Computer Associates forecast disappoints

BOSTON (Reuters) - Business software maker Computer Associates International Inc said on Tuesday that quarterly revenue will be on the low end of analysts' forecasts.

CA now expects to report revenue of US$975 million to US$1 billion in the quarter that ends in March. The middle of that range is below the US$1 billion average forecast of 14 analysts polled by Reuters Estimates.

It issued the forecast while reporting fiscal third-quarter results. CA had net income of US$59 million, or 10 US cents a share, compared with year-earlier restated net income of US$31 million, or 5 US cents. Revenue rose to US$967 million from US$917 million.

The company attributed the disappointing guidance to lacklustre performance in two key areas — sales of programs that manage mainframe business computers and lukewarm results in five key overseas markets.

Chief executive John Swainson said in a conference call that he's taken steps to rectify those problems.

"I don't see an ability for the key drivers of the stock to accelerate" in the near term, said John Rizzuto, a software analyst with Lazard Capital Markets. "Software is a tough business. It's a treadmill."

Swainson said that he has spent more than a year addressing problems that seemed most pressing after he was hired in November 2004. At the time he was charged with turning around the company after its previous management team had been pushed out over an accounting scandal that resulted in criminal indictments.

Since then the company has instituted new financial systems designed to prevent future accounting misstatements, restated results from previous years, recruited a new management team, launched a restructuring plan to slash costs and revamped the compensation system for its sales team.

Most recently, Swainson has begun a restructuring of some international operations.

On Tuesday he disclosed that that he fired country managers in China, Italy, Japan, South Korea and the UK over the past three months. The sales teams in those countries weren't delivering the results that he expected, Swainson said. Now the former executive with International Business Corp is turning his focus to the company's sluggish mainframe computer business. On the conference call he said that unit has been neglected in recent years even though it's long been CA's main profit generator.

"We can get this thing working a whole lot better, and as we do you will see our performance improve," he said.

Trip Chowdhry, an analyst with FTN Midwest Research, is betting that Swainson will succeed in those efforts.

"None of these issues (that he) mentioned have any significance from a long-term perspective," Chowdhry said.

Computer Associates trades for about 25 times the average analyst forecast for the coming year's earnings per share. That is a premium to rivals including International Business Machines Corp, which trades at a future price-earnings ratio of 13, and BMC Software Inc, at 20.

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