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As expected, Siebel Systems Inc. on Wednesday reported a decline in revenues and profits for its second quarter ended June 30, a performance that will prompt a number of new initiatives at the company to boost performance, including cost cutting.
Revenues have fallen year-over-year at Siebel for 12 consecutive quarters. In the second quarter, total revenues slid to $301.1 million from $333.3 million in last years second quarter. License revenue fell from $109.9 million to $94.8 million year-over-year.
Siebel had reversed a falling license revenue trend in the first quarter of this year as several large deals failed to close before the end of the quarter.
Net income fell to $8.2 million from $9.8 million in the same period a year ago. New CEO Michael Lawrie made it clear that Siebels performance in the second quarter was unacceptable.
“Ill be the first to acknowledge that we did not perform well for our shareholders,” Lawrie said in his first Siebel earnings call. He vowed to do better and said Siebel will focus on improving the companys revenue-generating capabilities, financial structure and leadership.
“Were prepared to act to improve our performance and our capabilities,” he said.
To that end, Siebel has formed a new SMB (small and midsized business) division, rehiring former marketing executive Bruce Cleveland to head the group. It will include the companys Siebel CRM OnDemand hosted service.
Lawrie also promised increased investments in vertical markets—especially retail banking, a business Siebel is building around its acquisition of Eontec Ltd. during the quarter—and analytics.
Better sales management and pipeline visibility are also necessary, Lawrie said, a candid acknowledgment coming from a company that develops software designed to help companies manage their sales operations better.
“We saw a lot of deals slip during the quarter, so we put additional processes in place to improve visibility,” Lawrie said. Many of the deals that slipped in the second quarter have already closed this month, he said.
Next Page: Back to cost cutting.
Cost Cutting
The company plans to reduce discretionary spending, mainly by cutting back employee travel, consolidating facilities, limiting internal IT spending and using more outsourcing and offshoring.
While headcount is expected to increase next quarter, the company hopes to reduce expenditures in these areas by $15 million to fund investments in other areas, officials said.
Siebel claimed that its Siebel CRM OnDemand business saw 33 percent revenue growth from the first quarter to the second quarter, though it did not release exact numbers. The hosted service is key to Siebels SMB strategy, according to Lawrie.
“Historically, Siebel has not gotten much revenue from the SMB market,” Lawrie said, adding that just 20 percent of SMB companies have deployed CRM.
“The SMB market is underpenetrated because the cost associated with enterprise software is prohibitive. Thats why the on-demand model is appealing to the SMBs,” he said.
“Its an underpenetrated [market] that has to be fulfilled,” Lawrie continued. “Its the right opportunity. Were focused on developing the right offering.”
Not all is rosy in the hosted CRM space, either. Salesforce.com Inc. saw its stock tumble by more than $4 a share, or more than a quarter of its value, after the company warned during its first-ever analyst day Wednesday that it would not meet analysts consensus estimates for its 2005 fiscal year.
The company announced it expected earnings to break even to 3 cents a share on revenues of $165 million to $170 million. Analysts who track the firm had expected earnings of 6 cents a share on revenues of nearly $175 million.
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