Amid Turmoil, Computer Associates Moves Ahead

By Paula Musich  |  Posted 2004-04-19

Amid Turmoil, Computer Associates Moves Ahead

Computer Associates International Inc., a company that is synonymous with corporate makeovers, is in the midst of perhaps its boldest reinvention yet.

As the software maker consolidates management offerings and sharpens its security, storage and wireless portfolio, the specter of federal corruption charges and executive shake-ups threatens to undo the reworking that many see as the shift from the old CA to the new.

Although CA officials in Islandia, N.Y., said the company remains focused on its technology and services, they said the continuing investigations and uncertainty surrounding CAs top brass are distracting.

Earlier this month, former CA Chief Financial Officer Ira Zar, along with two of CAs other senior financial executives, David Rivard and David Kaplan, pleaded guilty in federal court to charges of conspiracy to commit securities fraud and obstruct justice. Zar faces a maximum 20-year sentence, while Rivard and Kaplan each face a maximum 10-year sentence.

Read "Three Former CA Execs Plead Guilty to Fraud Conspiracy."

U.S. attorney Roslynn Mauskopf said the pleas demonstrate the corrupt culture of CAs management, uncovered after a two-year investigation. Meanwhile, large customers of CA, even as they back the companys technology efforts, said allegations of impropriety and the potential loss of CAs chief architect for change, CEO Sanjay Kumar, are giving them pause.

"Unfortunately, just the hint of wrongdoing tars everybody," said Terry Milholland, a longtime CA customer and recently retired CIO and chief technology officer at EDS Corp., of Plano, Texas. Its unsettling for customers to see executives such as Zar plead guilty to fraud, Milholland said.

"I hope the situation here is that the bad apples will move on and the company will be fine. This is not the old CA," he said.

While commenting little in public about the turmoil, CA did circulate a statement to employees in-house saying, in part, that officials could not "predict the scope or outcome of the continuing government investigation. It is possible that it could result in ... criminal proceedings, including charges against the company and other officers."

Sources close to the matter say fallout from the accounting scandal could include the ouster of Kumar by the companys board of directors. Kumar declined to comment for this story, and CA officials would not respond to questions about the investigations or the executive changes.

Next page: The irony in CAs wrongdoing.

Irony in the Wrongdoing

The irony in CAs wrongdoing—booking revenue from contracts signed after the close of the quarter into the previous quarter—is that it is now markedly less attractive under the deferred-revenue recognition model adopted three years ago by Kumar, the polished protégé of CA founder Charles Wang.

After that change was implemented, CA went from a $6 billion company to a $3 billion company, according to Doug Robinson, interim CFO prior to CAs hiring of Hewlett-Packard Co.s Jeff Clarke for that role earlier this month.

"While we go through this transition and build back comparability, Wall Street is very uneasy," said Robinson, now CAs senior vice president of finance. "Analysts still look at our peers using metrics CA doesnt compare to."

The change to the deferred-revenue recognition model, said company insiders, was also a defining moment that distinguished the Kumar era from the Wang era.

Since becoming CEO, Kumar has managed to remake the board of directors, improve customer satisfaction, initiate and survive a change in how revenue is recognized, fend off two proxy battles over control of the company, and create a culture of innovation and openness, CA insiders said. Still, Kumar may suffer from the sins of CAs past, users said.

"I think the decent people with CA are paying for mistakes other people have made, like with the Enrons and other [scandal-ridden companies] all over the world," said longtime CA BrightStor user John Stacey, president of the Lexington, Mass., network consultancy Djamalov Inc. "Its like the old analogy: One bad apple ..."

"You have someone who may or may not have been part of the mess but has been part of the solution. Its not all white and black hats. There are a lot of gray ones, too," said Jasmine Noel, an analyst at Ptak, Noel & Associates, in Boston. "The sad thing is that Sanjay was the driving force behind a lot of [positive] changes. Thats what the customers think."

Next page: CA stays focused.

Staying Focused

Staying focused as the dust continues to swirl around the corner office, CA executives insist the company will remain focused on its mission to become the dominant player in the ever-consolidating IT infrastructure management market.

According to CA CTO Yogesh Gupta in a recent interview with eWEEK, infrastructure management is moving toward greater integration of tasks, much the same way the database market shifted 10 years ago or the enterprise resource planning market did five years ago.

"Thirty companies may be bought out," Gupta said. "The rest will go away. We see growth coming from integration—you have to have most of the pieces [to survive]."

Toward that end, CA is working to pare down its new releases from the "hundreds and hundreds" of products it now sells, said Gupta, so that release numbers will be synchronized and "all the pieces at a given releases level will work together."

