Siebel drops the A-word at conference
Commentary: 'Enron déjà vu' in software accounting?
By Mike Tarsala, CBS.MarketWatch.com
Last Update: 12:02 AM ET Feb. 6, 2002
LA QUINTA, Calif. (CBS.MW) -- Salvos almost always fly fast and low between technology executives, but Tom Siebel may be the first to use the "A-word" against the competition.
It may be one of the first battles in a industrywide public relations battle over accounting and income statement credibility.
Taking advantage of the political fallout of the Enron collapse, the CEO of Siebel Systems (SEBL: news, chart, profile) used a keynote appearance at the annual Goldman Sachs Technology Symposium to publicly lambaste what he says are inflated sales claims by his major software competitors -- Oracle, SAP and, especially, PeopleSoft.
"We have some very aggressive accounting practices out there," Siebel said. "It's unfortunate ... In this industry, everybody kind of winks at it. This is Enron déjà vu."
"People unfortunately are making investments based on these numbers that wouldn't pass the loosest of accounting standards," Siebel went on to say, in front of a crowd of hundreds of institutional investors.
Siebel began an on-stage tirade of competitors' accounting with a thinly veiled attack on PeopleSoft (PSFT: news, chart, profile) -- one of the few players out there with the technology to seriously mount a challenge to his own company's customer-relationship-management software.
To put it mildly, Siebel took exception with one of his rivals making revenue from what under most circumstances would be a product development expense.
Without naming PeopleSoft by name, Siebel described many of the details surrounding which PeopleSoft set up a company called Momentum Business Applications in 1998, with $250 million. Momentum was responsible for writing much of the software code for PeopleSoft 8, the parent company's flagship product.
Using some creative accounting, Momentum signed up PeopleSoft as a subcontractor to do most of the PeopleSoft 8 development work. The arrangement allowed PeopleSoft to boost sales from what would have otherwise been a flat-out expense that diminished earnings. PeopleSoft ended up writing off only about two-thirds of the $715 million it took to develop PeopleSoft 8.
"They have this shell corporation with one employee making about $200,000 a year ... Andersen signs off on it and says it's great," Siebel said to the crowd, in an apparent reference to Momentum's only permanent employee.
What's more, PeopleSoft spun out Momentum (MMTM: news, chart, profile) as a separate publicly traded company, which once carried a $97 million market value.
On PeopleSoft's Jan. 24 conference call, CEO Craig Conway announced plans to buy back Momentum for $90 million, amortized on PeopleSoft's balance sheet over the next five years.
Difference of opinion
For its part, PeopleSoft reiterated this week that it's done nothing wrong in using Momentum to develop its main product. The accounting involved had the blessing of the Securities and Exchange Commission and the Financial Accounting Standards Board years ago, says Steve Swasey, PeopleSoft spokesman.
"The whole Momentum thing was a smart financial decision," Swasey says. "We took a $175 million charge to create Momentum in 1998. The whole thing has been accounted for."
Besides, he added, the arrangement was made public in 30 separate government filings. It's something that those investors who were paying attention knew about long before the Enron scandal hit, and long before Tom Siebel drudged it up yet again.
But Siebel didn't stop at taking on PeopleSoft. He also used his time on stage to take aim at Oracle (ORCL: news, chart, profile) and SAP (SAP: news, chart, profile) for overstating their growth in CRM software.
He took SAP to task for breaking out CRM software sales, although the company sells a suite of products that includes CRM. He says Siebel Systems rarely competes with SAP's software, and challenged the company to prove it has a single customer with 1,000 CRM users.
"Auditors are calling to see there's no CRM business there," Siebel said.
Siebel criticized Oracle for listing a percentage growth rate for CRM software in the past, without a corresponding revenue number in dollars.
Oracle only puts out the number when the sales growth rate is favorable to the company, he says, adding that Oracle has stopped talking about CRM in recent quarters.
"These claims for CRM revenue are simply fiction," Siebel said.
Others have their say
While they weren't nearly as outspoken as Siebel, other executives from big software companies also started throwing around the A-word in recent days.
"In today's come-clean environment, conservatism has come back in vogue," Microsoft CFO John Connors said at the conference, suggesting that even though all competitors don't play by the rules, Microsoft is above board when it comes to accounting.
Jeff Henley, Oracle's CFO, said his company employs "conservative" accounting practices, unlike some competitors. Oracle doesn't report pro forma results, and it typically has no big write-offs of any sort, he says.
So far, it seems, that Microsoft, Oracle and the lot of technology executives are playing accounting defense rather than offense. But it may be only a short time before they find a self-serving reason to also go on the attack with the A-word, raising the odds of taking competitors' stocks down with them. |
