New CEO Hasn't Pulled Siebel From The Mire--Yet

As Siebel Systems Inc. struggles to increase sales of its software, this much is certain: Switching CEOs didn't provide a quick fix. Three months after a poor first quarter signaled the end of Mike Lawrie's 11-month reign, new CEO George Shaheen last week took his turn apologizing for a lackluster quarter.

George Shaheen

The once-high-flying vendor of customer-relationship-management software posted a loss of $50 million on revenue of $313.6 million for its quarter ended June 30, compared with a profit of $7.5 million on revenue of $301.1 million in last year's second quarter. The loss includes $74.1 million in one-time restructuring charges, including some $7 million in what CFO Ken Goldman termed "CEO transition costs."

Whatever progress Siebel has made to cut costs is overshadowed by its lack of success in boosting 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 30.8% compared with last year, and Shaheen told analysts during a conference call last week that the company is paying for its habit of allowing too many deals to slide to the end of the quarter. The company is focused on trying to ink deals earlier in the quarterly sales cycle, he said. "We're more in control of that than we may think," Shaheen added.

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

Siebel's executive team indicates it believes it has what the market wants, but the problem is execution. It hired a chief marketing officer, Patty Azzarello, formerly CEO of software vendor Euclid Technology LLC and VP of Hewlett-Packard's OpenView unit, earlier this month 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--we have the product," Shaheen said. "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 other challenges he sees facing the company. Siebel's software remains overpriced, lacks the simplicity to compete with Salesforce.com Inc. on the software-as-a-service front, and doesn't offer the back-end systems sold by rivals SAP and Oracle, Goldenberg says. Moreover, Siebel is contending with inner turmoil as it attempts to sell both on-demand services and its traditional on-premises software, and pulls back on its relationships with systems integrators to do more of the deployment work itself. Despite the problems, he says Shaheen may very well be the right person "to get all the fish swimming in the same direction."