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Computer Associates International, Inc. Business Information, Profile, and History

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History of Computer Associates International, Inc.

Computer Associates International is the second-largest computer software vendor after Microsoft Inc. The company concentrates on operating systems software for computers, particularly mainframes, as well as business applications software for both mainframes and personal computers.

Computer Associates was founded in 1976 by Charles Wang. Born in Shanghai, Wang moved with his family to the United States in 1952, and studied math and physics at Queens College. After his graduation in 1967, Wang went into computer programming. Large, expensive mainframes were the most important computer at that time, and the software industry barely existed. IBM, which sold most mainframes, included basic software in the price, and all customized programming was done in house. In 1969 the United States government began requiring that software be sold separately, allowing individual entrepreneurs to offer competition.

At that time Wang worked for a small computer service bureau in New York City that marketed software for the Swiss company Computer Associates (CA). When CA decided to establish its own business in the United States, Wang offered assistance, and in 1976 began Computer Associates International as a joint venture with the Swiss company. With only a single partner and a small Manhattan office, Wang limited himself to marketing software by telephone. After an initial failure, he succeeded with CA-SORT, a program enabling computers to sort through data quickly and economically. Wang's SORT offered competition to a similar IBM program, and Wang convinced many businesses with IBM hardware to change over to CA's product. Mainframe software is licensed rather than sold, and the recurring revenue from the licenses of the SORT software was a great boost to Computer Associates.

Computer Associates began expanding, hiring salespeople and programmers, and in 1978 Wang's brother Tony, a lawyer, joined the firm. Sales of SORT generated enough money for Wang to buy new programs from smaller firms and market them to customers who already owned SORT. Wang's success allowed him to buy out the original Swiss company in 1980.

Computer Associates grew rapidly through acquisitions, buying in 1982 for $22 million in a stock swap. Capex, which was half of CA's size, sold support software for programmers. In 1983 Wang purchased Stewart P. Orr Associates for $2 million and Information Unlimited Software for $10 million. He continued two years later, acquiring Sorcim for $27 million, Johnson Systems for $16 million, and Arkay Computer for an undisclosed amount. With these purchases, Computer Associates became the top independent vendor of system utilities, with a continuing specialization in data compression. In 1985 CA paid CGA Computer $25 million for Top Secret, a computer-security program. Although critics maintained that Wang had paid too much for the program, which had sales of $10 million a year, Wang saw great potential in the product, and sold $36 million worth of Top Secret in the first year after the acquisition. His purchases also brought some software for personal computers, which was the fastest-growing segment of the computer market.

CA's main focus at this time was on products designed to improve the performance of IBM equipment. Each time IBM upgraded its computers, it kept portions of old designs so customers could continue to run their older programs; as a result, IBM mainframes were powerful but inefficient. This market presented a particular opportunity for CA because IBM did not make an effort to market products that pointed out defects in its computers; therefore Computer Associates did not have to compete against IBM's larger resources.

The firm also continued to attempt to break into applications software, which was earning firms like the Microsoft Corp. and Lotus Development Co. huge sums of money in the personal computer market. It made an important move into applications in 1986 with the $67 million purchase of Integrated System Software Corp., which specialized in graphics software. It also purchased Software International, a maker of financial applications, for $24 million. Despite this new applications strength, system utilities still accounted for 70 percent of Computer Associates' revenues in 1986.

In 1987 Computer Associates made its largest purchase yet, acquiring rival Uccel for about $830 million in stock. Uccel had been a competitor in the market for systems utilities software, so the purchase strengthened Computer Associates' already-strong systems utilities sector, adding 7,500 customers to CA's base of 26,000 while eliminating a rival company. The purchase temporarily made CA the largest independent software company, ahead of Microsoft, whose strengths lay in software for personal computers. CA also had far more products, marketing about 200 kinds of software to Microsoft's 26 and Lotus's 15.

Uccel software filled in several gaps in CA's systems utility product line, but excessive product overlap required a growth strategy involving relentless cost-cutting to maximize profits. CA dismissed 25 percent of Uccel's staff of 1,200 within five days of receiving approval for the deal from the Justice Department. Although some analysts have criticized CA throughout its history for focusing on acquisitions at the expense of developing its own programs, Wang's continued pursuit of market share through acquisitions increased his firm's sales from $450 million in 1986 to $628.8 million in 1987. Most of the 13 percent of sales it spent on research and development went to improving its newly acquired software.

By 1988 Computer Associates employed 4,500 people in 22 countries and reported $842.1 million in sales. To service its 30,000 customers, which included most Fortune 500 companies, CA had a worldwide sales force of 1,200, with an additional 1,400 in sales support. This high salesperson-to-customer ratio allowed salespeople to concentrate on a few clients; nevertheless, the company received poor ratings for customer satisfaction. Customers brought in by the acquisitions complained of difficulty in finding the right person at CA to answer questions and of CA representatives who appeared to be more interested in making sales than providing support.

CA's acquisitions had brought it financial strength and a broad range of software. Its SuperCalc spreadsheet application, bought in 1984, brought the company into competition with Lotus and its 1-2-3 spreadsheet, which had become the best-selling software in the personal computer market. Easywriter, a word-processing program bought in 1983, also brought CA strength in the personal computer market. Due to rapid technical advances that made them increasingly powerful, sales of smaller computers grew more quickly than those of mainframes, an aid to Computer Associates. The firm's utilities helped customers squeeze more efficiency from their existing mainframes, and system software like utilities still accounted for about 75 percent of company revenue. Hoping to lessen its dependency on systems software, CA announced that it would expand applications software to about one-third of its business.

