Siebel Earnings Leave Analysts Cold

News Analysis: The struggling company's reported earnings increase doesn't promise a turnaround, experts say, questioning the effect on Oracle's Project Fusion plans.

Siebel System Inc.s earnings released Thursday, although better than expected, failed to impress some financial analysts watching the company closely.

The consensus among these analysts is that Siebels expected 30 to 38 percent increase in 2005 fourth-quarter software sales isnt by any stretch a turnaround for the long-suffering CRM (customer relationship management) software developer.

Rather, the likely scenario is that Siebels sales force pushed sales through the pipeline just before Oracle Corp.s acquisition of Siebel, expected by months end.

"Our neutral view on Oracle is unaffected by Siebels strong results," wrote John Rizzuto, an analyst with Lazard Ltd., in a research note released Thursday.

"We believe the strength in the quarter, while notable, may have been affected by the accelerated closing of deals ahead of the Oracle acquisition; which will likely have an adverse affect on the companys pipeline," he added.

Likewise, Prudential Equity Group LLC analyst Brent Thill expressed skepticism regarding Siebels earnings—and the impact on Oracle.

"Our concerns for the transaction lie chiefly with the deteriorating fundamentals at Siebel … with declining license revenue and maintenance growing below the industry average," Thill wrote in a research note.

Siebel estimated fourth-quarter sales of $469 million, up from a previously predicted sales rate of $340 to $360 million for the quarter.

The frenzied selling at Siebel is also not going to do much to speed up Oracles development timeline, according to Lazard and other analysts.

/zimages/6/28571.gifClick here to read more about Oracles bid for Siebel.

"We believe that much work needs to be completed for Oracle to fully integrate Siebels technology into its application stack," Rizzuto wrote, with other Lazard analysts. "We do not believe that the acquired Siebel technology will fully utilize Oracles Fusion platform until late 2007 at the earliest."

Despite Oracles protestations that the Siebel buy will not slow down its Project Fusion plans—a next-generation application suite under development now that brings together three separate ERP (enterprise resource planning) suites—analysts agree that the addition of yet another code base to the Oracle stack will affect Oracles projected 2008 release date.

Project Fusion brings together functionality from its E-Business Suite and from PeopleSoft and JD Edwards suites, which Oracle acquired last year.

One of the issues involved in adding Siebels CRM to the Fusion mix—Oracle plans to base Fusion CRM on Siebels technology—is that it introduces another option for a key aspect of the applications: a consistent customer model.

/zimages/6/28571.gifRead more here about how Oracle presents the future of Fusion Middleware.

Siebel has its own customer model, or way of defining the functionality that manages customer data, which then links profiles of the same customers across applications.

At the same time, one of the key elements of Fusion Middleware, the underlying infrastructure for Project Fusion, is defining the customer model and then using that to define XML interfaces that Web services will look for in calling out services, according to Joshua Greenbaum, principal of Enterprise Applications Consulting, in Berkeley, Calif.

Oracle will have to determine how its going to define the customer record, and then integrate that with Fusion: at the end of the day, a lot of work.

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