Computer Sciences Corp.: A New Set of Challenges

CSC pushes for growth in today's tighter market.

In many ways, Computer Sciences Corp. is one of the driving forces of IT consulting—its hit some roadblocks but still has plenty of gas in the tank.

The 42-year-old company, which underwent a strong growth spurt in the past four years, has weathered plenty of storms. But like its competitors, both larger and smaller, it now faces a new set of challenges, as a potentially softer IT spending market looms ahead.

About two years ago, the company successfully fended off a hostile bid by Computer Associates. Now, one of the top challenges the $9 billion IT services firm faces is to differentiate itself from a crowded field of competitors delivering Internet-enabling solutions along with a heavy dose of business consulting.

Although the companys stock price is stronger than that of many of its competitors, its value has eroded quickly over the past few months because the company lost a major government contract bid to a competitor and it completed the acquisition of Mynd Corp., a vertical integrator focused on solutions for insurance companies.

CSC lost out last Oct. 9 to Electronic Data Systems on a bid issued for a $6.9 million U.S. Navy and U.S. Marine Corps contract. News of the loss that day sank CSCs shares almost 11 percent to $68.75.

Industry analysts expected CSC to have a strong chance of winning that multiyear government outsourcing contract because of its experience and solid record with federal outsourcing deals, but that loss gave the company a black eye in the market. CSC officials declined to comment because of a quiet period.

In addition, Wall Street has not reacted positively to CSCs $524 million December acquisition of Mynd Corp., formerly known as Policy Management Systems Corp.

Although CSC is still a formidable competitor, some analysts believe the company may have lost some of its punch since losing a cadre of top executives like Kirk Arnold, the once head of CSC consulting who is now at a Web consulting startup. "CSC has been less interesting over the past couple of years since some important people have left," says Tom Rodenhauser, president of Consulting Information Services. "The problem with companies like CSC is that they lead with outsourcing and then sell the other services."

However, CSCs recent contract loss did not sidetrack it. A month later, the company announced several strong wins and debuted a new supercomputing service called e-HPC. Earlier in the year, the company also offered ASP services to a wide range of customers.

On the revenue side, CSC has seen strong growth, as revenue reached $9.9 billion for the 12-month period ended Sept. 29, 2000.

Moreover, the company is looking to reinvent itself in a post dot-com world. At an industry conference last November, Van Honeycutt, chairman, president and CEO, noted that CSC was in a good position to help steer companies in Net markets and complex computing and integration environments.

"Whats taking place now is that leading corporations in a handful of industries, such as chemicals, automotive parts and even health-care insurance, are aligning with one another as they collectively capitalize on the Internet," Honeycutt explained.

Positioning itself in the e-commerce arena is something CSC undertook in 1996, as it moved its consulting systems and integration group to compete in the New Economy. Last year, the company racked up $700 million in revenue relating to e-business.

The future still looks bright for CSC, providing it can win the big consulting and technology projects as well as prove it is nimble enough to continue growing.