CA, Inc. to Downsize by 8% - Analyst Blog

Information Technology and management software company CA Inc. (CA) has announced the downsizing of its workforce by 8.0%. The headcount reduction is part of an aggressive restructuring plan, under which the company has already retrenched 3,100 employees over the past three years. The restructuring has been implemented with the objective of bringing down the cost structure, although management provided assurance that skilled professionals were being spared.

With this restructuring plan in place, the company has been successfully able to reduce its total cost and expenses by 15.7% in 2009 from $3.7 billion in 2007, with 9.4% reduction in the Sales & Marketing expense and 15.5% General & Administrative expenses over these three years. This gives an indication that the company is moving inline with its restructuring plan.

CA has been taking measures to position itself as an important player in the cloud computing space. Therefore, the company has been supplementing job cuts with strategic additions that could bring in the necessary expertise to support its cloud computing operations. The opportunity in the virtualization/cloud computing space is significant and could help accelerate growth over the next 2-3 years.

This apart, the company has also recognized a $50 million pre-tax charge in the fourth quarter, wherein $47.0 million was to go toward severance payments, with the remaning $3.0 million going toward facility consolidation expense. This apart, CA now expects its full-year earnings estimate to come at a lower end of its range of $1.60 to $1.71 per share for the year 2010.

The Zacks Consensus Estimate for the fiscal year ending 2010 is $1.67, which is at the higher end of the guided range, even after a 2 cent reduction in the last 7 days. This apart, the most accurate estimate for the fiscal year 2010 is $1.65, which may lead to a downside potential of 1.2% for the current fiscal year. Although the company has rolled out decent third quarter numbers, stiff competition may rationalize its growth potential to some extent.
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