Shaheen promises restructuring, refocusing at Siebel

Two weeks after deposing Chief Executive Officer (CEO) Mike Lawrie for overseeing a quarter that fell far short of expectations, Siebel Systems on Wednesday released first-quarter results in line with the reduced forecast it warned about earlier this month.

Siebel's license revenue for the quarter, which ended March 31, was US$75 million, its lowest level since 1998. Total revenue was US$298.9 million, down 9 percent from last year's first quarter. Before Siebel's warning, the consensus estimate of analysts polled by Thomson First Call was for revenue of US$337.5 million.

Excluding a development charge related to its January acquisition of Edocs, Siebel's net income was US$3.2 million, or US$0.01 per share. On a GAAP (General Accepted Accounting Principles) basis, the company posted a US$4 million loss, compared to income of US$31 million in the year-ago quarter.

Chief Financial Officer Ken Goldman said the company's top management was "embarrassed" by the quarter, and newly installed CEO George Shaheen told analysts, "We are all disappointed by our recent financial performance."

Shaheen offered few specifics about his plans for altering Siebel's course, though he did say he expects to overhaul Siebel's sales process. Siebel's sales cycles are becoming longer and more complex, with customers enacting more rigorous approvals processes and increasingly holding out till the final days of quarters to complete deals, Shaheen said.

"We have a sales organization today that I think is somewhat complex and overly bureaucratic in how it communicates to customers and to ourselves," Shaheen said. "We could do a much better job as we do our account planning."

Goldman said Siebel will trim expenses across the board, with the aim of improving its operating margins by the end of the year. Staff cuts may also be involved, although Siebel has already shed thousands of employees over the past few years. In the past 12 months, its headcount grew by about 440 employees, to 5,260, as acquisitions added to Siebel's employee rolls.

Siebel deployed 290,000 additional CRM (customer relationship management) licenses during the quarter, a number executives called a company record. Total, Siebel counts 3.2 million live users on its software. Around 5,000 new subscribers went live on its Siebel CRM OnDemand service, bringing that offering's total customer base to 33,000. Siebel hosted service's growth still significantly lags that of its top ASP (application service provider) rival, Salesforce.com, which added 32,000 subscribers in its most recent quarter (ended Jan. 31).

Siebel will meet with financial analysts on May 5, an event at which further details on Shaheen's turnaround plans are anticipated. In research reports circulated after Siebel's conference call late Wednesday, analysts focused on Siebel's high cost structure and shrinking deal sizes. Smith Barney analyst Tom Berquist speculated in a note that customers may be losing faith in Siebel's ability to remain a viable, independent business, thereby further depressing its deal pipeline and dragging out sales cycles.

During the conference call, Morgan Stanley analyst Ross MacMillan pointed out that Siebel rival SAP AG appears to have successfully compensated for the changing enterprise applications sales process by transitioning to a higher volume of smaller deals. Siebel's Shaheen responded that his company will continue examining how it can better align with customers' buying cycles.

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