Siebel shows Q2 sales drop, lowers Q3 forecast

Siebel Systems' full second-quarter financial results, released Tuesday, confirmed the grim news the company gave shareholders earlier this month: Siebel's software license sales dropped 20 percent from last year, while the company posted a $50 million net loss for the quarter.

Thanks to rising services and maintenance income, Siebel's total revenue for the quarter increased 4 percent from last year's second quarter, to $313.6 million. But its software license revenue fell to $78.3 million, reflecting only a slight improvement from last quarter, when Siebel's $75 million in license sales was its lowest since the late 1990s.

After missing analysts' expectations in its last two quarters, Siebel preemptively knocked down forecasts for its ongoing one. The company told analysts to expect third-quarter revenue of $305 million to $315 million, below the $319.2 million consensus forecast of analysts polled by Thomson First Call. Per-share earnings will be $0.02 to $0.03, while Thomson First Call estimates were for $0.04. Siebel predicted third-quarter license revenue of $75 million to $85 million, down from $104.6 million in last year's third quarter.

Sales execution is the company's main problem, Chief Executive Officer (CEO) George Shaheen told analysts on a conference call following Siebel's earnings release.

"I'm disappointed that we were not able to deliver a better license revenue result in our second quarter, but I am not discouraged," Shaheen said. "We all know that we have work to do."

Specifically, he criticized Siebel's sales force for letting too many potential deals linger until the end of quarters, then slide out. "In Q2, there were opportunities there for us, and all I can say is, it's our fault. We ran out of time during the quarter to get them across the goal line," he said.

Siebel's income for the quarter, ended June 30, was dragged down by $74.1 million in special costs related to restructuring and the company's April CEO change. Excluding those charges, net income for the quarter would have been $700,000, according to Siebel.

Siebel's management team has been significantly reconfigured in the past year, and there are more changes to come. EMEA (Europe, Middle East and Africa) General Manager Neil Weston is leaving, and Siebel expects to name his replacement by the end of the third quarter, Shaheen said. Within the next week or so, the company plans to name a new Global Services leader.

Meanwhile, Siebel's rivals are picking up its erstwhile executives: SAP AG said this week it has hired Jim Hughes, Siebel's former financial services general manager, as its new U.S. head of operations for the banking, insurance and leasing industries.

As a counterpoint to Siebel's gloomy financials, executives offered bright assessments of its product strength.

"We believe we are poised at the beginning of our strongest product cycle yet," Senior Vice President of Products Bruce Cleveland told analysts. He pointed to Siebel's upcoming 8.0 software update, on schedule for a 2006 delivery, and a major initiative slated for launch at Siebel's Customer World conference in October, Siebel Component Assembly (formerly known by its internal code name, Project Nexus).

Siebel Component Assembly is an initiative that will offer Siebel's CRM (customer relationship management) technology and experience piecemeal, for customers that want a more customized system than packaged software offers. Siebel sees this as a wide-open market, and has already signed its first multimillion-dollar customer deal, Shaheen said. However, he also acknowledged that the product is in its infancy, and many details about pricing and how it will be sold remain to be worked out.

Analysts on the call pressed Shaheen about whether the problems confronting Siebel can be solved, but he brushed aside suggestions that the company has troubles deeper than a lackluster sales organization. "I'm not any more pessimistic today than when I came on," Shaheen said.