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Technology Stocks : Siebel Systems (SEBL) - strong buy? -- Ignore unavailable to you. Want to Upgrade?

To: j_b who wrote (1991)	7/27/1998 5:27:00 PM
From: Wizard	Respond to of 6974

I think this discussion is really about whether the change in DSO's for a given period are a good indicator of potential upside/shortfall in the following period. It is certainly possible that a rise in DSO's means nothing. The question is about how much Siebel 'pulled' out of Q3 and put into Q2. Nobody knows the answer to this question (not even Siebel's Sales Heads) as Q3 isn't closed yet and won't be for another 2 months. However, think about the math of the DSO's. Because of the annualizing of sales and the fact that A/R is an end-of-period number (not annualized), the DSO tends to gravitate toward 90 (360/4). If your DSO's are above 90 and you have $1 of incremental sales and recognize it without collecting the revievable, your DSO still goes DOWN toward 90 (1/4 of a year) because the sales number is implicitly being multiplied by 4 (in the denominator) and the A/R is implicitly multiplied by 1 in the numerator. If you are under 90 DSO's and the same happens, your DSO goes UP toward 90. For this reason, if you have normal payment terms, it is actually somewhat difficult to be above 90 days and have your DSO's go UP. In Siebel's case, we know why the DSO's are up; they offered incentives (discounting) to get people to buy in the last portion of the quarter. This worked for recognition purposes but inflated DSO's due to the linearity. Nobody can possibly know what this means for Q3.