Saturday, 21 December 2013

CSC - an analyst's view

Finally someone else is becoming publicly skeptical about CSC’s outlook

It  sometimes seemed that we were almost alone is having serious doubts about the sustainability of CSC’s so-called recovery. The only people who seemed to share our view were many of CSC’s  employees.
No longer! An article from iStockAnalyst datelined December 20 highlights the weaknesses we have talked about. Further, Deutsche Bank analyst Bryan Keane, who has followed CSC for some time and is a regular attendee at CSC’s quarterly  earnings analyst calls has publicly expressed his skepticism about CSC’s ability to make its financial targets.

Full details of iStockAnalyst’s article can be found on:

Here are some extracts of the key points it raises:

·      CSC may miss its fiscal 2014 and 2017 revenue goals, as the next phase of turnaround gets more difficult. The company's margin expansion and cost takeout has tracked ahead of the plan, but revenue has fallen short of expectations.

·      Although there is some potential remaining for margin improvement due to cost savings over the next few quarters, these will become more challenging to achieve over time. CSC will soon need to improve revenue growth to drive profitability improvement. Bryan Keane is skeptical that CSC can accomplish a revenue turnaround near-term especially given the recent significant business model and organizational changes.

·      CSC targets revenue of about $16 billion in fiscal 2014 and $18 billion in fiscal 2017. The company is expected to generate sales of $13.07 billion for the year ending March 2014, which is implying a drop of 12.9 percent from last year. Keane also believes CSC will clearly miss its fiscal 2017 revenue goal of $18 billion.

·      While CSC's pipeline in Cloud and applications has grown significantly, the company is not responding fast enough to other opportunities including moving to a consulting partnership model, improving cross-selling and focussing away from software licenses towards a services based BPO model.

·      The company plans to refresh the sales force (currently 1,200 employees) with new hires and aim for deeper client relationships. Additionally, it is re-evaluating its pricing strategy as it is losing deals because of price. It also expects to expand margins beyond fiscal 2014 by operating leverage, standardization of offerings, mix changes towards higher value services, offshoring, leveraging shared services, resetting the pyramid structure, as well as automation. (Blog editor’s note: all this makes us think that what CSC needs is a true transformation program!!).

·      CSC would need to report some revenue growth in its commercial business to achieve its fiscal 2014 forecasts. The IT services demand environment remains relatively healthy, but CSC has to go out and actually win the deals! This is especially important as US Federal government budgets still remain weak and may prove to be a headwind for CSC, which derives almost 40 percent of its annual revenue from federal contracts.

When you put all of this together, it reinforces our view that it is difficult to be optimistic about the outlook for CSC unless or until it starts generating revenue growth. And for the moment we do not see many signs of that happening in the near-term.


15 comments:

Anonymous said...

The biggest problem I am hearing from potential CSC clients in my industry are that the sales team talk a wonderful talk and are truly convincing.... but when they carry out reference visits what they discover is that what the sales team talk about doesn't actually exist.

I guess that's what you get when you "transform" something from the top down rather than the bottom up - or if you do it top down and stop before you reach the bottom.

Anonymous said...

I see that other analysts are wading in with down grade or hold ratings for CSC stock. The latest I have seen is this one http://www.wkrb13.com/markets/242535/zacks-reiterates-neutral-rating-for-computer-sciences-corp-csc/
It looks to me like CSC is on the skids,

Anonymous said...

CSC sucks!!! Staff morale rock rock bottom....just going down the pan whilst execs fill up with $$$$$$$$ awful place to work...

Anonymous said...

CSC will be a much different company within the next few months. It's only a matter of time before some portion is sold off. Of course the damage is already done. The folks that they wanted to remove have left, but now the folks they wanted to keep are leaving too. I'm one of them. As soon as I find something better suited to my needs, I will be resigning.

Anonymous said...

Also filled thee senior management positions with hp eds sycophants and other free loaders... bring nothing but experience in messing up other companies. .

Anonymous said...

I believe you are mistaken on one point. "The folks that they wanted to remove have left.." From the perspective of those in the BPS division, the "Get Fit" is still in progress as employees are still being cut. There is a goal of having 80% of the positions filled by off shore (India, Philippines, Vietnam, etc). Many groups have not met this goal and US positions are still be shed. Customers are suffering for this policy because the off shore employees are not able to turn around requests as quickly due to the time differences and in experience.

Anonymous said...

Worst place to work. Values=zero. Mgmt=unexperienced pampered bossy brainless j..ks.TopMgmt=psychopaths worried only about cashing out their stock options before it's too late. Employees and clients=Fed up. Time bomb to sell the cow by pieces after milking the last cent.

Anonymous said...

For last 6 months all CSC employees really enjoying with no work in India.
"Silence Before The Storm"..
All clients leaving . inexperience Mgmt finding themselves in safe projects.
Still not know what happens with AT&T contract!

Anonymous said...

I am working for CSC for more than 10 years in Germany. Without the emails from the management nobody working at a client site would know that there is a transformation. As soon as I find a new job I will leave the company.

Anonymous said...

Most of my colleagues, in the US and in India, are seeking opportunities outside of CSC. Too bad Lawrie's talk was not followed by action.

Anonymous said...

This just in....Mike Lawrie has supposedly asked the Board if they can rename the company to 'Titanic'.

Anonymous said...

I doubt that is the case, Lawrie does not want anyone to survive his sinking ship.... no longer women and children (loyal workers) first.. EXECS first..........

Trying to think of a suitable name..... oh I know - HP EDS Mark 2, Microsoft Wannabies, World War L (for Lawrie - people act like turned into zombies)

Anonymous said...

I've been with CSC for many years and while the change has been difficult for some, our company is really planning for the coming transformations in IT (Cyber, Cloud, FedRAMP, etc.). I've had no illusions that the changes would be easy but I know they are worth the effort. I am a CSC'r and have been following Mike Lawrie in C3 (our portal) and he along with senior management have a clear plan and as a company, we are all executing toward common goals. Professionally, I could expend less effort and earn more at another defense contractor but I'm 100% CSC. So you know, I am not from HR on a PR campaign but a "worker bee" doing the best for our clients, my people, our company, and shareholders. CSC is a great company and we're evolving for tomorrow.

Anonymous said...

Obviously the last post wasn't posted by one of the 750 folk who are being made redundant in the UK!! He is probably one of the failed Exec freeloader brought in by Mike Lawrie!!

Anonymous said...

A CSC Employee for the last decade, and I doubt I'll be here in the next 12 months.

Pay rises "appropriated" to sales teams who are failing to hit targets, stock increases for the executive staff while the support staff are stripped back and beyond breaking point. It is now the point where every staff member I know are doing the equivalent of an extra week of work over the course of a month. To add insult to injury, we have had a cost of living freeze for another year due to the ongoing "Restructuring".

Can only see this ending when the restructuring is to sell off what it can, for the greatest profit, leaving the clients and the staff remaining to deal with the fallout.