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CEO Shift a Move Forward for Computer Associates

Software: After Charles Wang steps down, the embattled firm will still need to improve share price, analysts say.


SEATTLE — For some investors, Monday's decision by Computer Associates International's Charles Wang to step down as chief executive of the company he founded was a good start, but not enough to restore their faith in the world's third-largest software maker.

Wang said he will remain chairman and promoted Chief Operating Officer Sanjay Kumar to CEO. Wang, 55, is one of the early pioneers of the computer software industry and maintains a powerful hold on the company, which employs 21,000 people worldwide.

While some analysts noted that the senior management change was a modest step in the right direction, they said the embattled company needs to show investors how it can improve its share price, which has tumbled 47% since July 5. It was difficult for many to reconcile the company's flagging performance--recent results missed forecasts--with the compensation handed out to Computer Associates executives. Wang's 1999 overall compensation totaled $650.1 million, making him the highest-paid corporate executive.

High on the to-do list is more disclosure about the financial details of the company's mainframe and distributed computing businesses and a clear plan that shows how Computer Associates plans to turn its many recent acquisitions into lucrative operations, analysts said.

Computer Associates makes software that manages large corporate networks and mainframe computing systems. The company also sells software for data storage and computer security and offers hosted applications and services to businesses over the Internet.

"I know management is trying to create a splash to improve shareholder value, but I would have liked to see them do more," said analyst Jordan Klein of UBS Warburg. "I think they could have disclosed more financial details. They need to separate their businesses from each other rather then lumping them together" for business and reporting purposes.

Apparently toward that end, the company also said Monday that it was spinning off some of the software and services businesses outside its core product lines. First on the list is a unit that sells infrastructure technology to application service providers, which rent out computer applications across the Internet.

Kumar, 38, said that the company is well aware of Wall Street's concerns, and that Wang will focus on the task of "unlocking value by spinning off technology in the company that's not getting recognized." Other potential spinoffs include a desktop accounting software business and four telecommunications joint ventures in Asia, Kumar said.

Wang said in a statement that the management changes reflect the logical transition of Computer Associates from its start-up phase to a more mature company that will focus on "enhancing shareholder value and a broader implementation of our vision."

Founded in 1976 by Wang, Islandia, N.Y.-based Computer Associates, generated more than $6 billion in revenue for its fiscal year ended March 31, making it the third-largest software maker behind Microsoft Corp. and Oracle Corp.

In July, the company warned that profit would fall short of forecasts, blaming lackluster European sales and weak performance of its key mainframe computer business. On Monday, Computer Associates' shares closed up 31 cents at $27.25 in active trading on the New York Stock Exchange.

Kumar said he has pledged to open the financial books and pursue an aggressive strategy to improve the distributed computing business, which includes selling storage, security, e-business and systems management products.

"We are going to give them more transparency," Kumar said.

Kumar acknowledged that few outside the industry even know Computer Associates and said the company has begun a campaign to raise its profile. "We clearly realize that in the eyes of investors we are not a regular technology name they hear," he said.

Investors, however, were taking a wait-and-see attitude Monday.

"They are not out of the woods yet," said Tom Taulli, a financial analyst for "The stock will sit here in a trading range until they beat the Street a few quarters and investors see how the CEO's new initiatives will sort out."

Wang's compensation and his company's tumbling share price have been a source of frustration for investors. Some also question Wang's abrasive management style and wonder whether anything will change under Kumar, Wang's handpicked successor.

Last year, a judge rejected the company's bonus plan, forcing Wang, Kumar and another executive to return stock options valued at $1.1 billion. Much of Wang's compensation of $650.1 million came in the form of bonuses related to stock performance.

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