Things are looking bad for Computer Associates International in its first quarter and the second quarter doesn't look much better. Shares plunged 41 percent on the news.
In morning trading Wednesday, shares of CA were down 21 1/8 to 30, a 52-week low.
The company announced late Monday that it would miss expectations for the first quarter ended June 30. President and chief operating officer Sanjay Kumar told analysts Wednesday that he expects earnings per share for the quarter to be between 26 and 31 cents per share, including a one time gain related to lawsuit settlement and charges related to reseller Inacom's pending bankruptcy. That's below the 55 cents per share analysts were expecting, according to research firm First Call.
And things aren't looking better for the next quarter. Kumar said CA is now tentatively aiming at revenue growth of 20 percent for the second fiscal quarter, up to US$1.92 billion. But that's lower than earlier predictions of 25 percent growth.
The misses in the first quarter were blamed on sluggish sales in Europe and general weakness in the company's mainframe software business.
The latter problem may go beyond CA. Kumar said customers were concerned about possible changes in IBM's System 390 mainframes, involving possible new architectures or pricing schemes. Those concerns may have caused them to pull back on some deals until IBM makes its formal announcements later this year. Kumar said the firm also missed closing several deals in the US$10 million to US$50 million range toward the end of the quarter.
"We heard industry analysts telling people 390 architecture was going to change, so hold up. My gut feeling is we're not alone with this," Kumar said.
He may be right. Rival BMC Software also announced today that first quarter profits would fall short of analysts expectations, and blamed the miss on weakness in its mainframe business.
The problem could snowball Kumar warned.
"Any time any of us in the industry comes out and says something about a macro issue like this, customers pause, and there tends to be a ripple effect," he said.
"If there is systematic weakness across the board in s390 that (20 percent growth) may not be achievable. But we've got to have a goal to shoot for," he said.
The company has taken some steps to address European weakness, and plans more. Gary Quinn has been named executive vice president of sales operations, and will work with Kumar to on European and Latin American management issues. "Macro issues or not our performance in Europe was not acceptable and that's got to change," Kumar said.
CA may be able to recover from these hits better than some other firms, said Paul Rodriguez, analyst at C.E. Unterberg Towbin.
"They are the 800-lb gorilla. They've got the financial and product resources to dominate the sector," he said.
CA competes with BMC, IBM, and Compuware.
