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Siebel slumps on economic worries

The software company's decent second-quarter results aren't enough to stop analysts from lowering estimates or investors from selling shares.

Siebel's second-quarter results made it apparent the company is surviving better than most of its rivals, but that wasn't enough to stop analysts from lowering estimates or investors from selling shares Thursday.

Shares in Siebel, which specializes in customer relationship-management software, were off $2.72, or 7 percent, to $34.92. The decline is largely attributed to Siebel's outlook, which indicated that a weak economy is likely to hurt earnings and sales.

On Wednesday, Siebel reported earnings of 15 cents a share, topping First Call?s expectation for earnings of 13 cents a share. The results were also an improvement compared to last year?s earnings of 10 cents a share. Revenue also surpassed analysts? estimates. Revenue was $549.7 million, up from $397.5 million in last year?s second quarter, and beating First Call?s consensus of $548.3 million.

The bad news is the company's license revenue fell short of estimates. It reported license revenue of $287 million, significantly less than most analysts? estimates for around $310 million. Management also announced license revenue will be flat for the third quarter, in a range of $250 million to $350 million, as Europe catches the economic malaise of the U.S.

Despite the worries, Siebel executives said the company will continue to perform. "We met our business plan under some very, very tough market conditions," said CEO Thomas Siebel on a conference call with analysts.

Management also maintained on the call that it would stick to its business plan and remain profitable. "We continue to be focused on remaining a disciplined, profitable, cash-flow positive business," Siebel said.

But Siebel was downbeat about the economy. There have been a lot of reports about a recovery in the second half, but they?re just "enjoyable reading," he said.

The company said it has seen no signs of a recovery. In fact, information-technology spending looked even worse in the second quarter compared to the first, the company said, and European business will get even tougher in the third quarter.

Most analysts lowered estimates Thursday, but remained optimistic about the company?s long-term prospects.

?We are lowering our estimates on Siebel given the sluggish domestic environment and worsening conditions in Europe,? wrote Robertson Stephens analyst Eric Upin. His estimates for 2001 and 2002, which are now 55 cents a share and 66 cents a share, respectively, could go even lower, Upin cautioned. He advised investors to be "cautious on the software sector and Siebel?s stock over the near-term," but advised buying if the stock drops below $20 a share.

But Upin reiterated his "buy" rating and praised the company?s ability to meet expectations in the tough environment. The company is "performing at the top of its peer group," he said. Upin also remained positive on the stock?s long-term prospects, and maintained his 12- to 18-month price target of $45.

"Siebel will be among the few ultimate winners at the end of the day and it is better positioned to weather the storm than the vast majority of technology companies," said Deutsche Banc Alex Brown analyst Timothy Dolan, who also maintained his "buy" rating while lowering estimates.

Analysts also predicted that Siebel's report could presage more bad news from other similar companies. "Siebel?s refrain is one that will probably become common in coming days," said Merrill Lynch analyst Craig Wood. "Application software companies with good execution can achieve second-quarter targets, but the soft IT spending environment will force many to reduce expectations," he added.

Siebel rival Epiphany reports earnings Thursday and competitor PeopleSoft will report on July 24.