Siebel Announces Restructuring
Amid downgraded earnings estimates for the second quarter ended June 30, Siebel Systems announced it would cut significant numbers of staff to keep operating margins high.
Tom Siebel, president and CEO of the company, said in a conference call that earnings would be two cents a share, the low end of its estimates made last quarter. However, Wall Street consensus expected earnings of three cents a share. Siebel said in the call that the company saw delays in purchases due to the uncertain economic climate and a "turbulent enterprise software industry landscape" (namely, Oracle's bid for PeopleSoft).
The company expects total revenues for the second quarter of 2003 to be in the range of $330 million to $334 million and license revenues to be approximately $110 million, slightly below management's previous range of guidance for the quarter.
The company said in a statement that it has successfully managed the factors over which it has greater control: expenses, cash flow, and the balance sheet. But even with these positives, Siebel says the company will begin downsizing this month. In the call Siebel said the layoffs would most likely include "a layer of management," and he said that the company may look into closing some underperforming operations. No specifics were given, but Siebel said that the layoffs should result in Siebel seeing operating margins as high as 15 percent, even with current sales numbers.
Analysts say the move should come as no big shock for anyone following Siebel, and could be the beginning of major structural changes. "I am not surprised that Siebel lowered its earnings expectations and is also planning to downsize," says Karen Smith, research director at AMR Research. "The market is seeing a lot of consolidation in the enterprise business application space--and Siebel may even become a best-of-breed CRM vendor, as opposed to a suite vendor. Siebel will need to broaden its footprint in the market, or ensure that it has technology and business partnerships in place to enable customers' future integration and implementation plans."
Patrick Walravens, managing director and senior research analyst for application software at JMP Securities, says Siebel will see further erosion of its dominance due to increased competition from suite vendors. "Furthermore, we believe that Siebel lags in its support of J2EE, putting Siebel at a competitive disadvantage in a number of large enterprises," Walravens says.