Siebel Warns Of Massive Revenue ShortfallSiebel Warns Of Massive Revenue Shortfall

Siebel Systems preannounced a revenue shortfall for the second quarter of 2004 that surprised financial analysts with its severity. Reporting after market close Wednesday, Siebel said it now expects total revenue of $301 million and license revenue of $95 million--the lowest license revenue since 1995. Previously, the company had told analysts it expected total revenue between $340 million and $365 million and license revenue of $120 million to $140 million.

Siebel management attributed the shortfall to difficulty closing deals during the final part of the quarter, ending June 30. Large deals in particular were down substantially for the San Mateo, Calif., enterprise application vendor. Siebel closed 15 deals worth more than $1 million in the second quarter vs. 29 such deals in the first quarter.

Financial analysts appeared stunned by the dramatic disparity between earlier guidance and Siebel's current expectations. "The size of the license revenue misses were extraordinary, suggesting that new business literally fell off a cliff in June," wrote Smith Barney analyst Tom Berquist in a report.

"Although we cut license revenue last week at quarter close, we were still shocked by the magnitude of the license miss," Merrill Lynch analyst Jason Maynard wrote in his "Server & Enterprise Software" update.

And John Torrey, an analyst with Adams, Harkness & Hill, worried in a report that Siebel's other efforts, such as hosted CRM, business analytics and data and application integration, "do not seem to be picking up the slack in the core CRM business."

Siebel's shares fell as much as $1.24, or nearly 13.5 percent, by early afternoon Thursday.

Siebel's results--combined with a spate of negative earnings announcements from companies such as BMC, Informatica, Micromuse, PeopleSoft, Sybase, Veritas and webMethods--has some analysts questioning whether there actually is a recovery in the application software market.

Berquist, for example, wondered if he'd focused too much on positive macro economic trends, CIO surveys, systems integrator hiring activities and government data on capital expenditures when predicting applications as the big winners in the enterprise market. "While it is still possible that this data is a leading indicator of better purchasing cycles, we are more worried about ... other factors reducing the strength and duration of the software recovery," he wrote.

For his part, Charles Di Bona of Sanford Bernstein Research, has for some months suggested that enterprises are more intent on buying infrastructure software over applications. Di Bona used Siebel's latest numbers to reaffirm that view in Thursday's Bernstein Research Call newsletter, saying Siebel's preannouncement is "another data point supporting our thesis that we are currently in the midst of an infrastructure-focused spending cycle."