CRM vendor reports improved earnings and a 7% surge in fourth-quarter revenue.

Tony Kontzer, Contributor

January 27, 2005

3 Min Read

As it turns out, Siebel Systems Inc.'s enthusiastic preliminary earnings announcement earlier this month wasn't enthusiastic enough. The customer-relationship-management software pioneer Thursday posted quarterly revenue and profit in excess of its earlier expectations, contributing to calendar-year earnings that were the strongest the vendor has posted since the dot-com bust.

For the fourth quarter ended Dec. 31, the company posted a profit of $53.8 million on revenue of $392.4 million, compared with a profit of $40.7 million on revenue of $366.7 million for the same period in 2003. In its preliminary estimates issued Jan. 5, Siebel had anticipated that fourth-quarter profit would approach $4 million and that revenue would reach as high as $390 million.

For all of 2004, Siebel reported a profit of $110.7 million on revenue of $1.34 billion, compared with a loss of $5.2 million on revenue of $1.35 billion a year earlier.

Software license revenue for the fourth quarter reached $160.9 million, nearly a 7% improvement from the same period last year. For the year license revenue was $487.1 million, up slightly from $482.3 million in 2003. Meanwhile, Siebel was able to reduce its cost of revenue to $456.9 million for the year, down from $508.4 million in 2003, and operating expenses were $754.1 million during 2004, more than $129 million less than the previous year.

In a conference call with analysts, CEO Mike Lawrie said the results marked the first year-to-year quarterly revenue growth for Siebel since 2001. He said he was pleased with Siebel's success in achieving a number of the objectives he's established since he took over leadership of the company from founder Tom Siebel last May. Among those goals was the establishment of the company's business-intelligence offerings, as well as a strengthening of its service business which Lawrie said was one of Siebel's weakest areas when he joined the company.

Lawrie also was pleased with the progress Siebel's on-demand CRM business has made in competing with market leader Inc. He says the company's numbers--it reported that its on-demand offering, introduced in November 2003, now has more than 28,000 subscribers--are comparable to's first year of operation. "We sort of feel like we closed the gap," Lawrie said. "We're on the field now, we have our helmets on, and we can go compete."

Perhaps most significant is the progress Siebel has made in the area of customer loyalty, an important gauge for a company that developed a reputation for having a difficult-to-use product and a less-than-customer-centric orientation. The company has been working to reduce the amount of software sitting unused on customers' shelves, and to date Lawrie reports that 87% of all purchased seats have been installed. He promised that the company would continue its attempts to get as many of the remaining unused seats up and running as possible.

Still, Lawrie said there are plenty of areas where improvement is needed. He was disappointed in the company's performance in the Asia-Pacific region, as well as in the United States, and he's made substantial management changes in the company's financial-services business, which has underperformed. From a financial standpoint, Lawrie remains concerned with the fact that Siebel trails behind its competition in terms of achieving strong profit margins, and he plans to make moves to address that in the coming year. He also said Siebel, which this month completed its $115 million acquisition of E-billing vendor Edocs Inc., will continue to look into acquiring other customer-facing technologies that complement Siebel's core CRM products. "There's no doubt these customer-facing systems are where our customers have the best opportunity to differentiate themselves," he said.

For the first quarter of 2005, Siebel was cautious with its estimates. CFO Ken Goldman said the company expects quarterly revenue of between $325 million and $345 million, with license revenue expected to fall in the $100 million to $120 million range. Maintenance will be about $120 million, and service revenue will be between $100 million and $110 million.

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