CA to Acquire 3Tera - Analyst Blog

CA Inc. (CA), the leading information technology (IT) management software company, recently announced that it has entered into an agreement with a privately-held cloud computing company 3Tera, Inc. The company offers innovative cloud service solutions to private and public clouds, using interactive graphic user interfaces (GUIs).
 
Although this is one of the bigger acquisitions in recent times, the company did not disclose the terms of the agreement. We believe that the association of 3Tera, Inc. with CA will strengthen the cloud computing business of the company and make it a complete service provider.
 
The company has adopted the acquisition strategy to fuel growth. In June 2009, CA acquired a technology company Cassatt Corporation. Besides the addition of Cassatt’s engineering team and advanced data center automation assets, the acquisition is expected to accelerate the development of software that helps customers make more intelligent business decisions. In particular, the deal is expected to breathe new life into the data center management software developed by Cassatt.
 
In September 2009, CA acquired a privately held company NetQoS, Inc. for $200 million in cash. The acquisition is expected to combine the CA eHealth Network Performance Manager, CA Spectrum Infrastructure Manager and NetQoS Performance Center. This will offer better visibility and control of critical services in their physical and virtual network and systems environments to CIOs and network engineers and operations managers.
 
Recently, in January 2010, the company acquired a private business software provider and cloud computing company Oblicore Inc. This new acquisition is expected to help CA strengthen its software development services, which will, in turn, help it service its clients better. This apart, there would be technological exchange between the two companies. We believe acquisitions will add scale and increase business volumes for CA.
 
The company is slowly emerging as a strong player in the cloud computing space. CA Inc.’s emerging opportunity in the virtualization/cloud computing space is significant and could help accelerate growth over the next 2-3 years. Particularly, 2010 is likely to be the turning point, establishing CA as a beneficiary of virtualization/cloud computing.
 
As per a recent study conducted by Market Research Media, the U.S. government’s spending on cloud computing is entering a phase of explosive growth and is expected to grow at a CAGR of 40.0% from 2010 to 2015, crossing $7.0 billion in 2015. Cloud computing leads to increased service and security requirements for the companies that use it and CA's product portfolio is well-positioned to benefit.
 
The company reported decent third quarter fiscal 2010 results, with EPS of 43 cents, exceeding the Zacks Consensus Estimate by 1 cent and revenue of $1.13 billion increasing 8.2% year over year.  The company also provided a positive outlook for full fiscal year 2010. 

For the upcoming quarter, the Zacks Consensus Estimate is 40 cents, below the most accurate EPS estimate of 42 cents, leaving room for a decent upside potential. The company has witnessed an average earnings surprise of 6.20% in the last 4 quarters, and we expect this trend to continue, as the company is venturing into new businesses and expanding its existing line of business.
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