Siebel Earnings Miss The Mark By A Long Shot

So much for the momentum Siebel Systems Inc. gained in the last half of 2004. The customer-relationship-management software vendor's recovery came to a grinding halt Tuesday, when it revealed preliminary quarterly results that indicate its worst three-month performance in more than five years.

For the quarter ended March 31, Siebel expects to post a loss of $7 million to $9 million on revenue of $297 million to $300 million. The company's previous guidance was for first-quarter revenue of $325 million to $345 million. The primary culprit was Siebel's application licensing revenue, which is expected to be an anemic $75 million, well below previous guidance of $100 million to $120 million.

CEO Mike Lawrie didn't take the poor performance sitting down, sounding profoundly frustrated during a conference call with analysts. Lawrie promised immediate actions, including significant cuts in discretionary spending, further management changes, eliminating investments in less-promising areas of the business, and reprioritizing its product-development spending. "When you turn in this kind of a poor performance on application license growth, you've got to be prepared to take very decisive action," Lawrie said. "Our execution was poor, and demand was clearly softer than what we expected. I take personal responsibility for this."

Lawrie also noted that despite the license revenue shortfall, there were positive signs, too. Siebel's services business was up 15% over last year, maintenance renewals were up 7%, and contract value for its on-demand CRM business was up 245%. But Lawrie stopped short of calling these successes a silver lining, stressing that the company needed to get better at closing deals quicker. "The progress in some of these areas was not enough to offset the poor execution and deal slippage in our application license business."

Lawrie promised more details on the license revenue issues, as well as actions the company will take in response, when it makes its formal earnings announcement April 27.