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Analysts bullish on Siebel in short and long terms

The company is again expected to report strong quarterly results as it holds tight to its No. 1 spot in the front-office software market, despite increased competition.

Siebel Systems is again expected to report strong quarterly results as it holds tight to its No. 1 spot in the front-office software market, despite increased competition from giant software rivals Oracle and SAP.

Siebel, which dominates the field of CRM (customer relationship management) software, is slated to report fourth-quarter earnings after the close of the market Tuesday. Analysts polled by First Call expect the company to earn 15 cents per share for the quarter on revenue of $536 million.

"We're expecting a pretty strong quarter," said Bill Chappell, a financial analyst at Robinson-Humphrey. "Business continues to be very strong."

Some analysts, who believe the software maker will beat earnings projections later Tuesday, say that despite an overall rosy financial outlook, the market leader may experience slowing growth in the near term as it crests $2 billion in annual sales.

The company saw its shares take a hit last month after analysts at investment banking firm CS First Boston said that while Siebel remains the pacesetter in the CRM software market, growth in core U.S. business accounts is slowing more than most had expected.

In morning notes, Merrill Lynch analysts wrote that near-term demand appears to be healthy but that near-term growth may be limited, primarily because customers are awaiting Siebel's new, so-called zero-client product release and because of overall economic uncertainty. The product release, due later this year, is expected to let agents or users view and access customer data from an Internet browser.

In addition, Merrill said its estimates for 2001 reflect a "conservative slowdown" to 46 percent growth in software licenses, compared with 2000's forecast of 111 percent growth.

Merrill analysts maintained their "accumulate" rating on the company's stock, noting that although they remain upbeat on Siebel's long-term market opportunity and confident that its position in the CRM market is strengthening, they also do not foresee significant near-term catalysts to move the stock.

In this corner of the market
Siebel has cornered the lucrative market for CRM software--front-office applications that manage a company's call center, customer service, sales force and marketing activities. Over the past few years, software heavyweights including Oracle, SAP and PeopleSoft have been busy branching out from their core enterprise management software into more popular high-growth areas such as CRM software, aiming to topple the leader from its top spot.

Meanwhile, analysts have said that both Oracle and SAP are gaining ground in the Siebel-led sector, which also includes smaller, newer players such as Kana Communications and Epiphany.

After Oracle's positive second-quarter results last month, Salomon Smith Barney analyst Heather Bellini wrote that the strength in Oracle's application business may suggest a stronger competitive environment in the future for Siebel. For the quarter, Oracle's business application revenue increased 66 percent to $279 million.

Bellini also noted that the database software giant won Hewlett-Packard as a new CRM software customer and scored American General and Compaq Computer as new clients for its entire suite of enterprise management applications.

In a recent research report, market analysis firm AMR Research said that SAP's CRM software suite has finally made it to a client's short list. Though SAP took its time to fine-tune and deliver a complete line of CRM software, AMR analysts noted that the German software giant, along with Oracle, has strong potential in the race because its CRM applications integrate tightly with traditional applications housed in the back office--that is, in software that automates a company's financial, human resources and supply chain requirements.

Dana Serman, an analyst at Lazard Freres, said that despite momentum recently gained by other competitors on the CRM front, Siebel "will remain the 800-pound gorilla" that dominates the market.

"Siebel can hang on to its No. 1 spot for quite a while," said Serman, who expects Siebel to post strong quarterly results later Tuesday. "They have a very solid installed base...Siebel's market share could erode bit by bit over time, but they're clearly not facing dire problems. If anything, (executives) are going to talk numbers up tonight."

"For a company that has a $2.5 billion revenue run rate that grew 130 percent last quarter, it'll be pretty tough for a battleship (like Siebel) to stop on a dime," said Robinson-Humphrey's Chappell.

Still, he agreed that a near-term slowing in sales growth is inevitable.

"Most companies with a $2.5 billion run rate can't grow at 130 percent forever," he added. "Over the next two quarters, we expect it to be moderately down, but still well above industry average growth rates."