Bloomberg, December 24, 2004 article

Computer Associates' Swainson Finds Structure Isn't `Logical'
2004-12-24 07:30 (New York)

Computer Associates' Swainson Finds Structure Isn't `Logical'

By Ron Day
     Dec. 24 (Bloomberg) -- Computer Associates International
Inc.'s incoming Chief Executive John Swainson said one of his
first tasks will be to streamline the software maker that
ballooned through 50 acquisitions in almost 30 years.
     The company never integrated many of the businesses it
bought, leaving employees scattered across the U.S., Swainson
said. Computer Associates, the No. 5 software maker, measures
performance by the region not product, making it difficult to
judge what lines are most successful, he said.
     The structure ``surprised me the most,'' Swainson, who
joined Computer Associates after 26 years at No. 2 software maker
International Business Machines Corp., said in an interview this
month from Washington. ``I'm used to looking at a product line
and seeing how it's doing. It was logical, understandable. My
predecessors didn't have the same perspective.''
     Changing the way Computer Associates is organized will be
part of Swainson's job when he takes the helm from interim chief
Kenneth Cron in April. He's being charged with restoring the
loyalty of clients after a $2.2 billion accounting fraud that led
to two years of government probes and 15 executives being fired,
including former CEO Sanjay Kumar.
     ``He's got a great vision of what's over the horizon,'' said
Steve Roth, an analyst at the John Hancock Technology Fund who
has met with Swainson. His fund manages $400 million and owns the
stock. ``They were distracted with so many things going on. CA
has been stagnating.''

                       Natural Enthusiasm

     Swainson, 50, named CEO-elect Nov. 23, spent his first day
at Computer Associates working in a conference room because the
company didn't have an office ready. The next day, he took one
from Chairman Lewis Ranieri, who moved into the conference room.
     Swainson will be the company's first chief executive officer
with an engineering degree -- a point he plans to exploit to free
up software designers' creativity to boost in-house development
and lessen dependence on acquisitions.
     ``My coming here allows some of that natural enthusiasm and
energy to get unleashed,'' he said of the workers in an interview
from Washington, where he met with 175 customers. ``Now they have
a CEO who understands what they are talking about.''
     Cron has a bachelor's degree in psychology from the
University of Colorado. Kumar, indicted in September for taking
part in the fraud, didn't finish college. Founder Charles Wang
received a bachelor's degree in mathematics from Queens College,
part of the City University of New York.
     The stock, up 14 percent this year, rose 1 cent to $31.08
yesterday in New York Stock Exchange composite trading. Eight
analysts suggest buying shares, six say to hold and two say sell.
     The company's sales last quarter rose 6.5 percent, less than
Microsoft Corp.'s 12 percent and Oracle Corp.'s 10 percent.

                         Better Systems

     Computer Associates restated revenue for 2000 and 2001 after
investigations found sales were booked from contracts signed
after the end of fiscal reporting periods, a so-called 35-day
month. Prosecutors said the goal was to make it appear the
company had met or exceeded revenue expectations.
     The company is now installing programs from SAP AG, the
largest maker of business-management software, to add ``the
business systems we need as a software team,'' Swainson said.
     Swainson said he wants growth to come from products
developed internally. The company's programs manage mainframe
computers, networks, data security and storage devices for
clients including Hewlett-Packard Co. and Overland Storage Inc.
Computer Associates will make acquisitions as well, he said.
     ``We are developing great products, and that's something I
intend to emphasize and build upon,'' said Swainson, a University
of British Columbia engineering graduate.

                         Enough Bullets

     In his last post at IBM, Swainson managed the division that
produced IBM's WebSphere software, which runs Internet sites and
networks, taking the unit to more than $1 billion in sales.
Computer Associates had sales of $3.28 billion in its fiscal year
ended March 31 and has about 15,000 employees.
     Computer Associates last year had an operating profit
margin, the share of sales left after operating costs, of 8.6
percent. Microsoft had a 25 percent margin. Oracle's was 38
percent.
     That means he shouldn't boost research spending much, Janney
Montgomery Scott analyst Richard Sherman in Philadelphia said.
     ``They have enough bullets in the armory,'' Sherman said.
``They have an under-leveraged portfolio right now. There's still
a feeling customer service needs to be improved.''

--Editors: Golum, Antonelli, Moody.

Story illustration: For the company's credit profile, see
{CA US <Equity> CRPR <GO>}. For a series of screens on Computer
Associates, see {CA US <Equity> CNP08737980102 <GO>}. Press the
space bar to pause on a screen and the GO key to continue.

To contact the reporter on this story:
Ron Day in Princeton at (1) (609) 750-4632 or
rday1@bloomberg.net.

To contact the editor responsible for this story:
Cesca Antonelli at (1)(609) 750-4567 or fantonelli@bloomberg.net;
Bob Kuzbyt at (1)(609) 750-4618 or bkuzbyt@bloomberg.net.

[TAGINFO]
CA US <Equity>

NI COS
NI US
NI NY
NI WNEWS
NI CEO
NI SOF
NI CPR

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