Computer Associates acquired another maker of database management software in late 1988, buying Applied Data Research, Inc. for $170 million from Ameritech. CA temporarily ceased its acquisitions in 1989 following the purchase of Cullinet Software Inc. for $289 million. Cullinet sold database management systems, and CA hoped to use the firm's products to help its applications run on IBM, Digital Equipment, and Unix systems. But some of Cullinet's software competed with software Computer Associates already offered, forcing some customers to delay purchasing decisions until CA made it clear which software it would be continuing to offer.

Soon after the purchase, CA terminated about 900 Cullinet positions. The absorption of Cullinet, along with need for internal streamlining (the assignments of CA's 600 U.S. salespeople had begun to overlap, with up to four representatives servicing one account), necessitated a corporate reorganization. Simultaneously, mainframe and minicomputer sales slacked off, hurting the market for programs. With the acquisition of Uccel and Cullinet, Computer Associates became the first software firm to top $1 billion in sales, in 1989. As a result of its mounting problems, however, CA's growth dropped from 45 percent in 1989 to six percent in 1990, and its stock price dropped 50 percent.

Computer Associates was again sharply criticized for a lack of focus after the Cullinet deal. CA responded by unveiling Computing Architecture 1990s in April 1990, a software strategy intended to bring some order to the group of software products it had acquired during the past decade. The plan had three major components: database management, systems management, and applications. The firm vowed to make all of its programs work together and 'talk' to each other across different types of computer hardware and operating systems. This type of networking was increasingly important in the computer industry, with networks of smaller computers displacing mainframes. The Computing Architecture 1990s system, which used software intermediaries to connect different types of computer systems, applying them like telephone switches, was made possible in part by CA Datacom/DB, a widely installed database management system the firm acquired with Applied Data Research in 1988. To help the plan along, Computer Associates spent $190 million on research and development in 1990.

In combination with the Computing Architecture 1990s plan, Wang spent 1990 refocusing his 7,000 employees on product development and customer service. Programmers worked overtime to update older programs and boost customer confidence. Supercalc 5, released in 1990, included graphics and database management, making it competitive with Lotus 1-2-3 and Microsoft Excel. CA-Cricket Presents was a desktop presentation package that sold for half the price of competitors like Aldus Persuasion and Microsoft PowerPoint. CA-Textor, released in 1992, was an entry-level word processor designed to work with Microsoft's Windows graphic interface. Despite numerous programs for personal computers, Computer Associates suffered from anonymity in the personal computer market, with Supercalc attaining only about a 5 percent share of the spreadsheet market.

Computer Associates pushed aggressively into foreign markets, notably Canada and Japan, and overseas sales accounted for 40 to 45 percent of annual revenues. CA became more flexible in pricing its annual maintenance fees for updating and troubleshooting software. These fees comprised 33 percent of revenues, up from 20 percent four years earlier. Despite this increased flexibility, the firm's pricing policies were controversial, angering some because of the tough stand on prices taken when a client changed the way it used CA software.

Continuing its push to work with different computer platforms, CA agreed in 1991 to make many of its products work with Hewlett-Packard's Unix-based computers and reached a licensing agreement with Apple Computer to allow its databases to be accessed through Apple's Macintosh computers. It also bought a number of software vendors including Access Technology, whose software worked on Vax systems made by Digital Equipment. Computer Associates acquired On-Line Software International Inc. for about $120 million and Pansophic Systems Inc. for about $290 million, both mainframe software manufacturers. Sales for 1991 came to $1.35 billion.

Computer Associates' ambitious restructuring was hindered in a legal dispute with rival Electronic Data Systems Corporation (EDS) beginning in 1991. EDS accused Computer Associates of unfair business practices including monopoly and licensing fraud, breach of contract, and misuse of copyright. In early 1992, CA countersued, accusing EDS of pirating its software and wide-scale fraud. Customers of both firms worried that the dispute would distract attention from service.

On a positive note, CA won praise for its June 1992 purchase of the Nantucket Corporation, a leading developer of software used to build business software for MS-DOS-based computers. The acquisition is expected to help Computer Associates develop software for personal computers, an area in which CA hopes to expand. Carroll, Paul B., 'Computer Associates to Unveil Strategy to Bring Order to Its Software Products,' Wall Street Journal, April 30, 1990; Feder, Barnaby J., 'The Migrations of Behemoth's Soul and Software,' New York Times, August 16, 1992; Field, Anne R., 'Computer Associates Buys Its Way to the Top,' Business Week, June 15, 1987; Hafner, Katherine M., 'How Computer Associates Climbed to No. 1 in Software,' Business Week, July 11, 1988; Markoff, John, 'Ruling May Restrict Copyrights for Software,' New York Times, June 24, 1992; Miller, Michael W., 'Computer Associates Disarms Its Critics,' Wall Street Journal, April 28, 1989; Schwartz, Evan, 'Faulty Vision,' Business Week, July 30, 1990; Schwartz, Evan I., 'Computer Associates Gets User-Friendly,' Business Week, January 21, 1991; Slutsker, Gary, 'Charles Wang and His Thundering Nerds,' Forbes, July 11, 1988.

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