CA’s Perfect Storm (But For How Long?)

LAS VEGAS:  This would appear to be the perfect time for , which has gathered its key customers and partners here for CA World ‘17. A growing data deluge, a sweeping digital transformation revolution, a heightening focus on , and the exploding need for constantly evolving apps are all driving this perfect storm at which CA should be at the epicenter.

However, neither a perfect storm, nor an epicenter can be weathered without severe risks, and based on the software giant’s most recent financial results CA’s success is still problematic. On October 25 the company reported FY18 Q2 revenue of $1.034 billion, and while that was up 2% year over year, net income was down 13% and bookings were down 1%. The outlook for the remainder of the fiscal year is approximately 5% increase in revenue to between $4.22-$4.25 billion, and a 5%-8% decrease in earnings per share.

While painting an optimistic picture — highlighting the SaaS business growth, total new sales, Enterprise Solutions new sales, and new sales “all outperformed the year-over-year decline in the renewal portfolio” — during the analysts’ call following the earnings report, CEO Mike Gregoire also noted “disappointing” sales execution in Q2. “In particular, velocity in sales outside of the renewal cycle of Enterprise Solutions products was short of our expectations.’

Overall, Gregoire said the company was well-positioned for the future. “We are well positioned in great markets, and our solutions are solving real problems for our customers.”

CA sees itself as the toolmaker for the DT generation, pushing its modern software factory philosophy. Digital transformation should be an ISV’s dream market: spending on DT technologies will exceed more than $1.2 trillion this year, and continue to grow at almost 18% per year to $2 trillion by 2020, almost 20X the anemic growth forecast for the overall IT market.

At last year’s event the company trotted out the its Built To Change paradigm, and reinforced it with the ‘Built to Change Summit’ in June. This week’s theme, No Barriers, is all about marrying CA’s own transformation experience with its products, services and expertise, to help its customers overcome the barriers embodied by DT, as Gregoire stated in his keynote yesterday.

“The focus today is on innovating the next big shift for your company,” he said. “That is the number one priority we are focused on – providing you with solutions that will remove the barriers between your ideas and outcomes.”

CA is helping a lot of companies to change, and Gregoire called out a few, including FedEx, Netflix and Citi, as well as telling the audience that they will be instrumental in making that change successful. “I believe change in your company will be driven by you, the technologists.”

Then there is the company’s deep roots in the mainframe environment — is a Platinum sponsor of CAW17 — and while that is only a portion of the company’s annual revenues, it’s a significant portion, up 3% YoY last quarter to 65%. Not only did the mainframe generate a bigger slice of CA’s revenues, it appears to be generating a bigger slice of overall IT budgets, which are expected to see a compound annual growth rate of 2.58% between 2017-2021.

That’s not too shabby when you consider annual mainframe system sales have declined from a high of about $4 billion earlier this decade to $2 billion in 2016. Even better for CA are the following mainframe factoids:

-55% of enterprise apps need the mainframe;

-70% of enterprise transactions touch a mainframe; and,

-70-80% of the world’s corporate data resides on a mainframe.

Almost all mainframe owners are optimistic about the platform’s future: 91% of survey respondents predicted that mainframe workloads will continue to grow, according to a new survey from CA competitor . “The survey shatters a prevailing variety of myths and highlights the strategic importance of the mainframe,” said Bill Miller, president of zSolutions at .

When you combine all these elements it’s easy to understand why CA is so focused on DT: going digital largely depends upon applications delivered quickly and securely. The ISV has identified ways for 80% of companies to develop and deliver better software faster, according to a recent survey. The survey of almost 1,000 IT decision makers found that companies practicing with cloud-based tools and delivery results in:

-81% improvement in overall software delivery performance (over an improvement of just 52% when practicing DevOps alone or 53% when leveraging cloud without DevOps);

-almost 2x faster software delivery speed;

-80% better predictability of software performance;

-66% improvement in software quality for fewer defects;

-69% improvement in customer experience than baseline of traditional software development and delivery models; and,

-more than 2x better cost control for the tools and services that DevOps teams actually use.

So while the mainframe remains a critical part of its past, present and future, the new markets in DT, DevOps and security represent the future.  “As much as we loved that market, and despite the fact it was strategic to our largest customers, no amount of innovation was going to grow it at 5% each year,” said Jacob Lamm, CA’s head of corporate strategy and development. “We were in too many slow-growth markets.”

In the next issue of IT Trends & Analysis (following Thanksgiving) I’ll cover the news coming out of CAW17, as well as CA’s prospects for the future.

DISCLAIMER: In addition to looking after airfare and hotel, CA (like other companies referenced in this article) is also a part of my investment portfolio.

 

Author: Steve Wexler

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