CA Technologies continues to struggle to transition from its legacy mainframe past – and the business segment delivering most of its margins – to the emerging application economy powered by such new(ish) technologies as cloud, analytics, mobile and the not-so-new-but-becoming-more-significant security (CAMS). For its latest quarter, 2QFY15, revenues ($1.08 billion), non-GAAP EPS and cash flow were all down, although Enterprise Solutions new sales were up for the second consecutive quarter, stated CEO Mike Gregoire.
CA is a software company, but according to the vendor, every company is now a software company. During his keynote at last week’s CA World 2014, CTO John Michelsen outlined the 5 truths of the application economy, where JP Morgan Chase has more software developers than Google and more technologists than Microsoft:
-Every business is in the software business.
-DevOps should be your new best practice.
-Security should enable the business, not just protect it.
-Your infrastructure is transforming like never before.
-Mobile-to-mainframe is now your killer app.
That last truth is important to CA, with mainframe revenues accounting for $610 million last quarter, or more than 60% of total revenues. “The mainframe is at the heart of billions of transactions and powers the backend of the application economy, said CA’s Michael Madden, GM, Mainframe.
According to estimates, there are 10,000 mainframe customers globally, and CA (and IBM) believes the mainframe future is looking brighter, after years of steadily declining sales. Last year IBM sold 2,700 mainframes for $4.3 billion. “People say the mainframe is dead,” said Vernon Turner, an analyst at IDC, “but we say, hmmm, that’s a $4.5 billion tombstone.”
In BMC Software’s 9th annual survey of nearly 1,200 mainframe customers, released at the end of October, 91% of all respondents consider the mainframe to be a long-term strategic platform, with 61% expecting growth in their environment in the next two years. Reducing software spending (more than 70%) was the top priority, followed by application availability (52%), application modernization (48%) and data privacy (47%).
In an April article on the 50th anniversary of the IBM mainframe analyst Joe Clabby, Clabby Analytics, said the future of the mainframe is secure. “No worries,” he said. “A huge portion of the world already runs mainframes in places where there’s no other system that can do that job.”
Banking, financial, retail, government and academia are the big client bases for his mainframe sales, said Patrick Toole Jr., GM of IBM’s System z. “What it always has been is high-volume secure transaction processing.”
IBM has been telling conferences that mobile, the rising use of smartphones and portable digital devices, will be good for the mainframe, said Clabby. “With mobile devices, all they want to do is interface with that data,” he said. “Mainframe owns the data.”
CA’s mainframe business is their “cash cow in the basement“, and while it will never go away, will produce less money for the firm in the future, according to Bjarne Rasmussen, European CTO at CA. That’s due to the emergence of the Application Economy, he said.
“We see a huge shift from the infrastructure to the application lifecycle. I can see the change in the last three years alone. One third of our new business today is coming from the application lifecycle, that’s more than it was a few years ago. And in a few years’ time, it will go up to perhaps 50% or 60%.”
80% of data flows through mainframes, said Amit Chatterjee, EVP, Enterprise Solutions and Technology Group, CA. Mainframes process 24 billion transactions per year.
He said there are three buckets of mainframe customers: those who are devoted to the platform and are never going to get off; those who don’t care how or where work gets processed, and those who need to get off at least some of their workloads. New technologies and applications, providing greater speed and agility, provide an interesting story in at least two of those areas, said Chatterjee.
“The Application Economy is tearing down old notions; breaking apart yesterday’s models; reshaping the landscape,” said Gregoire in his keynote. “We are on the verge of a shift. Not a gentle evolution but a fundamental transformation of business, of society and life.”
CA’s revenue has been suffering from falling subscription and maintenance profits, largely due to the decreasing performance of its Mainframes Solutions segment for the past several quarters, wrote analyst Andrew Smith, Technology Business Research, in a recent report. Despite the challenging market dynamic facing CA, the vendor is staying the course with its core strategic objectives of increased brand awareness; sales execution and demand generation; and corporate velocity and agility.
CA’s sales, G&A and R&D spending all increased from the year-ago quarter, demonstrating CA’s commitment to innovation and reinvention. TBR believes CA will continue to prioritize investments in core products and people to provide differentiated software portfolios and attract new customers, fundamentally changing its revenue mix.
“We’re pulling our customers into this new world but we’re not ignoring where they came from,” said CA’s Andi Mann, VP of Strategic Solution. “I think the mainframe has the opportunity to be the growth engine for new IT. To my mind this is the perfect cloud platform…”
DISCLAIMER: CA looked after airfare and accommodations at the event.