Siebel's Sales, Earning Drop

Don't say they didn't warn you. Siebel Systems yesterday posted an earnings drop of 92 percent and a revenue skid of more than 30 percent for the first quarter ended March 31. However, the dismal numbers were in line with what analysts and the company expected for the period. Revenues totaled $333 million, down from $478 in the previous first quarter. Earnings dropped from just under $65 million in the first quarter of 2002 to $4.6 million in this year's first quarter. Software sales dropped to $112 million in the quarter, down more than 50 percent from the previous first quarter. Siebel warned investors early this month it would miss its earnings estimates. "Our biggest competitors in the quarter were the economy, the economy, and the economy," Tom Siebel, CEO and chairman of the company, said in a conference call. "Right now the situation we see in the second quarter doesn't look a whole lot different than it did in the first in terms of the global economic situation." Patrick Walravens, managing director of enterprise application software at JMP Securities, says the quarter is the worst Siebel has had from an operations perspective since the company went public. "This is the company's first operating loss," he says of the company's $3.3 million operating loss. "Siebel goes on and on about being a cash flow positive company, so that story is getting tired. "The only positive is that they are laying off 250 employees, which will save the company about $30 million annually," Walravens adds. Siebel said in the conference call that the company would cut staff by five percent. Walravens, who has given Siebel an underperform rating, says that the company currently faces two fundamental problems: "They are selling a best-of-breed application in a world that is continually moving towards suites, and their architecture is stale. People want to use commercial application servers like J2EE and .NET, not Siebel's proprietary platform." And who is benefiting from Siebel's losses? Walravens says those revenues will go mostly to SAP AG, who he feels will outperform its earnings estimates, as well as smaller companies, like Kana, E.piphany, and Chordiant. "You are seeing a resurgence of these players, basically because they are based on J2EE," he says. Although Siebel's numbers are not expected to improve over the next few quarters, Walravens says that things could change with the release of Siebel 8 within the next year or so, since the application is allegedly being written for J2EE and .NET. "If they can pull that off in the next year and a half, they should bounce back accordingly, but they will essentially have to rewrite the entire application," he says. (Note: Neither Walravens nor JMP securities currently has a banking relationship with any of the companies mentioned above.)