Update on SEBL and technology
Down 25% in the portfolio.
Over the last 6 months:
· 19 insider sells; 3.74M shares
(8.5% of insider shares)
Only add in July without any insider buying.
52-Week Low on 24-July-2002 $8.57
Recent Price $9.34
52-Week High on 24-Jan-2002 $38.38
Market Capitalization $4.42B
Shares Outstanding 473.6M
Float 433.5M
Price/Book (mrq) 2.17
Price/Earnings (ttm) 25.18
Price/Sales (ttm) 2.77
EBITDA (ttm) $267.2M
Debt/Equity (mrq) 0.16
Total Cash (mrq) $2.01B
Short Interest As of 10-June-2002
Shares Short 25.2M Percent of Float 5.8%
Reason for decline:
It saw sales slide 28% and profits plunge 61%, prompting the company to slice 1,200 jobs. Chief Executive Thomas Siebel said he sees no signs of improvement in corporate spending for the third or fourth quarters. Ton Siebel did a Forbes article in the winter where he saw order improrovement. Even more troubling, several said they're learning to live with longer replacement cycles in hardware and software. The last huge round of PC purchases occurred during the Y2K spending boom in 1999. Normally, PCs are replaced every three years. But many execs said they've easily gotten four years out of their machines, and for many departments within their companies, will try to extend their life even more. Moore's Law provides one of the reasons they can hold onto their PCs longer. The capabilities of PCs and other computers, for most purposes, are outpacing the demand for ever-more powerful machines. In other words, the machines they have are plenty powerful for the software applications they want to use. Big bandwidth and lots of video was supposed to extend indefinitely the pace of hardware obsolescence. But it hasn't.
Companies are also finding that for the most basic tasks, the software they have on hand does pretty well. So they're extending buy cycles there, too. PCs don't last forever, of course, and companies will continue to snap up new software if they believe will pay off in higher sales and earnings. Pent-up demand could really spark solid growth in IT spending again. biz.yahoo.com
July 19 - Standard & Poor's today affirmed its double-'B' corporate credit and single-'B'-plus subordinated ratings on Siebel Systems Inc. At the same time, Standard & Poor's revised its outlook on the company to stable from positive, reflecting lowered expectations for enterprise software spending.
Competition in the sector
July 18 German software giant SAP AG (XETRA:SAPG.DE - News) on Thursday reported weaker demand in all regions except Germany, confirming the dim picture it painted last week, and offered no hope of a quick rebound. Europe's biggest software maker shocked markets last week by slashing its 2002 sales forecast after posting preliminary second-quarter results well short of analysts' forecasts, joining a growing list of technology companies hit by a drastic slowdown in investment spending. Like many other software makers, SAP saw a number of big deals snatched away after customers pulled out of apparently firm spending commitments at the last minute amid persistent uncertainty about the overall economic outlook. 10 to 20 million-dollar deals it had expected to close in the quarter had fallen through and there was little prospect of winning back any of these until the end of the year.
July 18 - PeopleSoft said revenue declined 11.4%, to $482.2 million from $544.5 million a year earlier and was nearly flat compared to the $483.3 million in revenue reported the previous quarter. Software licenses dropped 20.7%, to $131.9 million from $166.3 million in the year-ago period, and were nearly flat compared to the $133.3 million posted in the first quarter. Wall Street analysts were expecting PeopleSoft to earn 13 cents a share on $474.5 million in the second quarter, according to Thomson Financial/First Call. In April, PeopleSoft said second-quarter results would remain sequentially flat. On a post-close conference call, PeopleSoft said it expects third-quarter earnings from recurring operations to total 13 cents a share -- in line with Wall Street estimates. Third-quarter license revenue is expected to fall sequentially to between $120 million and $130 million.
June 18 - Oracle reported fourth-quarter net income of $760 million, or 14 cents per share, down from last year's 15 cents per share. Those figures excluded an impairment charge related to Oracle's investment in Liberate Technologies (Nasdaq: LBRT) . Including the charge, net income in this year's fourth quarter was $656 million, or 12 cents per share. Oracle reported revenue of US$9.7 billion for its fiscal year ended May 31st, down considerably from the $10.9 billion recorded last year.
