CA first quarter revenue up 9%

By siliconindia staff writer   |   Friday, 23 July 2004, 07:00 Hrs
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NEW YORK: Computer Associates International Inc., the world's fourth-largest software maker, posted a higher quarterly profit, helped by rigid cost controls, but lowered its full-year earnings and revenue outlook, citing tight budgets.

The company, which warned about its revenue just two weeks ago along with about 20 other software makers, said its profit and revenue beat analysts' reduced estimates but fell short of their original forecasts.

Computer Associates reduced its full-year earnings due to a shortfall in professional services and a higher mix of contract renewals from the new business model.

"The market is fairly competitive," said Kenneth Cron, interim chief executive officer. "You do see some pricing pressures. But in general, there's modest activity and modest growth."

The stock was almost unchanged in after-market trade.

The company also said it has promoted several executives from within. Computer Associates, embroiled in an accounting scandal, has faced a talent gap after more than 15 executives and employees left the company in the recent year due to a long-running criminal investigation.

Earnings excluding items were 21 cents a share, higher than analysts' estimate of 18 cents a share, according to Reuters Estimates.

Revenue rose 9 percent to $860 million, exceeding its reduced estimate of $830 million to $850 million. This is in contrast with a spate of warnings from other software companies, including its biggest competitor, BMC Software.

"We didn't see the challenges of closing business that many of the other people in our industry saw," Jeff Clarke, chief operating officer, told analysts, but added: "It's very competitive out there. I believe we're holding our own."

The company posted a net profit of $53 million, or 9 cents a share, in the fiscal first quarter ended June 30, compared with $8 million, or 1 cent a share, a year earlier.

First-quarter bookings, or new deferred subscription revenue, increased by 37 percent to $530 million, boosted by strong security software booking, which more than doubled.

"It shows flexible licensing is popular," Clarke said in an interview. "Those who have it are buying additional things."

But renewals on the new business model do not increase its revenue unless there are add-ons, because they are already in the revenue base. The shift of the mix and a shortfall in professional services would hurt CA's full-year results by 2 cents and 1 cent respectively, the company said.

Computer Associates, based in Islandia, New York, expects fiscal second-quarter profit of 15 cents to 17 cents a share, net income of 3 cents to 5 cents a share, on revenue of $830 million to $850 million, compared with the average Wall Street expectation of 18 cents a share on revenue of $870 million.

"It's a pretty tough market, and continues to be so," said Bill Snyder, an analyst with Meta Group. "Customers are more cautious about how they approach large deals."

For fiscal 2005, Computer Associates looks for a profit, excluding items, of 70 cents to 75 cents a share. That is lower than the Wall Street average estimate of 77 cents a share and its earlier estimate of 73 cents to 78 cents.

The company also trimmed its forecasts for full-year sales, saying it expects fiscal 2005 revenue of $3.4 billion to $3.5 billion. Analysts are looking for revenue of $3.59 billion. Previously, Computer Associates anticipated sales of $3.5 billion to $3.7 billion.

Including items, CA expects net income of 25 cents to 30 cents a share for the full year.

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