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7/26/2005
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New CEO, Same Earnings Woes For Siebel

CEO George Shaheen said the company is paying for its habit of allowing too many deals to slide to the end of the quarter. "Sometimes we land the plane too close to the end of the runway."

When it comes to the state of Siebel Systems Inc., this much is certain: Switching CEOs didn't provide a quick fix. Three months after a poor first quarter came into focus and signaled the end of Mike Lawrie's 11-month reign, new CEO George Shaheen took his turn apologizing for a lackluster quarterly performance from the once-high-flying customer-relationship-management software vendor.

For the second quarter ended June 30, Siebel posted a loss of $50.0 million, or 10 cents a share, on revenue of $313.6 million, compared with a profit of $7.5 million, or 1 cent per share, on revenue of $301.1 million a year earlier. To be fair, the most recent loss can be traced to $74.1 million in one-time charges, including some $7 million in what CFO Ken Goldman termed "CEO transition costs."

But whatever progress Siebel has made in controlling ongoing costs is overshadowed by its continuing struggle to fuel software sales. While service and maintenance revenue was up 14% to $235.3 million, license revenue came in at a paltry $78.3 million, down 17% from the second quarter of 2004, which itself was far from a banner performance. Year to date, Siebel's license revenue is down a staggering 30.8% compared with last year, and Shaheen told analysts during a conference call Tuesday that the company is paying for its habit of allowing too many deals to slide to the end of the quarter. "Sometimes we land the plane too close to the end of the runway," Shaheen said. He said the company is focused on trying to move deals earlier in the quarterly sales cycle. "We're more in control of that than we may think."

Efforts to tighten its sales efforts have taken an additional blow, however, with Shaheen's announcement that Neil Weston, senior VP and general manager of sales for Europe, the Middle East, and Africa, is leaving the company for undisclosed reasons. The company is actively searching for a replacement.

Shaheen also expressed disappointment that Siebel's fledgling business-intelligence product line hasn't established itself as a standalone product. He said the company plans to reassess its analytics business in an effort to untether it from its core CRM product line. "We're too closely tied with the ups and downs of the CRM market," he said.

In general, it's clear Shaheen and his executive team believe Siebel's woes are directly tied to sales execution, not product quality. Yet the company seems to acknowledge that the market hasn't come to the same conclusion--to wit, Siebel this month hired a chief marketing officer, Patty Azzarello, to help jump start Siebel's brand and sales lead generation. "What frustrates me in many ways is that we have the hard part licked," Shaheen said. "We have the product. We've got to get in touch with our customers."

Barton Goldenberg, president of CRM consulting firm ISM, says that won't be easy given the numerous other challenges he sees facing the company. The company's software remains overpriced, lacks the simplicity to compete with Salesforce.com Inc. on the on-demand front, and offers nothing to rival the back-end systems sold by rivals SAP and Oracle, Goldenberg says. Moreover, Siebel is contending with internal friction as it attempts to sell both on-demand services and on-premises software, and as it pulls back from working with systems integrators and does more deployment work itself, he says. "It's a bloody mess over there," Goldenberg says. That said, he believes Shaheen may very well be the person "to get all the fish swimming in the same direction."

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