Siebel Posts Loss; Revenues Down Again

Tom Siebel calls his company's U.S. sales performance "breathtakingly bad."

Tom Siebel has always bragged about how his namesake company, Siebel Systems Inc., has been profitable since it first started shipping its CRM software seven years ago.

But that legacy lost a bit of its luster Thursday when the company reported a net loss for the third quarter ended Sept. 30, thanks to restructuring charges and falling revenues caused by the souring economy.

Siebel Systems posted a net loss of $92.1 million for the quarter, compared with a $35.2 million profit in the same quarter a year ago. That included a $109.3 million restructuring charge the company took in the quarter to allow for employee headcount reductions and closing of facilities.

While the company would have continued its profitability run without the charges, revenues fell for the fifth straight quarter, closing at $357.2 million, down from $437.9 million in the same period last year. License revenues were once again hardest hit, dropping from $193.5 million to $126.8 million, year-to-year.

While Tom Siebel has laid the blame for past revenue falloffs on the economy, this time he laid the blame squarely on Siebels sales organization, calling the companys U.S. sales performance in particular "breathtakingly bad."

"Im not pleased with the results," said Siebel in an earnings call. "Our sales execution has not been good."

Siebel hailed his new top sales executive, Richard Chiarello, as the "most talented, experienced, professional sales executive Ive met in my entire professional career. This guys a star." And he left no doubt that he wanted to part company with former top sales executive William McDermott, who resurfaced last month as president and CEO of SAP America.

"SAPs a great company. I wish them well, but our sales execution was completely unacceptable, so we made a change," Siebel said.

Chiarello took over Siebels sales organization Oct. 1, just days after the company apparently failed to close a number of large deals.

"A number of multimillion-dollar deals did not close in time and were pushed to early Q4," said Siebel. The companys average deal size was $565,000, with 24 deals over $1 million and three deals over $5 million. It added 175 new customers and got new business from 240 existing customers.

Siebel Systems expects fourth-quarter license revenues to be between $135 million and $165 million.

"Our pipelines robust," Siebel said. "But capital spendings tight and a lot of decisions are getting moved back."

Siebel defiantly noted that his company is still growing market share faster than its competitors and still claims bragging rights as the largest enterprise application software vendor in the United States despite its sagging sales. He accused competitors of "hocus pocus" in the financial numbers they were reporting.

Late in the earnings call, Siebel dismissed Wall Street rumors that Microsoft Corp. will buy or make an equity investment in Siebel but did confirm that the companies will jointly make an announcement early next week at the Siebel User Week conference in Los Angeles.

"I can tell you that this is an agreement that will undoubtedly change the competitive dynamics of the enterprise application software market," said Siebel. "But I can also tell you that Microsoft is not buying Siebel Systems and Microsoft is not making an equity investment in Siebel Systems.

"But it will be big news that will change the competitive dynamics of the game going forward."