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Confidential Annex Research Client Edition
Analysis of Computer Sciences Corp.’s
First Half FY04 Business Results
War Is Great!
CSC Thriving in Global War Economy: Government Business Almost Doubled
November 12 – “War
is great!” - could be the new mantra of Computer Sciences Corp. (CSC),
juxtaposing the “Allah Akhbar” (“God is great!”) chants by Islamic
warriors. It’s just that there is nothing idealistic or religious
about CSC’s war profiteering. The
company’s federal government business is booming, especially the
“death merchant” (Pentagon) portion.
to its acquisition of DynCorp earlier this year (see “Back
to the Future,” February 2003), CSC’s U.S. government revenues
have nearly doubled (from $772 million in second quarter of FY02, to $1.52
billion this year). Revenues
related to the Pentagon contracts more than doubled (from $449 million
last year, to $985 million in the latest quarter).
This vaults CSC into the No. 6 position on the Pentagon
Top 50 list.
CSC’s winning pace in Washington seems to be accelerating.
About 80% of its new contract sales in the latest quarter ($3.5
billion) were the federal government awards.
By contrast, only about $700 million of its new contract sales came
from the commercial sector.
29-month federal “pipeline of opportunities” is about $41 billion, CSC
said. Approximately $15
billion of that total will be awarded during CSC current fiscal year that
ends March 31, 2004. CSC
leaders are hoping to win “more than our share.”
don’t see much of a difference depending on which administration is in
power,” said Van Honeycutt, CSC’s CEO, during a teleconference with
analysts that followed the release of the second quarter fiscal year 2004
agree. Bill Clinton kow-towed
to the U.S. arms manufacturers’ interests when he was president, as has
George W. Bush been doing, especially since 9/11.
Check out our May 1999 report “War
Is Great…”, for example, to see how CSC and other “death
merchants” also benefited from the wars of the Clinton administration.
CSC Stock Surges
Meanwhile, Wall Street lapped up the CSC second quarter report, boosting its stock by nearly 10%, just as it did nearly six months ago, following the company’s final FY03 release (see “Less Than Meets the Eye,” May 2003). And it did it on a day when the market remained virtually flat (see the CSC vs. S&P chart).
Investors and traders ignored a sharp drop of
new contracts in CSC’s commercial sector ($0.7 billion versus $3.9
billion in the first fiscal quarter).
They focused on the aggregate new contract sales for the first six
months of the fiscal year 2004 ($7.8 billion) that have already exceeded
the total new business in its prior fiscal year ($7.7 billion in FY03).
Never mind that the latter represented a sharp (32%) drop from the
$11.2 billion in new contract sales during the fiscal year 2002.
Furthermore, CSC revenues declined by
about 2% in the U.S. and Asia/Pacific commercial sectors during the second
fiscal quarter. But the
company’s European business thrived. It
was up 21% over the same period a year ago.
CSC credited outsourcing for the jump, as systems integration and
consulting continued to lag behind.
Wall Street also ignored CSC’s shrinking
margins, caused in part by the DynCorp acquisition. Gross margins declined from 20.1% in FY03 to 17.6% in the
latest results. Net margins
dipped below 3% for the first time in three years (2.8%).
Stock Market Quirks
So given the foregoing, you’d think that CSC is the new darling of the stock market investors and traders? Think again. Hard. It was another truly beleaguered company that has outperformed both CSC and IBM in the last six months. Believe it or not, that company is EDS! (see the second chart below).
As you saw from our last Annex Bulletin, it is
EDS that faces truly formidable challenges, such as reversing a 41%
decline in new contract sales this year (see “Pain
Without Gain,” Oct. 29, 2003).
And then, just in case that you’re left
scratching your head over that Wall Street quirk, let us give you another
one, this time from the Paris Bourse by way of a quick stock market quiz.
Which of the following top six global IT
services competitors has shown the best stock market performance in the
last six months (in alphabetical order):
Cap Gemini Ernst & Young
The correct answer is No. 2 – CGE&Y. This Paris-based contented has outperformed IBM, for example, by a six-to-one margin! (see the chart below).
Who wouldn’t be… The stock markets of the world are evidently
using some “new logic” to determine the performances of various
considering that one of the competitors that did not end up on top –
Accenture Ltd. - has been setting new 52-week highs nearly every day in
the last week or so.
For additional Annex Research reports, check out...
A selection from prior years: Analysis of CSC calendar 2000 results (Mar 26, 2000), CSC's FY2000 Business Results (May 10, 2000), Business Is Humming Nicely (Nov 3, 2000), CSC 3Q2K, CIO Survey (Feb. 29, 2000), CSC: A Mouse That Roars? (Nov 1998)
Volume XIX, No. 2003-19
Editor: Bob Djurdjevic
P.O. Box 97100, Phoenix, Arizona
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