to explain what the real deal is. Since they are blaming “commissions” as the cause – I can understand. Sales people are brilliant at working a coin operated system – why no one knew about the missing “accrued” commissions is another story.

This is a good summary of the story. When a CFO leaves a public company – 99% of the time you can bet something stinks behind the barn. Were these events mutually exclusive? I doubt it. I don’t believe in coincidences any more.

Steve Duplessie is the author of the “Steve’s IT Rants” blog, and the founder and Sr. Analyst of the Enterprise Strategy Group.