In the company's fiscal fourth quarter, revenue totaled $2.8 billion, a dip from the approximately $3.3 billion reaped during the same quarter a year ago.
California, Three Companies Cancel $95 Million Oracle Contract. crmdaily.com
Analysts caught off guard
JMP Securities analyst Patrick Walravens pointed out a "troubling" increase in Siebel's so-called "concurrent revenue," more commonly called swap or barter revenue because it is received when Siebel licenses its software to vendors from which Siebel purchases goods and services at the about the same time. Walravens noted that such revenue totaled $26 million, which at 15% of total license revenue is the highest percentage since Siebel has reported this figure.
Goldman analyst Rick Sherlund said that spending on enterprise software is increasingly poor. He said the capital spending recession appears to be worsening, with large deals becoming extinct. Sherlund kept his 2002 earnings estimate of 35 cents per share but lowered his 2003 forecast to 37 cents a share from 40 cents a share.
Brent Thill of Credit Suisse First Boston in New York called Siebel's results a "gut check" for anyone looking toward a quick recovery in the application software market.
"The newest reality for software is that big deal opportunities are very limited," said Thill, who noted that Siebel only did three deals of $5 million or more during its second quarter. The company did 12 such deals during its first quarter. Thill lowered his 2002 earnings estimates on Siebel to 28 cents a share from 44 cents.
Oct 2001 Review
crmguru.com
- Siebel is not the CRM software industry customer satisfaction leader.
- CRM systems by ERP vendors Oracle and SAP may be causing more problems than they solve.
- CRM software customers want simpler systems—but not at the cost of reducing adaptation that provides the functionality they need.
- Sales and marketing appear more responsible for market share than system performance.
- CRM vendors aren't listening to CRM customers.
- An overall Customer Satisfaction Index (CSI) was determined by survey responses in functionality, implementation, support, pricing, and the vendors' "customer focus," or lack thereof. Industry-wide, the CSI was a dismal 63.1 on a scale of 0 to 100. The good news: CRM software vendors are giving the airlines a run for the money. SalesLogix was the only firm to break the speed limit with a CSI of 66.0. Siebel Systems limped in fifth at 62.6. Neither Oracle nor SAP cleared 60.
The study's authors say CRM vendors should see red lights flashing. "I was expecting scores maybe in the 70s, which is the 'you better do something about this right away because you're going to start bleeding customers' range," says Dick Lee, principal of St. Paul-based High-Yield Marketing and one of the study's sponsors, "but scores were in the 60s and 50s." As the study rather dryly notes, a number of CRM software vendors have been touting world class or "above world class" levels of customer satisfaction. If so, they must be living on a different planet.
Trend
In fact, a survey by Forrester Research (Nasdaq: FORR) noted that 2002 budgets for e-business technologies dropped to an average of $29 million in 2002 from $41 million in 2001. The survey of 3,500 global firms found that 23 percent fewer firms said they will consider purchasing server, networking and storage hardware this year compared with last year.
July 18 CC Notes
"Extremely challenging quarter in worsing ecomonic conditions"
- 80 DSO up from last two quarters
- 2.0B in cash
- Both license and service rev were down q2q and y2y.
- # times challenging mentioned - 3
- avg tranaction size 370K
- 57% new rev
- 51 transaction over 1M vs 53 last. 3 deals over 5M vs. 12 last quarter.
- Top ten cusotomers is 26% of revs vs 39% last year. (This bothers me as retention is not occuring)
- Headcount dropped 128 from last quarter.
- We want to get back to goal of 260K per ee in revs.
- reduce headcount to 6000 from 7100. Will restate merit increases.
- "it is difficult to express how hard it the market is" - deferrals, smaller deals, companies conserving cash.
- "it is very weak out of there. There is not alot of IT spending" "We see no reason why it should get better in Q3 and Q4. " - Tom Siebel (gasp)
- "Capital is lagging and corporations are focusing on cost cutting"
- We eliminated bonuses to keep people in the event of an upturn. Clearly that was a mistake in hindsight.
- "225,000 companies have closed this year."
- 2100 software companies have closed this year.
- "We generated over 130M in cash this quarter"
- "We gained market share in every categtory that we compete against"
- "We beat competitors to get wins at Shering, Raytheon, Nasdaq, TXN, CSCO, JNJ, BLS, MRT"
- 93% of our customers will let us use let as references.
