The IT vendor’s accounting practices are currently under SEC investigation. However, CA is a real, established player – and it is in a strong competitive position, weathering the downturn and keeping its huge client base. While CA could manage investor relations better, its customers do not need to worry. It’s no Enron.
A major Computer Associates shareholder has demanded that the company sack its senior managers.
A major shareholder in eBusiness software vendor Computer Associates International has demanded that the company sack its three most senior executives – co-founder and chairman Charles Wang, CEO Sanjay Kumar, and CFO Ira Zar. The demand, from entrepreneur Sam Wyly, follows the announcement of an SEC probe into CA’s accounting practices.
CA changed its accounting method in October 2000, to book revenue from software leases over the term of the contract rather than upfront. While the company says the move gives investors a better idea of what is really happening, critics like Mr Wyly say CA does not provide enough information on how it is spreading the revenue.
The current probe does not seem to be a sign of genuine problems. In accounting terms, CA also releases results in the conventional GAAP format, meeting standard accounting principles. More generally, CA is in a comparatively strong position in a tough IT climate. It faces competition from major vendors such as IBM and HP, but the systems management business is less cutthroat than many technology sectors – and CA has largely retained – and upsold products to – its enormous customer base.
So how is it weathering the downturn? Measured by GAAP, CA’s revenues plummeted between fiscal year 2000 and 2001. This was unsurprising – the company’s new licensing-based business model slashed upfront income. However, the proof of CA’s staying power is in the 2001-02 figures. Revenues in GAAP from the quarter to December 2001 (possibly the IT sector’s worst quarter ever) were $749 million, barely down from $783 million in the same quarter of 2000.
In short, CA is no Enron. Its breadth of product range, installed user base and the way it has managed the transition into an Internet world prove CA is a strong contender. While its share price might fare better if it were more open with its investors, its customers should not fear the investigation’s results.