CRM Shakeout

When the U.S. economic downturn hit the CRM industry, many vendors' first-quarter earnings missed the mark, layoffs ensued and rumors of potential takeovers were flying. But market leaders remained strong with rising revenues, and some companies expanded in Europe and Asia, even as they laid off workers in the U.S.

Dick Berner, chief U.S. economist at Morgan stanley, blames the cutbacks on excessive capital spending. "Companies invested heavily in software or hardware and went over the top." The United states, Berner says, will enter a mild recession in the second and third quarters, but in the fourth, the economy will see growth. "We have a Fed that is aggressive," he says. "Next year, we'll see a robust economy."

Harry Watkins, research director for the CRM practice at Aberdeen Group in Boston, says no one can predict the depth of the downturn. "No one, from economists to the Fed on down, knows where it's headed," Watkins says. Most companies that represent CRM prospects are being very cautious with capital acquisitions, he adds.

Rounds of Layoffs

Among the companies showing signs of difficulty:

  • Internet and network applications provider Cisco Systems saw its third-quarter earnings fall 30 percent below the same quarter last year and subsequently laid off 8,500 employees.
  • Despite a 22 percent growth in first quarter earnings, Applix, a provider of customer analytics and business planning software, said it missed its target by 13 to 16 percent.
  • With earnings down $140 million from the same quarter last year, Internet company Nortel Networks expects a net reduction of 20,000 employees from last December until mid 2001.
  • Although Onyx Software remains strong in Europe, the e-business applications provider laid off 135 employees after its first quarter revenue fell short of its January 30 earnings prediction.
  • While customer interaction software provider E.piphany earned $38.1 million, a 164 percent increase over last year, the company experienced a net loss of $295.4 million due to amortization of stock-based compensation.

    In an attempt to reduce operating expenses in response to uncertainties in the marketplace, a number of other companies cut positions. Broadvision let go of 325 employees; Firepond plans to cut 20 percent of its workforce; Vignette slashed 345 jobs and Blue Martini Software cut 80 positions.

    Survivors Get stronger

    Wendy Close, CRM research director at Gartner, says layoffs are inevitable during this time, especially laying off redundant personnel. Close expects a lot of consolidation as a result of the slowdown. The larger vendors that are staying strong will be the only ones left standing when the market turns around. "The smaller players--the ones whose stocks are in the toilet--will merge or cease to exist."

    CRM solutions provider ICT Group reported record consolidated net revenues of $57.8 million for the first quarter, a 40 percent increase over first quarter 2000.

    PeopleSoft reported $503 million in its first quarter investment call--the highest period earnings in the company's history and a 70 percent hike over the same quarter last year. CEO Craig Conway agrees with Close, saying the market has taken a toll on small and midsize companies. "In the end, it will be an SAP, a PeopleSoft, an Oracle and a Siebel playing field."

    Tom Siebel concurs, saying of the 80 CRM vendors in competition with Siebel, 60 will collapse by year's end. But even Siebel's e-business Goliath laid off the bottom 10 percent of its workforce during the last six months and halted administering executive bonuses.

    Nevertheless, Siebel remains strong, earning first quarter revenues of $588.7 million, compared to $319.7 million during the same period last year. The company also hired 988 employees in development, customer service and at the executive level. "We did weather the storm quite well," Siebel says. "There's no doubt we will come out of this even stronger."

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