Siebel's CEO Resigns Following Poor First Quarter Earnings

Siebel's CEO Michael Lawrie resigned today, one week after announcing disappointing first quarter earnings and less than a year since his appointment. George Shaheen, a 10-year Siebel Systems board member, will take Lawrie's place.

Commenting on the reason for the change, Tom Siebel, the company's chairman and founder, said during a press conference that the company did not meet the investors' and internal expectations. "The company did a very thorough review of the performance of the business, and thought it was in the best interest of the shareholders and the company to make a change," he said. Lawrie was appointed as CEO in May 2004, when Tom Siebel stepped down from that position.

"George has been in and around Siebel for a long time," Siebel said. "[He has] an in-depth knowledge of the company, customers, products--and has an intimate relationship with senior management."

On April 5 Siebel announced its expected revenues for the first quarter of 2005 to be approximately $297 million to $300 million, which Lawrie called disappointing and unexpected. He blamed the results on customers delaying deals during the last several days of the quarter because of "poor execution [by Siebel], exacerbated by a challenging economic and IT environment." Still, Shaheen asserted during the call, "It's not like we've fallen off the chart. I just think we can do better."

The company did not directly address the reasons for unmet expectations today, but officials said they intend for Siebel to continue improving on customer strategy and value, and continue "product development and strategy changes that meet the needs and demands of our customers." Shaheen needed more time before announcing any fixed product changes, offerings, or strategies, but said he felt Siebel's financial position, business partners, products, and customer base will enable the company to recover. Specifically, he felt Siebel's OnDemand product suite would have to remain "fresh" for the company to avoid losing its competitive edge.

Siebel has received a substantial share of displeasure over the years about the promise, and then failure, of some past CRM implementations that generated a less than expected ROI. Chris Selland, industry analyst at Covington Associates, says the recent turn of events "raises some questions about how stable the situation really is, and how well managed they are." Customers aren't going to bolt for the nearest exit just yet, but, he says, "If I'm a Siebel customer, I'm watching what's going on very, very closely."

Siebel's disappointments go beyond financial woes and unmet promises, says Martin Schneider, enterprise software analyst at The 451 Group. "The company is focusing on OnDemand in as much that people simply want it, but it isn't really gaining new business with it," he says. "The problem is that the company is still in enterprise mode in terms of management, personnel size, salaries, etc., and the cost structure is not aligned with the fact that the enterprise [market] is very saturated. Their product cannot be upgraded easily, and SMB license sales are much smaller than what Siebel is used to seeing. They went from average license revenue of at least $1 million to average deals of $300,000 last quarter. That's huge."

Industry rivals couldn't be happier. "I don't think there is a tougher job in this business right now than trying to turn that company into a success," says Marc Benioff, chairman and CEO of Salesforce.com. "It's the end of software as we know it."

Which vendor stands to benefit the most? First, SAP, then Oracle and Microsoft, as these three are now the most stable choices, according to Selland. "Microsoft is not necessarily seen as appropriate for the large, global company, because they don't really have the functionality yet. I think Oracle benefits from this in a small way, and SAP benefits in a big way. I wouldn't be surprised one of these days to see SAP turn around and buy Siebel. At this point, if the situation doesn't get better, they may not need to."

Industry watchers will be eying Siebel's next earnings call on April 27, but Shaheen assured listeners at the press conference that he and the company are in it for the long haul, and that he hopes to "generate performance results over a period of time."

Additional reporting by Coreen Bailor, Colin Beaaty, and David Myron

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