Kumar: CA still healthy
Computer Associates' COO discusses stock tumble, remains optimistic
October 21, 1998: 12:14 p.m. ET
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CA boosts services business - Aug. 5, 1998
CA woos computer firm - Feb. 11, 1998
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Computer Associates
Computer Sciences
NEW YORK, New York (CNNfn) - After a failed attempt to take over Computer Sciences, shares of business software company Computer Associates have fallen dramatically from an all time high of $61.93 to $36.50 a share.
<Picture>The company warned that a year 2000 fix was cutting into its bottom line, and the stock has yet to regain much ground.
<Picture>CNNfn's John Defterios and Deborah Marchini spoke with Computer Associates' (CA) Chief Operating Officer Sanjay Kumar to determine why the stock has fallen so sharply and where the company will go from here. Kumar remained optimistic about CA's future and highlighted the company's strong fundamentals and healthy advances into the client-server market.
<Picture>JOHN DEFTERIOS, CNNfn ANCHOR: Let's look at the numbers first, good numbers which are going to put a floor, I would imagine for the stock, which has gone through volatility as of late. But there's a question mark hanging over the overall software business now of demands going ahead in 1999 because of the year 2000 problem. What are you seeing for forward demand?
SANJAY KUMAR, COO, COMPUTER ASSOCIATES: I think right now through the end of this year, we see pretty good demand. I think it is very healthy from where we sit today. While ... there tends to be a lot of pressure toward the end of quarter, I think where we sit today, the prospects look good. I think for the first half of 1999, they'll look pretty good. I think we've gone through some pull back from a customer point of view. Primarily, I think the global economic pressures are not related too much to the year 2000 problem.
<Picture>DEBORAH MARCHINI, CNNfn ANCHOR: You see those now affecting the domestic economy as well as your international customers?
<Picture>KUMAR: We do because the domestic customers, especially the global ones, who are headquartered here, are being faced with problems in their businesses, for example in Latin America and in Asia. And because of that they're cutting back a little bit here. So the impact to us is on the very high end of our business.
<Picture>MARCHINI: OK. I think you have not yet had your conference call with Wall Street analysts. You're going to be doing that later this morning.
<Picture>KUMAR: That's right. We released last night. We're going to do a conference call this morning.
<Picture>MARCHINI: What kind of guidance are you going to give them about earnings going forward?
<Picture>KUMAR: I think for the next three to six months, we're quite comfortable in terms of where they are today. I think the prospects look good. For the first time in our business, half of our business came from the new clientele marketplace. That's never happened to us before. So I think the momentum going into the quarter is pretty good. So I think we're feeling pretty bullish right now.
<Picture>DEFTERIOS: Why is that important on the revenue side -- because I know this is a benchmark to get half of your revenue from client server -- vis-à-vis the mainframe business? What is the difference for you going forward?
<Picture>KUMAR: Well for many years -- for the 22 years we've been in business -- we've been pegged as a mainframe software company. Four years ago, we were a 100 percent mainframe software company and we transitioned very hard to get into the new, robust, client-server business. And today half of our business in the quarter was client server. So I think it's a very important milestone.
<Picture>MARCHINI: All right. Your shareholders unfortunately have seen their stock off its highs after the earnings warnings that you issued and the bid for Computer Sciences. There also have been lawsuits filed against the company for executive compensation, including your own. Talk to me a little bit more about what is going to happen there in terms of executive compensation, vis-à-vis shareholder compensation.
<Picture>KUMAR: Well I mean, the issues relate to a 1992 shareholder-executive compensation plan ... More than 80 percent of the shareholders voted on the plan. Nowadays, unfortunately, given the legal climate, you know, lawyers advertise on the Internet for defendants. They get defendants off the Internet literally and they file litigation. Our focus is to run the business, do a little bit of shareholder value. I think we've been very consistent in doing that in the last 10 years.
<Picture>MARCHINI: Do you feel that what you're being paid under that compensation package is fair?
<Picture>KUMAR: I think it's very fair. I think shareholders voted on it and I think it's extremely fair.
<Picture>DEFTERIOS: There's a nasty battle, as Deb alluded to here, with Computer Sciences. One of the nastiest we've seen on the Street for a long, long time. Are you going to approach the company again to go after it, after the turmoil we've seen in the stock market and the prices down overall?
<Picture>KUMAR: No, I think we've seen our price come down, like everybody else has in the marketplace, including the technology business. The difference for us, we made the disclosure early. ... I think we were honest and up front, reacted early on, clearly. Now as far as Computer Sciences, I don't think there's anything in the cards there in the future. We have moved on, doing much more targeted deals, geographically based. I think we're way beyond that.
<Picture>MARCHINI: You're still shopping?
<Picture>KUMAR: Yes. Services companies, small to medium-size, absolutely.<Picture: Link to top> <Picture>
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Sanjay Kumar
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