CA, Inc. (NYSE: CA) sells software that help automate IT tasks such as managing databases, backing up data, and checking for compliance with regulations such as security standards. As data is increasingly becoming digitized and stored, ensuring that security of company networks through encryption, firewalls, and antivirus software will become even more important. Over 99% of Fortune 1000 companies and other governmental, educational, and corporate customers use CA's services. Like most software vendors, CA charges its clients both licensing fees for the software as well as support and maintenance fees. However, CA is different than most enterprise software companies in that the vast majority of its revenues - 80% - come from licensing fees, not service and support.
As one of the four largest IT management companies by revenue, CA benefits from growth of the IT management software market, which the Gartner group expects to grow to $60 billion in 2010 from $44 billion in 2005.
In 2007, around forty seven percent of CA's revenue still came from the mainframe market, which has been declining since the 1990s. Mainframes are being replaced by less costly distributed computing systems, which consist of a network of computers working together on a task. While CA sells software for these distributed systems, competition is fiercer in this market due to the large number of vendors. Large IT companies such as IBM and HP also offer bundled services that compete directly with CA's software offerings.
CA generates its income from licensing fees, the right to use their software; maintenance fees, providing technical support and product enhancements; and service fees, providing implementation, consulting, and education services.
Total revenues for the company increased by $171 million or 7% to $3.94 billion for the year that ended on March 31, 2006. The increase was due to growth in their subscription revenue and professional services, which helped to offset declines in software, maintenance, and financing fee revenues. Increased subscription was caused by improved management of contract renewals and an increase in large contracts, which led to a higher average contract length. CA's business is also diversified in terms of geography as 46% of its revenue came from outside of the United States. International sales amounted to $1.81 billion of revenue compared to $2.13 from the United States for the 2007 fiscal year. The numbers represent a 6% increase for revenue from the United States and a 3% increase in revenue from other countries.
Due to increases in operating expenses, however, CA's net income actually decreased from $160 million to $121 million in 2007. The increase in expenses was primarily driven by the increased usage of external consultants and a restructuring plan announced in August 2006. CA was also especially hard hit by the dot-com crash of 2001, which led to a decrease in budget for IT departments in many industries. With companies cutting back on IT spending, CA's services were less needed and nonessential to a company's operation. The company also became the subject of a governmental investigation of past accounting practices that led to a settlement in 2004 in which the company agreed to pay restitution to shareholders and to appoint new management to the company. In 2006, the company also payed $129 million for a new enterprise resource planning (ERP) system to enhance financial transparency.
CA's acquisition-driven expansion strategy has also hurt it in the past due to unsuccessful integration of its acquired technologies with its core business offering. Many of its acquired products were still marketed under separate brands until 2004. Due to these difficulties, CA had a negative cash flow in 2003 and 2004 although it has returned to positive cash flows since 2005.
Over the past year, CA has been aggressively promoting its software by adding nearly 800 sales professionals. The company, however, faces tough competition from other IT management companies and technology companies with a diverse portfolio of offerings.
|Comparison of CA and Its Competitors|
|2007 Revenue (in Millions US$)||Percentage Growth Over Previous Year||2007 R&D Expenses (in Millions US$)||% Revenue Spent on R&D|
Total worldwide IT operations management (ITOM) software, from which CA makes the majority of its revenue, increased to $9.9 billion in 2005. CA was second in terms of market share behind IBM and capturing 13.3% of the market. The Garter group is ITOM market is also expected to increase through 2010 as IT departments struggle to cut costs and improve efficiency. CA was also the market leader in job scheduling and asset management software revenue with 33.6% and 19.2% of the market share, respectively.
|Worldwide 2005 Vendor Revenue Estimates for IT Operations Management Software|
|Company||2005 Revenue||2005 Market Share (%)||2004 Revenue||2004 Market Share (%)||2004-2005 Growth (%)|