- Highest prob of Q3 will be like Q2. No indication that it is getting better. Our growth rate is a function of growth in the economy. EPS of 5-8 cent not including restructing cost due to severences.
- Q4 will probably like Q3.
- We are a cash positive business, and leader in every segment we compete in.
- As soon as market shows some sign of growth, we will grow faster than the market.
Q&A
DBAB - competition due delays in sales cycle. Long term trend in deal size smaller?
A - Deals are pushed back as they are trying to hold onto cash as they are worried about their companies. I with a CEO of a large auto company who was evaluating CRM and told IT people that this was most important initiative in the company. If they did not do they would not be in business in 4 year. They ended up doing a small deal in one aspect of the business. They market is only 1-2 % penetrate. The market is very very weak. The global ecomony is very weak.
Merrill lynch - Headcount shakeout. Maintenance discounting? Headquarters.
A - 40% in sales and marketing, 25% in services, less in R&D and 12-13% in G&A. It is not a pricing issue. Some companies have no business. Some had 1000 users and now paying for 800 users vs 1000 in licensing. Some buildings in San Mateo will be vacated.
Goldman Sachs - Q4 looking like Q3?
A - My comment is tempered by the political environment. We are being brutally realistic. Historically we close alot in Q4 but not sure. I don't see anything that will change historical trend. Pipeline analysis shows an uptick.
Q: new customers?
A: nothing in the mix changing but ERM and analtics grow but not materially. We are gaining more traction. CRM want to know customer is, ERM is engine working well, and analtics want to know who customer is. 70 customers in egov. Archives, NY city, etc... Egov is largest vertical in long term. (Note: bugdet in states will be reduced)
SSB: Other vertical that are getting weaker?
A: The softness in IT is in all markets. The CEO have not been in conference with Alan Greenspan. They are not seeing an economic recovery. Q4 could be flat to up 40% from Q3.
Q: Capex?
A: We 15M-20M per quarter vs. 30M a quater as in the past.
JPM: 700 comps upgrading to Siebel 7?
A: We expect most will upgrade to Siebel 7. 70-90% have historically upgraded.
Q: Are there fewer deals available to close?
A: We would have to ask sales since we have not analyze this.
Q: Pricing as related to competitors?
A: Deal don't move faster at lower prices. Per user price is flat. Oracle is disappearing from CRM market as a product(?), SAP is giving CRM for free. PSFT is giving for $10-20 a year. It is the Vantive product. PSFT is non rationale, where SAP is trying to gain an entry in market.
Q: Trend to smaller deals?
A: Sales force is focused on closing deal regardless of size. Very, very few large transaction to be had.
Q: Comment on Larry Ellison's "that suite vendors will win in long"
A: No historical economic data to support that data. ORCL is a suite vendor. They have lost share every year. No significant share or presence in CRM anymore. My CRM buisiness is larger than ORCL Suite business. We sold more than SAP suite business in the US than SAP did world wide.
Bear Stearns: Quality of new customer and verticals that were in. 1.5B in rev for 2003 bases on ?
A: We hope to add headcount in 2003. Could be flat and that
Life science business, energy, autos, public sector are upticking. Communication vertical is less as expected.
H&Q: Why not preannounce. Missed by 9 cemts.
A: We had no publish guidelines in that area. Experts advised us preannouncement is in appropiate.
Q: Who were customer wins?
A: 60 in analytics - phillips, baxter, BofNY, GDT.
Tom Weisels: Customer doing pilots?
A: Not any more of that than before. No increased trend.
Q: Further cost cutting if revs decline?
A: We are getting costs in line as conservative growth is this.
Summary
I thought I was careful to screen out techs without insider buying. ORCL seeing better results in database and is throwing CRM software on the cheap in the product. IWTO, SAP, PSFT, and SEBL may be seeing a continuing trend of eroding sales.
I think medical sector and energy will be solid plays. I see a potential 20% drop after the q3 call. We went up on low volume Friday. I plan to exit SEBL and ORCL as the growth will be seen by someone in that sector. No clear news to break continuing down trend other than technicals.
Jack |
