Layoffs redux: CA cuts another 5 percent of staff

Computer Associates plans to cut 800 positions worldwide, around 5 percent of its workforce, in a restructuring effort aimed at saving $75 million annually.

Computer Associates International (CA) plans to cut 800 positions worldwide, around 5 percent of its workforce, in a restructuring effort aimed at saving US$75 million annually. CA will finish most of the worldwide layoffs by the end of 2005, the company said.

The move echoes a similar announcement in September, when CA initially cut 800 jobs to reduce its operating costs. CA finished its 2005 fiscal year, which ended in March, with 15,300 employees -- the same number it had a year earlier, despite its September restructuring. The job cuts were offset by the 400 employees CA gained in its October purchase of Netegrity, and by the 350 additional employees CA hired in India.

CA plans to take a US$50 million to US$75 million charge this quarter for severance and related costs.

The restructuring announcement came as CA released financial results for its 2006 fiscal first quarter, ended June 30. CA's revenue for the quarter was US$920 million, up 8 percent from last year's first quarter, and right in the middle of the range it gave analysts in its guidance forecast at the end of last quarter. Thomson First Call's consensus forecast, adjusted after CA issued its guidance, called for revenue of US$920 million.

Net income for the quarter was US$94 million, compared to US$40 million last year, on a restated basis. (CA adjusted its 2005 fiscal year calculations to reflect a change in how it expenses stock options.) Per-share earnings were US$0.22, in line with analysts' expectations, on an "operating" basis excluding various costs, such as restructuring costs, non-cash amortisation, and charges related to CA's settlement agreements stemming from the company's infamous accounting fraud.

The job cuts were prompted by CA's new management team's review of the business and decision that some units can be trimmed to eliminate inefficiencies and redundancies, and by CA's string of recent acquisitions, Chief Executive Officer (CEO) John Swainson told analysts on a conference call. "CA is very much a work in progress," he said.

Swainson took over CA in February and has moved quickly to reconfigure its management team and business structure. CA has also recently overhauled its sales compensation model -- a change Chief Operating Officer Jeff Clarke cited to explain CA's 30 percent drop in contract bookings during the quarter. Because CA uses a subscription model that recognizes revenue gradually over the life of its contracts, a bookings slowdown doesn't immediately affect the company's financial bottom line.

CA faced "internal transition issues" adopting the new sales structure, according to Clarke. He pulled out a hunting metaphor to explain the change: CA's new model encourages sales staffers to be "hunters" out stalking new customers, rather than "farmers" who focus on renewing and extending existing customer contracts.

Security management was a hot area for CA during the quarter, showing a 26 percent billings increase over last year's first quarter. In other areas, including CA's core systems management software, billings declined. Executives attributed much of the decline to customers delaying purchases until CA releases its next Unicenter update, version 11, which is now entering final beta testing. Swainson said CA expects to release Unicenter 11 within the next few months.

CA updated its financial forecast for its full 2006 fiscal year, which ends in March. It now expects revenue of at least $3.8 billion, an 8 percent increase over last year.

"I'm very confident in CA's strategic direction. We are reinventing the company," Swainson said. "We have a lot of work ahead of us, and frankly we have to improve our execution ... but I am sure we're on the right track, and we're making progress."

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