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It's Show-Me Time for Siebel

By Sarah Lacy On Apr. 27, chastened Siebel Systems (SEBL) executives finally responded to analysts who have been waiting weeks for answers for why the software maker missed first-quarter expectations by 12% -- and what new CEO George Shaheen plans to do to fix the problem.

Aside from hearing broad promises to cut costs and do a better sales job, they didn't get much from the customer-relationship-management software provider. "Fundamentally, we believe our strategy is correct. We're not looking for major strategic shifts," said Chief Financial Officer Kenneth Goldman.

It's too soon to tell how Wall Street is reacting to those stay-the-course words, but the assurances aren't going to do much to answer a raft of investors' questions regarding Siebel's future. Just a few years ago it was one of the world's fastest-growing tech businesses. Siebel shares were up 2%, to $8.68, in early after-hours trading on Apr. 27.

PLENTY OF GUESSES. Siebel execs confirmed in a teleconference what Wall Street already knew after an earnings preannouncement three weeks ago: Total revenue for the first quarter was down 9.2% from last year, to $298.9 million. Software licenses, an important barometer of future growth, slumped 40.9%, to $75 million. Siebel lost $4 million in the quarter, compared with a $31 million profit a year ago.

Goldman said sales in the second quarter will be from $310 million to $330 million, and profits will be between $12 million and $16 million. He added, however, that he hopes and expects the company can do much better.

Since ex-CEO Michael Lawrie's unceremonious exit Apr. 14 (see BW Online, 4/14/05, "Siebel's Shakeup Spawns Questions") -- about a year after taking over the corner office of the San Mateo (Calif.) outfit -- speculation has been rampant on what Siebel will and should do. Most Siebel watchers are focused on its $2.2 billion cash hoard.

Some want to see executives take Siebel private and fix it without Wall Street's intrusion. Others want the company to do a big, meaningful acquisition to augment either a fledgling business that provides software as a monthly service over the Internet or to bolster a small-but-healthy unit selling programs that helps corporations analyze their data.

HIDING THEIR HAND? Others would be content to get a fat dividend or stock buyback. The same day Shaheen was named to the top post, on Apr. 13, angry investors held a meeting in New York to discuss pushing the software maker toward one of these options.

Give the Siebel execs credit for one thing: They seem to know what they don't want to do. Shaheen said they were evaluating acquisitions but were reluctant to do anything big before the company solves its core issues -- slumping sales and ineffectual execution. When it comes to buybacks or dividends, Goldman said, "I know the answer everyone wants, and we're not ready to give that today."

Such answers are getting old, says Tad Piper, an analyst at Piper Jaffray. Siebel's brass said they'll have more details at an analyst conference on May 5, but Piper isn't convinced. "It wouldn't shock me if they brought us all together and talked for a while about the strategic direction but kept the [big changes] in the closet," Piper says.

BUILDING PRESSURE. Shaheen expressed more of a desire to cut costs than he did during the earnings preannouncement three weeks ago, particularly around slower-growing sectors -- which he wouldn't identify.

But investors want specifics. "We're at a point now where action speaks louder than words," Piper says. Siebel will be under constant pressure until those investors get what they want -- and see results, not just pledges, from this troubled outfit. Lacy is a reporter for BusinessWeek Online in Silicon Valley

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