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April 6, 2005

Siebel reveals shocking prelims

After missing its figures by a wide margin and watching its application license sales figures plummet, Siebel Systems' CEO Mike Lawrie yesterday promised immediate action to improve shareholder value.

By CBR Staff Writer

Siebel stock dropped by 9% when the struggling CRM vendor announced highly disappointing preliminary results for the quarter ending March 31. Revenue was not just below analysts’ average expectations, it even failed to meet the lowest estimate. Siebel expects to report a loss of between $7m to $9m on total revenue of $297m to $300m. Previous guidance anticipated revenue coming in at $325m to $345m.

According to Lawrie, poor application license sales did the damage. Sales came in at around $75m, against the $100m to $120m that was expected. Maintenance and service revenue sales held up at $122m to $123m and $100m to $102m, respectively.

We had very disappointing application license revenue during the quarter that directly affected total revenue and profitability, said Lawrie. We executed poorly and demand was softer than we anticipated. I take personal responsibility for this. We did well in other areas of the business, but it was not enough to offset the shortfall. We will take immediate steps to improve our financial performance and are confident we can get back on track in the second quarter.

The sales failure was due to a combination of poor execution on our part, exacerbated by a challenging economic and IT environment, Lawrie said. The company had gone into the quarter with a pipeline capable of delivering revenue of $325m to $345m but had failed to deliver.

The result was that by the last days of the quarter it was clear that the prospects were not going to sign and were putting purchases off until what is now the current quarter, or even until the second half of the year. Lawrie stressed that they were postponed sales, rather than lost sales.

He also said that new members of the management team were still coming up to speed and that demand in general was softer and more seasonal than the company had expected with company’s IT budgets still being finalized.

Although there will be no change in strategy he promised decisive action to improve revenue in the near term. This will include cutting bottom-line costs in the areas of discretionary sales, marketing, general and administrative spending. Lawrie also warned that some management changes where warranted, and said Siebel would also reduce or eliminate investments and developments in less profitable and less promising areas of the business.

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Every aspect of the business will be scrutinized, but he declined to comment further, confirming that further details would be available on April 27 when Siebel releases its Q1 figures.

There were some bright spots. Services revenue was in line with guidance and there was a 15% year-on-year increase, while consulting and maintenance was solid with revenue increasing 7% year-on-year. Some of this was due to customers implementing previously bought inventory, but Siebel did not provide any further details.

CRM OnDemand contributed $11m in terms of contract value, a 245% year-on-year increase. Subscriptions are creeping up and improved 18% sequentially. Siebel added 5,000 new subscribers, which would take its total to somewhere in the region of 33,000, although this figure is tiny compared to the 227,000 of rival

Lawrie also said that its SMB line of business had exceeded its goals and sales had almost doubled year-on-year. However, the targets are likely to have been low as Siebel has spent the last year working on getting the products up to scratch and only recently begun focusing on sales execution.

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