Siebel Earnings Show a Chink in the Company’s Armor

When Siebel Systems announced its second quarter results on July 17, the CRM industry sat bolt-upright. Revenues were $405.6 million, down from $477.8 million in the first quarter. Net income was down. Revenues from license fees were down. Revenues from maintenance, consulting and other services were up – but barely. What’s more, the company would not provide any details about its pipeline. In the past year, Siebel’s stock has fallen roughly 75% to close at $9.07 on July 22. It’s uncertain whether the declines are a result of the weak economy or whether the CRM king is at last starting to feel the effects of smaller competitors rattling its throne. But what is clear is that things aren’t going to get much easier any time soon.

In a July 18 report, Morgan Stanley analysts Charles Phillips and Matt Miksic note Siebel will be cutting its headcount from 7,100 to 6,000 and that the reductions will affect 2003 selling capacity. “The company will have less distribution and product development capacity – and that logically means it can make and sell less product next year,” they write. “The target revenue per employee ratio of $260,000 would produce only $1.5 billion in revenue next year.” Moreover, the pair observe that Siebel faces “significant expenditures related to new data center construction.”

Finally, the analysts note that opportunities are shrinking because Siebel already claims 19 of the top 20 pharmaceutical companies, 15 of the top 20 financial services companies, 15 of the top 20 wire-line telecom companies, and 9 of the top 20 mobile telecom firms as customers.

Yet even with that kind of saturation, there is some evidence that customers have reached the end of their patience with CRM applications marked by high-costs, complex programs and lengthy installations. Bertelsmann Services, one of more than 10 companies that de-installed Siebel and switched to Salesforce.com in the past year, said in July that its employees had a difficult time inputting, extracting and reporting on data within the Siebel environment. Within days of making the switch to Salesforce.com, the company was using its new online CRM application for roughly one-fourth the cost of its Siebel implementation. They are not alone. Morgan Stanley estimates that $130 billion in enterprise technologies purchased in the last two years have not been implemented and that 40% of all enterprise software purchased is never installed. Siebel Systems would not comment on its earnings or its future opportunities.