Siebel avoids hard times
BY ELISE ACKERMAN
Mercury News
In a market that has beaten up most software companies, Siebel Systems stands out for its predictability: sales are stable, accounting practices appear to be conservative and profitable quarters are taken for granted.
Though Siebel has been hurt along with the rest of the industry -- the San Mateo company's stock is down 80 percent from its peak and quarterly revenue declined slightly this spring -- it has so far avoided the embarrassing announcements of bad news that have plagued other technology companies throughout the spring and summer.
Founder and Chief Executive Tom Siebel, 48, argues that his old-school management practices, coupled with his company's market-leading business software, puts Siebel Systems in a strong position to get through the economic slowdown.
``We have our finger on the pulse of revenues, our finger on the pulse of expenses and our finger on the pulse of customer satisfaction levels,'' Siebel says. ``If anything misses a beat, we are able to respond real quickly.''
Siebel Systems, which pioneered the development of sales and marketing applications for large corporations, was one of the fastest-growing software companies last year. Its products, known as ``customer relationship management'' software, or CRM, allow companies to track customers, monitor revenue and expenses and target marketing prospects more accurately.
Before the downturn began dragging down software sales, Siebel Systems was poised to join the ranks of the world's largest software companies, with 2001 revenue estimated at $4 billion, up from $1.98 billion last year. Now, analysts predict 2001 sales will be between $2.2 and $2.6 billion.
``They are doing a remarkable job of managing the downturn in what is a very adverse selling environment,'' said Eric Upin, an analyst at Robertson Stephens.
But the company's greatest strength -- its focus on a single category of software -- is also its greatest weakness. Competitors like Oracle, SAP and PeopleSoft are now selling suites of sofware applications, which they say serve customers better than forcing them to integrate products from different vendors.
Siebel objects, pointing out that its competitors themselves are often just cobbling together technology they acquired elsewhere. ``We try to build best-of-breed products,'' he declares.
Siebel says he was using his company's software in February when he noticed that expected deals were not materializing. ``Something was going on in the world that we didn't quite understand,'' Siebel remembers.
As he watched customers delay purchases, he decided to rewrite his business plan. ``Basically, between the second week of February and the week of April, I resized the business,'' he says in an interview at his company's headquarters. ``We slashed expenses, we rewrote departmental budgets for the company and we reset individual objectives for 8,000 employees around the world.''
Siebel laid off 10 percent of the workforce, froze executive bonuses and canceled merit pay increases.
The swift actions enabled Siebel Systems to ring up net income of $76.9 million on revenues of $588.7 million for the first quarter, meeting Wall Street's expectations. For the second quarter, Siebel had revenues of $550 million and profits of $76.6 million, which slightly exceeded Wall Street expectations.
As businesses become armed with real-time information, Siebel says their next step will be to expand so that they can communicate with customers ``any time, any place, in any language and in any currency.''
Siebel recently published a book, ``Taking Care of eBusiness,'' detailing his vision, with examples gleaned from the experiences of Siebel Systems' customers.
Analysts say Siebel is probably right about the ultimate direction that business is moving. Since 1996, when Siebel Systems went public, the market for CRM has grown from $500 million to $5 billion to $6 billion annually.
But analysts say Siebel will face increasing competition from the suites of its competitors and should consider broadening its product line through acquisitions.
Despite a $1.5 billion cash hoard, Siebel says he has no plans to buy other software makers. ``We are absolutely not in the market for cheap technology -- and there is lots available.''
Siebel says he will take a more time-tested, conservative, approach: developing his own products.
Analysts also warn that customers are no longer willing to spend $100 million and wait three to five years for a full-scale CRM implementation. ``The problem with Siebel and a lot of stuff in the CRM market is that it is designed around doing multi-year projects,'' said Rod Johnson, services director of AMR Research. ``The way this stuff is sold right now doesn't lend itself to a downturn.''
But Siebel points out that the downturn won't last forever. The cloud over the technology sector may last another two quarters, or two and a half years, he muses, ``but I know that cloud will move because I'm a student of history. . . . When the sun shines, we have to be in a position to expand the business as rapidly as we adjusted it on the downside.'' |
