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August 23, 2005

Siebel Q3 guidance unchanged

In a mid-quarter financial update this week, Siebel Systems Inc said its cost-cutting is on target but it did not raise its guidance for the current quarter.

By CBR Staff Writer

The beleaguered CRM leader said it expects to cut out $10m worth of expenses during the third quarter, reducing costs to $300m. A further 28 jobs will go, bringing the Siebel employee count to 4,900. The fourth quarter will see further cost-cutting measures, made across the board, including a reduction in the R&D spend. This currently stands at around 20% of revenue but CFO Ken Goldman said the norm for industry leader players is around 15%.

He said operating margins could reach their target of 15% in the fourth quarter but also warned that this could be because the quarter is a seasonally strong period so the margins might not stay at that level. This is a slight step backwards for the company which in June said it wanted to achieve a 15% operating margin by the end of the year, rising to 20% thereafter.

Siebel stuck with its previous guidance issued in July for the third quarter, which anticipated revenue in the range $305m to $315m. Consensus analyst expectation is revenue of $311m.

While CEO George Shaheen reiterated his commitment to improving shareholder value through revenue growth, execution details were scarce, and there was no mention of the stock buyback sought by some investors. While we have a strong sense of urgency, we firmly believe that shareholder value must begin with improving our financial performance, including our revenue generation, he said.

He did say that for the near term the company is focused on operations not acquisitions, but said they could figure in the future. Acquisitions have been an important part of our success and can be an important part of our future, he said. However, today our primary focus remains on improving our organic operations in the near term.

Since taking on the role of CEO in April, Shaheen has been castigated for failing to provide details about the company’s recovery plan. This has riled some shareholders who have demanded that Siebel use some of its $2bn plus cash pile for a $1bn cash buyback or for recovery-inducing acquisitions. It has not acted on either suggestion but in June it did attempt to mollify shareholders by announcing a dividend and promising recurring dividends. Although the $0.025-per-share payout was small it was significant because it was the first and was an attempt to buy time until Shaheen’s cost-cutting initiatives start to deliver benefits.

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