Siebel's Shakeup Spawns Questions


By Sarah Lacy Early on Apr. 13, as about 50 of Siebel Systems' top shareholders prepared to discuss putting pressure on the company to do something with its $2.2 billion cash hoard, Siebel beat the rebellious investors to the bully pulpit by announcing the resignation of its chief executive. Michael Lawrie, a longtime IBM (IBM) exec, had been at the San Mateo (Calif.) software concern for less than a year. He's being replaced by George Shaheen, a 10-year Siebel (SEBL) board member best known as the onetime head of consulting giant Accenture and chief exec of now-defunct online grocer Webvan.

While few were expecting Lawrie's departure so soon after his arrival, it shouldn't have come as too much of a shock. On Apr. 5, Siebel preannounced that first-quarter revenues would miss Wall Street expectations by 12%, and analysts had expected some shakeup in the company's management after Lawrie attributed a good portion of the shortfall to poor execution. Investors seemed to take his departure as more bad news: Siebel shares were down 3% on Apr. 13, to $8.68.

The big question for Siebel, which pioneered the market for software that big corporations use to manage their salesforces and customer activity, is whether its problems run far deeper than crummy execution. Since a peak in 2000, Siebel's revenues are off more than 38%. More troubling, sales of licenses, a key indicator of a software maker's health, are off a stunning 79% since their peak in the fourth quarter of 2001.

HANGING QUESTIONS. While a slow tech-spending environment is part of the problem, tough competition from big companies such as SAP (SAP) and Oracle (ORCL), as well as innovative upstarts such as Salesforce.com (CRM), is taking a toll (see BW Online, 4/13/05, "Marc Benioff: Who's Afraid of Siebel?").

In a conference call with analysts, company founder and Chairman Thomas Siebel did little to put to rest lingering questions about the future of his once-fast-growing company. Among them: Is Siebel being positioned for a sale? Are executives planning a leveraged buyout to take the business private? Or is the management shakeup just more evidence of the short fuse of Tom Siebel, who has a history of forcing out execs who aren't measuring up to his high standards? Lawrie, after all, was Siebel's hand-picked successor.

Shaheen promises more details on an Apr. 27 earnings call and at a May 5 analyst conference. Clearly, investors want answers. While companies often get a little boost from Wall Street when a CEO heads out the door, Siebel's share price was dropping even as it was announcing the changes. When an analyst bluntly pointed that out to Shaheen during the call, he said, "Thank you for the observation, and let's move on."

SHRINKING CORE. The negative reaction shows just how far Siebel's star has fallen among tech investors, analysts say. Many believe the outfit is using an outdated playbook, ignoring fundamental changes in the software business. Siebel has responded by coming up with a software-as-a-service -- or on-demand -- product to compete with Salesforce.com. It has also tried to extend the software franchise into so-called business analytics, or data crunching to help clients gauge how their businesses are performing.

Both fields are growing -- but not enough to make up for the huge shortfall in Siebel's core customer resource management (CRM) software business. In the first quarter, revenues from CRM are expected to total just $35 million -- the lowest level since 1997, the year after Siebel went public (see BW Online, 4/8/05,"Siebel Is Stuck On the Seesaw").

Lawrie was considered a big believer in the on-demand product line, and his comments on Apr. 5 indicated big changes were coming, including cuts to underperforming businesses. Of course, he didn't mention that the changes might involve his departure.

INVESTOR UNREST. In the Apr. 13 call, Shaheen and Siebel seemed to back away from the shakeup talk, Smith Barney analyst Tom Berquist observed in a research note. "Last week, we believed that the company was going to undertake a significant restructuring, shed nonperforming businesses, repurchase shares, and/or set themselves up for a potential sale of the business," Berquist wrote. "Today's commentary felt like a step back."

Meanwhile, in New York, investors met at the request of institutional shareholder Providence Recovery Partners. Managers at Providence say they're chagrined by a number of factors, including the greater than 30% loss in the stock's value over the last year, Siebel's continued insistence on staying independent, and the 100% increase in research and development spending over recent years. That's an investment that has yet to pay off, according to a letter sent last week by Providence's managers.

They're requesting that Siebel hold a meeting to address shareholders' concerns -- and finally do something with all that cash, be it a stock buy-back, a dividend, or a significant acquisition. The firm also wrote that it plans to propose the addition of several independent directors to Siebel's board.

Given the software maker's disastrous first quarter, a new CEO could be a step in the right direction, though it may not be enough to quell an impending shareholder revolt. It may be just a small step, but no one seems to know if it's a move backward or forward. Lacy is a reporter for BusinessWeek Online in Silicon Valley


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