Update: Siebel's Q3 sales slow

Company's software license revenue rose from the grim five-year low hit in the second quarter, but still fell short last year's figure.

Siebel Systems's software license revenue in its just-ended third quarter rose from the grim five-year low hit in Siebel's second quarter, but still fell short of revenue recorded during the same period last year, the company said Tuesday.

Siebel, based in San Mateo, California, reported license revenue of $104.6 million in the quarter ended Sept. 30, a 5 percent decline from the $110 million it took in during last year's third quarter. Last quarter, Siebel had license revenue of $95 million, its lowest level since 1999.

Siebel's total revenue for the quarter was $317.1 million, in line with the forecast it released earlier this month when it previewed its expected results. At the time, the consensus estimate of analysts polled by Thomson First Call was for revenue of $306 million. Siebel had revenue of $321.4 million in last year's third quarter.

Net income for the quarter was $19.3 million, up from the $59.3 million loss Siebel posted last year. Per-share earnings were $0.04, in line with the consensus estimate Thomson First Call had earlier this month, before Siebel announced its higher-than-expected revenue forecast. Thomson First Call's estimate then rose to $0.05. Excluding one-time charges for restructuring, per-share earnings were $0.05, Siebel said.

While Siebel met expectations, the bar was set low, Chief Executive Officer Michael Lawrie acknowledged in a conference call with analysts. The new company leader said he sees Siebel at the beginning of transformation he dubbed "Siebel chapter two," aimed at improving the company's internal operations and better aligning its offerings with customer needs.

Lawrie is restructuring Siebel to address trouble spots and new market opportunities, he said. Siebel in the past quarter created a sales group focused specifically on small and medium-sized businesses, and is looking to revitalize its relationships with outside partners. A new executive, Reid Drucker, recently joined Siebel as general manager for the company's communications, media and energy business, replacing the former head of a unit that Lawrie said performed poorly during the quarter.

Lawrie is also reorganizing Siebel's Asia-Pacific business and expects to soon name a new top executive in that region. "We did not have a good quarter in Asia-Pacific, and I've made leadership changes there," Lawrie said. "This is not an issue of market conditions or opportunity. This is just purely an issue of execution."

Another struggling area was the company's UAN (Universal Application Network) integration framework, which fell short of expectations, Lawrie said.

Bright spots during the quarter were Siebel's analytics product line, which brought in $27.4 million during the quarter, and its CRM (customer relationship management) OnDemand hosted software service. Siebel's executives declined to give a user count or break out their revenue for the OnDemand business, but Lawrie said the company has been pleased with its progress. Siebel announced on Wednesday a partnership with Germany's T-Systems to expand the hosted service to additional markets in Europe in 2005, including Germany, Russia, Poland, Switzerland and the Czech Republic.

Siebel's entry into the application service provider market increased its rivalry with dedicated vendors including Salesforce.com., which it now competes against in roughly 10 percent of its new-business pitches, executives said. When customers are specifically evaluating hosted services, Siebel nearly always competes with Salesforce.com, said Executive Vice President David Schmaier, who declined to go into detail on Siebel's win rate. "We win some of those and they win some of those," he said.

Lawrie chalked up some of Siebel's difficulty in growing its software sales figures to the lingering economic malaise: When capital spending is constrained, front-office investments are the first to be cut, he said. Still, he expressed confidence that through internal streamlining and some business modifications, Siebel can improve its balance sheets. It remains the industry's largest CRM vendor, with 2.8 million users of its software worldwide.

Siebel forecast some growth in license sales next quarter, predicting license revenue in the range of $115 million to $145 million. The company forecast total revenue of $330 million to $360 million.

Copyright © 2004 IDG Communications, Inc.

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