December 5, 2005 1:22 PM PST

John Swainson: CA's Mr. Fix-It

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Obviously, part of the difficulty in doing that is there are arguably too many choices for customers. Do you predict more consolidation in the software sector?
Swainson: I do not subscribe to the philosophy that everything ends up aggregating into one or two big companies. I do, however, believe that you will end up with leaders in market segments.

In enterprise applications, it's now very clear that the category leaders are SAP and Oracle, and to a lesser extent Microsoft. Then within that there are some subcategories by industries. There is a very big category that we call infrastructure management, and inside of that there are going to be, I believe, three or four major players: IBM, CA, perhaps BMC, Hewlett-Packard--companies that have $3 billion and bigger businesses with very broad reach and scope across the industry. And there will always be companies that sort of transcend categories and play in all of them, such as IBM, Microsoft and perhaps HP.

CA was built on acquisitions, and recently you've stepped up the company's dealmaking. What do you have planned on that front?
Swainson: To continue to do deals. It's a maturing industry. Software as an industry in particular favors economies of scale. We will continue to use acquisition as part of our overall four-point strategy for growth.

The mainframe is a very important, very vital business that is going to be around forever. It's over half of our business.

But first and foremost, our intention is to grow organically through the development of our own products. We spend roughly $650 million a year on development. In other words, we'll spend about 20 percent of revenue on development going forward. We'll also grow by expanding internationally, particularly into places like Eastern Europe, the Middle East, China and India. We'll expand by building stronger relationships with business partners to grow into some new markets, particularly the midmarket, which for us is virtually untapped. And last but not least, we'll grow by acquisition.

How has the corporate IT spending environment changed in recent years?
Swainson: People no longer buy IT simply because their mother-in-law said they had to buy it. I'm making a joke of this, but they're not doing things because of herd pressure or peer pressure. They're doing things in a much more thoughtful, careful way, and for those of us who think that this industry needs to grow up one day, that doesn't strike me as being a bad thing at all.

Over the course of the last year, we've seen a fairly consistent pattern of IT buying that has been focused around a smaller set of high-profile things: security, IT management and compliance, risk management. So I see the environment as being less willing to jump off a cliff into some untried and unproven technologies, but nevertheless people are spending money on IT. They're continuing to view it as a critical business resource.

What advice do you give executives regarding Internet security?
Swainson: There are two kinds of security. There is what we call threat management, which is keeping the bad guys out--firewalls, antivirus, anti-spyware, intrusion-detection. And then there is identity and access management, which is letting people in.

My advice to small businesses in particular is that if you can't do this yourself, with a partner or a consultant, you should not be presenting a Web face to your customers. You should not be exposing yourself and your business to the Web, to all of these hazards, if you don't have the expertise and confidence to do it. You should go to a service provider, someone who has expertise in doing this, who can outsource this for you. There are companies that do this for a living, such as Internet service providers and some of the big telephone companies. And by the way, CA is not one of those experts. We are a provider of the tools for those experts, but we don't participate in that business.

Wall Street has expressed concern that CA relies too heavily on revenue from your mainframe business, which many believe will steadily decline. Are mainframes a dying business?
Swainson: No! It's not a dying business. I frankly think these are stupid comments. The mainframe is a very important, very vital business that is going to be around forever. It's over half of our business.

Now, having said that, it's a mature market, and mature markets tend to consolidate. They don't tend to grow as much. We're not under any illusions about the growth possibilities there, and so we have also balanced our portfolio with high-growing products in the distributed areas, meaning Windows, Linux, Unix and so forth. So I get very frustrated with people who talk about the mainframe as somehow being bad. When has it been bad to have strong, predictable cash flows?

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