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In a meeting that was often testy, Siebel Systems Inc.s leaders told investors and analysts Thursday that the company would focus on cutting costs, managing more efficiently and going after new market opportunities in an effort to right itself.
At the meeting in New York, George Shaheen, the new chief executive of the San Mateo, Calif., company, said he hoped to reach operating margins of 15 percent in the near- to midterm and more than 20 percent in the longer term.
“Were going to manage ourselves differently, were going to renew our partnerships and alliances and were going to take cost out of this organization,” Shaheen said.
One element of the companys cost-cutting strategy will involve reducing the Siebel work force, although company officials did not say by how much.
Shaheen said Siebel has to “level set” its cost base to reach the 15 percent margins he is targeting. “Were going for [revenues of] $400 million a quarter. That way well get to the 15 to 20 percent margins,” he said.
“The revenue targets are attainable, albeit a stretch,” Shaheen said. “I dont think I can get to profit in the near term—two quarters or so.”
Meanwhile, Shaheen said that although Siebel is a leader in the $6 billion packaged CRM (customer relationship management) market and the $500 million hosted CRM market, the company is aiming for growth by attacking what he called the custom CRM market, which represents about a $24 billion opportunity, and the overall customer-facing and business analytics solutions market, which represents a $100 billion opportunity.
To seize on the new market opportunities, Siebel will this summer release a new component assembly technology, code-named Nexus, said David Schmaier, executive vice president of Siebel. Nexus is being developed in conjunction with Microsoft Corp., IBM and BEA Systems Inc., Schmaier said. The technology is based on .Net and on J2EE (Java 2 Platform, Enterprise Edition) application servers and is a component assembly platform for building out service-oriented architectures, company officials said.
Ed Abbo, chief technology officer at Siebel, said Nexus will feature hundreds of pre-built business processes for sales, service and marketing, and it also will feature embedded analytics and come with baked in integration with Microsoft Office, Outlook and SharePoint.
Additionally, Schmaier said Siebel has “co-located” engineers at Microsoft, IBM and BEA to develop the technology, and that Siebel, IBM and Microsoft plan to spend about $250 million between the three companies to develop the technology.
Moreover, while Shaheen said Siebel would build “world-class” components of its own, he said he expects that “integrators will build components as well, and that will be good for us. This is going to be a new dynamic where its not how many bodies you bring, but what technology you bring in your tool kit.”
Meanwhile, investors and analysts hit Siebel hard on the $2.2 billion cash “horde” the company is holding onto, rather than using it for other purposes.
Ken Goldman, Siebels senior vice president of finance and administration, and the companys chief financial officer, said, “We think there are ways we can leverage the cash.” He noted that the company could “leverage cash for customer credibility” and as a strategic operating and acquisition asset to drive further growth.
Next page: Acquisition rumors fly.
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However, since ousting its former CEO, Michael Lawrie, last month and replacing him with Shaheen, Siebel itself has been the subject of acquisition rumors, with some suggesting that it could be a potential takeover target for companies such as Oracle Corp. and SAP AG.
Speculation of a buyout is said to have peaked Tuesday when an individual or group traded a block of 14 million Siebel shares.
Siebel addressed the rumors in a filing Thursday with the U.S. Securities and Exchange Commission.
In the 8-K filing, Siebel noted that several news stories had “been written concerning potential strategic opportunities for Siebel Systems.” It said that, from time to time, the company has “considered a diverse range of strategic opportunities to maximize stockholder value, including but not limited to potential significant acquisitions by us, restructurings of our equity, equity repurchases, strategic alliances, and offers to purchase us.”
However, Siebel indicated that no deals are being considered at this time.
“Potential opportunities have recently been presented to us that continue to be evaluated and discussed in a manner that is consistent with our past practices and the fiduciary duties of our officers and directors, with the goal of determining what the Board of Directors believes is in our stockholders best interests,” Siebel said in its SEC filing. “These activities include the involvement of independent directors, outside experts, and independent advisors. Such activities continue to be conducted in the normal course of business and should not be interpreted to suggest that any of these current potential opportunities will or will not be consummated. There are none under current consideration that have progressed to the point at which the full Board of Directors has met to consider them.”
Meanwhile, during Thursdays meeting with analysts, Siebel executives showed signs of frustration over a barrage of demands for more information on potential deals, the companys cash situation and why Siebel executives refuse to meet one-on-one with investors.
More than once, Goldman told questioners Siebels SEC filing “speaks for itself,” adding that the company would say no more on the subject at the time.
“My role at this point in time is to grab the tiller of this thing and get it back on course,” Shaheen said.
Asked why if he wanted to instill investor confidence in the company, Shaheen had not purchased any Siebel stock, the CEO replied, “We are not here to discuss my personal portfolio.”
Shaheen said Siebel is in the drivers seat in the CRM market, with the most users at 3.2 million seats, or more than the next three largest CRM vendors combined.
But the company needs to reduce organizational complexity, revitalize its partners and alliance programs, and invest more in vertical markets, Shaheen said.
“Our shortfall is quite apparent to me—its on the sales side, the revenue generation side,” he said.
Siebels “sales force on the ground is overly complex,” Shaheen said. “We get in our own way.”
Later, after fielding several recurring questions, Shaheen fired back: “Thats my story and Im sticking to it. Theres no science. Thats our game plan. Its not that scientific; its not even that complex. I know what Im charged to do.”
He then added: “I hear your frustration. I hear it loud and clear. We believe the opportunity is there. This is an industry thats not stagnant. Were going to make a run for it. The game is still on the field.”