Kumar Explains Latest CA Cuts

Despite the obvious connection between Computer Associates International Inc.'s job reduction in January and its laying off of 900 people last week, CEO Sanjay Kumar said that the two have little to do with each other.

Despite the obvious connection between Computer Associates International Inc.s job reduction in January and its laying off of 900 people last week, CEO Sanjay Kumar said that the two have little to do with each other.

In an interview with eWEEK Monday, Kumar said the latest cuts, which represent a five percent reduction, was a response to the current economic climate and a reflection of CAs transformation to a new business model where customers have greater flexibility in the length of their licensing contracts.

The cuts in January, which were heavily criticized for providing those affected with little or no severance benefits, were performance-related only, he said.

In contrast, for last weeks cuts, the Islandia, N.Y., company put together a severance package that includes extended salary, extra severance pay and enhanced benefits that CA will cover.

More specifically, CA will pay those affected at full salary and benefits through the end of the month, pay an additional two weeks of salary for every year of service starting November 1—with no limit—and extend family health insurance coverage out six months.

Other benefits will also be extended.

That severance package will not become standard fare at CA—proxy battle or not.

"I expect we would treat every issue (uniquely) and decide what to do," Kumar said. "Given the economy and the fact that we are reaching the end of the year, it was the right thing from a separation package point of view."

The cuts, which will be accounted for in CAs third fiscal quarter ending December 31, will bring CA staffing levels to about 17,000. Most jobs came out of "the top two thirds of the organization," and were more heavily concentrated in North America, Kumar said.

Despite the layoffs, CA continues to hire in some areas including development for enterprise management, storage and security. It has also added marketing staff and added presales support for enterprise management, Kumar said.

CA announced its new business model one year ago. The model allows customers to opt to pay for software on a month-by-month basis, or sign long term contracts depending on what works best for the customer. CA also changed its accounting practices with the new model, showing residual revenues on a monthly basis, rather than accounting for large, longer term contracts up front. Such accounting gives Wall Street greater transparency into actual earnings.

"A lot of the customers Ive spoken with like the new business model," said John McPeake, senior software analyst at Prudential Securities in New York. "It puts them in a better position with Wall Street. Theyre not going to be discounting heavily just to get a deal in the door at the end of the quarter," he added.

Although the new business model offers any array of licensing options, customers typically "fall into two buckets," Kumar said. Those who are looking to increase capacity on enterprise wide software such as Unicenter or CA mainframe software typically opt for longer term licensing. Others buy on a month-to-month, or subscription basis.

"We are getting beyond the confusion of the model and what it can do for people. Our competitive strength is being driven by the timeliness of the products and our ability to deal with customers in a very different way," Kumar said. "We hope it carries us through these difficult economic times and positions us well for the recovery," he added.

CA on Thursday is schedule to announce its earnings for the quarter that ended Sept. 30.

Wall Street expects CA to announce earnings of 52 cents a share, compared to 23 cents a share for the same period one year ago.

The new accounting practices provide greater visibility into CAs earnings, taking out the negative surprises that come with quarterly accounting. "Other software companies missed licenses by 25 percent in one quarter. The biggest miss for CA imaginable would be five percent at worst," said McPeake.