Siebel’s Challenges Grow
Siebel’s Challenges Grow
By Hal Plotkin
CNBC.com Silicon Valley Correspondent
May 2, 2001 08:15 AM
Siebel Systems
Siebel Systems Inc.’s {SEBL} stock has doubled over the past month as investors bid it up on the expectation that the company will emerge from the current tech sector shakeout with the winning hand in the online customer relationship management (CRM) market.
But most analysts tracking the stock remain cautious, saying the recent big upside move has taken place despite uncertain economic conditions and stiffening competition from rivals such as Oracle Corp. {ORCL} and Silicon Valley’s fast-growing Upshot.com Inc.
Both firms have taken direct aim at Siebel Systems in recent days.
Last week, Oracle Corp. founder Larry Ellison announced that his firm would start selling a fixed price CRM software suite for between $150,000 to $395,000 per corporate customer. CRM applications enable companies to automate their interactions with customers, suppliers, and employees.
Oracle’s move to a fixed pricing strategy is a recognition that many corporate customers are increasingly reluctant to take on open-ended software deployment projects, particularly in the current economic climate. Consulting fees charged by firms in the CRM area, which are also called engagement fees, often cost up to six times the amount of the software used in such projects, according to Accenture (formerly Andersen Consulting).
“We think it’s very good news for the software business, very good news for customers, not very good news for consulting firms that want to sell a lot of services to their customers,” Ellison said when he announced the new strategy last week.
While Oracle sharpens its knives on the high end, competitor Upshot.com is working to capitalize on Siebel’s recent decision to close down its web-based salesforce automation effort, called Sales.com. Siebel made the move, according to company officials, because Sales.com’s revenues were not meeting expectations.
Privately held Upshot offers a low-cost monthly subscription-based sales force automation service that promises to get customers up and running in just 15 days. The small company, which has won recent accolades as an innovator from key CRM industry analysts such as Creative Strategies’ Tim Bajarin, has been growing the number of paid users by 15 to 20 percent a month over the last year, according to figures released to CNBC.com by the company this week.
Several analysts say that challenges from the likes of Oracle and Upshot combined with uncertainties about global information technology spending trends could make this a problematic time for new Siebel investors.
“Siebel is well-known for a deeply functional and complex suite of applications requiring significant deployment work at significant cost,” says Cameron Steele, an analyst at Dain Rauscher Wessels, in a recent research note that downgraded the company’s stock and reduced earnings estimates.
Steele says that “macroeconomic uncertainty, growing operational challenges, and evidence of changing customer preferences” were the main reasons for his downgrade. All told, just four analysts now rate Siebel’s stock a “strong buy,” down from 16 three months ago.
A report from Current Analysis, a market research and consulting firm based in Sterling, Vir., threw more fat onto the fire recently by warning that Siebel could soon find itself boxed in between competitors as it seeks to expand its product footprint.
“As Siebel broadens the functionality of its suite outside of its CRM competency, it is increasingly in a position of competing with some of its partners, which could ultimately make Siebel a less desirable partner,” the report warns.
Keith Raffel, chairman of Upshot.com, says the advantage will increasingly go to the companies that can deliver the most value at the lowest cost in the least amount of time.
“In a downturn like this everyone wants results, and they want them now,” he says.
For it’s part, Siebel Systems prefers to emphasize its recent new client wins and the expansion of its pre-existing relationships with major customers such as International Business Machines Corporation {IBM}.
During the last quarter, for example, Siebel added more than two dozen major new accounts, including AT&T’s {T} wireless division and DirectTV Operations Inc. The company also announced that IBM had increased the number of software licenses purchased from Siebel by more than 26,000 during the last quarter, in addition to the 55,000 licenses previously purchased.
A number of other large existing customers, including Chase Manhattan Corp. {CMB} and the United Kingdom’s postal service, also increased their buys from Siebel Systems over the last three months, according to the company.
The progress has at least some analysts reconsidering their prior skepticism.
“Siebel’s stock has had a bit of a run already so this might not be a great entry point,” says Richard Williams, an analyst and senior vice president at Jefferies and Company, based in New York. “But we’re of the view that the market rallies over the next three to nine months. If that happens stocks such as Siebel are in a good position for the rebound.”
Last September, Williams was one of the first to warn of the slowdown in Siebel’s core markets that helped push the stock down. He doesn’t formally cover Siebel’s stock at the moment. But he says he thinks there is a solid chance the company will do better than many expect over the near-term.
“We think that barring a recession Siebel should post better than anticipated results in the second quarter,” he says.
On the optimistic side, “Siebel continues to be the dominant force in the CRM market and the company is the competitor to beat,” notes the report from Current Analysis. But the same report adds that what’s happening now is not necessarily what will happen in the future.
“With more enterprise application vendors, including even mid-market vendors, building integrated [product] suites, Siebel doesn’t have the breath of applications outside of CRM.”
The report’s overall conclusion is that, as many investors hope, Siebel will emerge from the current economic slump in a strong position in the CRM arena, but that the company will have to move very quickly, either through significant new marketing alliances or acquisitions, to protect that hard-won turf.