Gupta added that CAs goal for this year is to whittle down the number of new releases to about a dozen. BrightStor 11, released in January, is the first example of that effort. It combines some 60 products that are integrated and tested together.

Real integration, however, comes when all tools leverage a common discovery mechanism and work from a common repository of asset data. "We will create a single [asset] repository, populate it with our products and make it open for anyone that wants to integrate with it," Gupta said. "In the next three to six months, well define it, and in the next 18 months, our products will integrate with it."

Timeline of Turmoil

  • October 8 CA fires CFO Ira Zar and executives David Kaplan and David Rivard after internal investigation determines CA prematurely recognized revenue in fiscal 2000

  • January 12 CA receives notice of pending civil proceeding from SEC

  • January 22 Finance Senior Vice President Lloyd Silverstein pleads guilty to obstruction of justice

  • March 11 Moodys Investors Service downgrades CAs debt rating

  • April 1 CA appoints former HP exec Jeff Clarke as CFO; names Executive Vice President Gary Quinn to lead partners effort; consolidates global sales organization

  • April 2 CA discloses stock grant to Sanjay Kumar valued at almost $8 million

  • April 8 Zar, Rivard and Kaplan plead guilty to securities fraud; CA fires Chief Counsel Steven Woghin

  • Pending CA wraps up internal accounting probe
  • "Weve had multiple conversations with CA about that," said Cindy Luman, chief operating officer at e-business consulting company PPT Solutions Inc., in Jacksonville, Fla., and a longtime CA customer. "Were interested in having a holistic view of the infrastructure [and] understanding whats on it, what are the vulnerabilities, whats it doing and where do I get help."

    CA at the same time will use its much-hyped Sonar technology, acquired last summer, to provide the dynamic discovery mechanism required to keep asset repositories current and report asset usage. "In the next three to six months, you will see from CA dynamic business process views. Were working to keep this current and automatic," said Gupta.

    "You can automatically look at a complex business infrastructure, find the application components, correlate them and map them to a business process," said Mark Barrenechea, senior vice president of product development, who joined CA from Oracle Corp. last year.

    CA has identified seven products that will use the Sonar technology over the next 18 months. Today, only eTrust Network Forensics and Change Impact Analyzer, an embedded feature within Unicenter ServicePlus Service Desk, incorporate Sonar. But CA is testing a new release of Unicenter Network and Systems Management that contains Smart Business Process Views, based on Sonar. It will be available by midyear.

    Gupta would not disclose the other Sonar-based products in the works, except to say the company is also working on common user interfaces to facilitate product integration.

    Next page: Integration at the heart of security efforts.

    Security Efforts

    Integration is at the heart of CAs security efforts. The main focus of the eTrust division in recent years has been in the anti-virus space, but now CA is moving toward creating a complete security portfolio and integrating it with Unicenter to improve the management of the discrete products.

    "There is a natural integration between Unicenter and eTrust," said Barrenechea. "Another example at the network level is eTrust Network Forensics. We can find the network, do an as-is diagram, do security forensics to decode traffic and look for IP theft. The industry calls it patch management, but its really about vulnerability assessment and remediation."

    In addition, CA is working to refine its vision for integrating physical and information security. The companys eTrust 20/20 product is designed to pull data from network security devices and physical security infrastructure, including access control devices for buildings.

    In storage CA plans to drive home its "intelligent storage management" message with tighter bundling and integration among its BrightStor products, such as Storage Resource Manager, SAN Manager and ARCserve Backup, said officials.

    CA also sees opportunities in wireless networking. One new wireless management tool in development and due for release this year will graphically perform perimeter detection.

    Other projects in the works over the next 12 to 18 months include enhanced management of large application platforms such as Microsoft Corp.s Exchange, SAP AGs R/3, Oracles 10g and BEA Systems Inc.s WebLogic.

    In addition to technology initiatives, the company said it will continue to advance the customer satisfaction initiatives Kumar instituted several years ago, in the hopes of becoming a trusted partner—even as it reassures customers about the storm in its executive ranks.

    Thats a far cry from the days of old. "People at conferences used to tell us that if we didnt have to use CA technology, we wouldnt," said Allan Andersen, director of Unicenter product management.

    "Theyve absolutely changed it. Its like night and day," said Djamalovs Stacey. "Theyve become a much more personable company working with clients and distribution channels."

    "It was so hard to do business with them. Now its so easy," said Milholland. "They have built up a bank account of trust. Leaders come and go. If Sanjay is replaced, they have people who can run the company that customers trust."

    Additional reporting by Dennis Fisher and Brian Fonseca

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