CA Rides on Cloud Computing

| About: CA Inc. (CA)

Information technology (IT) management and software product manufacturer CA Technologies (NASDAQ:CA) recently entered into a joint venture (JV) with Unisys Corporation (NYSE:UIS). The new venture takes the companies’ alliance ahead and enables them to offer cloud computing and virtualization services to the end customer.

The JV is expected to combine CA’s virtualization and service management products along with Unisys' virtualization and cloud advisory, planning, design and implementation services. This would help existing data centers generate better results through cloud computing.

The company is gradually tapping available opportunities in the cloud computing space. CA Inc.’s emerging opportunity in the virtualization/cloud computing space is significant and could accelerate growth over the next 2–3 years. 2011 in particular, is likely to be the turning point, establishing CA as a beneficiary of virtualization/cloud computing.

The company’s acquisition of the cloud computing company Oblicore Inc. is also a strong indication that it is trying to use the technical know-how of the latter to enter the cloud computing business.

Cloud computing enjoys strong demand and is being increasingly adopted by businesses. However, proper management and usage of the technology is a prerequisite. As per a study conducted by Market Research Media, the U.S. government’s spending on cloud computing is entering a phase of explosive growth.

The could computing business is expected to grow at a CAGR of 40.0% from 2010 to 2015 and will cross $7.0 billion in revenues in 2015. Cloud computing leads to increased service and elevated security requirements for companies that use it and CA's product portfolio is well positioned to benefit.

In fact, the company’s VP Robert Stroud, is of the opinion that in 2011 and 2012, organizations will especially look to leverage the management of corporate access via virtual workspaces, which will help companies access all centrally-managed corporate data. This will, in turn, create additional demand for products and services of the company.

CA is doing well in most of its business segments. We believe that with a revival in the macroeconomic scenario and gradual recovery in IT spending, the company should be able to deliver decent numbers in the upcoming quarters.

On the other hand, we are a bit concerned about intense competition in the software and cloud computing space from big players, such as International Business Machines (NYSE:IBM) and Hewlett-Packard Company (NYSE:HPQ). This apart, its high debt balance may pose some challenges going forward.

The company currently has a short-term Hold rating, or a Zacks #3 Rank.