Computer Age Vet CSC Broadens Base

Like many Southern California high-tech companies, Computer Sciences Corp. was founded by a pair of programmers who quit their jobs in the aerospace business, pooled $100 in start-up capital, holed up in a garage and launched a venture in a brand new industry.

But Fletcher Jones and Roy Nutt did all of that in 1959, when there were fewer than 3,000 computers in the entire world and even fewer engineers who could coax them into doing anything.

Forty-one years later, Computer Sciences Corp. is one of the largest information technology firms in the country. The El Segundo-based firm, known by its initials CSC, earned $377 million in profit in 1999 on revenue of nearly $9 billion.

And last week, CSC kicked off its 2001 fiscal year with a $1-billion blockbuster deal to manage the software running AT&T;’s billing, customer care and other consumer services systems for the next seven years. It’s CSC’s largest contract to date focusing exclusively on software, and it’s the sort of deal the company expects to see more of.

Landing such big deals is nothing new. During its fiscal year that ended March 31, the company won more than $11.3 billion worth of contracts to upgrade, integrate and operate computer systems for customers ranging from the Army to auto maker Saturn. CSC struck a deal to create a network of multilingual computer kiosks for San Diego County where residents can download forms and pay for parking tickets. It also built online exchanges for companies that buy and sell steel, paper and other commodities.

“They’re focused and they’re not trying to be too much to too many different people,” said Stephen McClellan, a Merrill Lynch analyst who follows the company from San Francisco.

In a roller coaster week for tech stocks, CSC remained a stalwart. Last week its shares held steady, rising slightly to $81.69 from $79.13 on the New York Stock Exchange; although it is off 14% from a 52-week high of $94.94 on Jan. 14.

Morgan Stanley Dean Witter analyst David Togut said he expects CSC stock to hit $108 within a year. Last week, Brian Maimone at ING Barings called the stock a “buy” with a share price target of $109.

Even with 57,000 employees deployed in 700 locations around the world, CSC isn’t the biggest computer services and consulting firm. IBM’s Global Services division and Electronic Data Systems both take in roughly twice as much revenue.

But CSC is trying to catch up. Its revenue has grown more than fivefold since 1990, and Van Honeycutt, CSC’s president, chairman and chief executive, expects revenue to grow between 18% and 20% per year.

That growth has come by broadening its customer base. A decade ago, three-quarters of CSC’s revenue came from the U.S. government. By 1999, federal contracts had shrunk to just under one-quarter of total revenue. In their place were more contracts with U.S. companies (40% of revenue) and international clients (36% of revenue).

Now the company is focusing on e-business, which accounted for $600 million in the last fiscal year, or about 8% of total revenue. CSC has built 40 Internet-based trading exchanges for business-to-business e-commerce clients, including E-Steel, ProduceOnline and VerticalNet Inc., whose site offers online marketplaces for nearly 60 industries, including pollution control and machine tools.

In a way, the e-business projects aren’t that different from the projects CSC has focused on for years: building systems that allow companies to transfer data through computer networks.

Now that businesses are using their networks to transfer data to other businesses, e-business has become “an order of magnitude bigger than anything I’ve seen before,” said Honeycutt, 55.

But CSC should do more to reposition itself for the e-commerce boom, according to Moshe Katri, who follows the company for SG Cowen Securities. CSC competitor EDS reorganized its business into four units, including one devoted to what the company calls “E.solutions.” CSC’s stock would likely rise if it followed a similar course, Katri said.

Times staff writer Karen Kaplan can be reached at Karen.Kaplan@latimes.com.