Siebel expected to detail layoffs, possible earnings miss

4 min read

Siebel Systems will have a lot to say Wednesday when it reports its first-quarter results and finally confirms the extent of widely rumored layoffs due this month in an effort to cut costs, according to sources.

The developer of customer relationship management (CRM) software has thus far been mute on the topic of layoffs or the fact that it will almost certainly miss analysts' estimates this quarter.

But sources close to and within the company said Siebel managers began notifying employees of their fate Monday. The exact number of employees to receive pink slips will likely be divulged during the company's conference call Wednesday afternoon.

It is unclear whether all the layoffs are related to economic cutbacks or to performance reviews. The company adopted a performance review policy last April that mandates that the 5 percent of the company's employees who get the worst performance reviews get laid off. The performance departures last year took place at this time.

"We're all pretty nervous over here," said a source within the company.

Another source close to the company said "the rumor is they will lay off about 15 percent, but some people said Oracle would cut 10 percent and it ended up being closer to 2 percent. It will probably be substantially less than 15 percent."

Unlike the vast majority of technology companies, Siebel (Nasdaq: SEBL) has not issued a formal profit warning for the first quarter, but analysts have already lowered their sales and earnings targets in anticipation of a significant miss.

"Siebel never officially came out and said anything," said Cameron Steele, an analyst at Dain Rauscher Wessels. "But after Oracle warned (of disappointing sales and earnings) in early March, a lot of people started revising their numbers."

First Call consensus expects Siebel to earn 14 cents a share on sales of $572.6 million.

Steele, who maintains a "buy aggressive" rating on the stock, said he expects the company to earn only 11 cents a share on sales of $473 million this quarter.

He said that while the company didn't offer any specific insight, executives "didn't discourage us" from lowering estimates for the quarter.

"They were at the conferences and saying a lot of bullish things in January," Steele said. "But things changed in a hurry. The last two months of the quarter have been rough for everyone."

In early March, Oracle (Nasdaq: ORCL), a competitor to Siebel, gave investors a startling preview of what was to come, warning that it would fall well short of analysts' sales and earnings targets as customers continued to cancel orders right up to the very end of the quarter.

Despite the obvious downturn in the economy and slumping software sales, Siebel remained mute.

"Siebel's a very tightly controlled organization when it comes to dispensing information," one analyst said. "I think they were a little surprised by how quickly things turned this quarter and were too stubborn to come out and say it."

Following the company's impressive fourth-quarter results, Chief Executive Officer Thomas Siebel shocked Wall Street by raising sales and earnings targets for fiscal 2001 despite undeniable signs of a macroeconomic maelstrom swirling around the industry.

At the time, Siebel told analysts the company was comfortable with fiscal 2001 estimates calling for sales of $2.6 billion, up from $1.8 billion in 2000, and earnings of 67 cents a share, up from 24 cents a share this year.

Moreover, he said the company would likely surpass analysts' sales estimates of $557 million in the first quarter.

"Market conditions for our products appear to be robust heading into 2001," Siebel said back in January. "We see no evidence of budget cuts or declining demand from our customers. In fact, we see spending increasing substantially mainly because we are perceived as a safe buy in these challenging economic times."

After checking with industry and customer sources, Dain Rauscher Wessels' Steele said Siebel's optimism simply doesn't jive with the facts.

"Right now, people are unwilling to write checks for anything," he said. "Across the board, if you don't have a sense of where your revenue is coming from, you're loathe to add any expenses."

Following Oracle's profit warning in early March, Merrill Lynch analyst Craig Wood cut the stock from a near-term "accumulate" recommendation to near-term "neutral.

USB Piper Jaffray analyst Sarah Bernstein cut the stock from a "buy-aggressive" rating to "buy" and CS First Boston analyst Brent Thill cut his sales and earnings estimates for fiscal 2001 and 2002.

During the first week in March, Tom Hogan, then Siebel's senior vice president of sales, resigned to take the chief executive post at Vignette (Nasdaq: VIGN).

Merrill Lynch's Wood said Hogan's departure was particularly troubling "because it comes near the end of the quarter and amid a slowdown in demand for customer relationship management software."

Last quarter, Siebel easily topped analysts' estimates when it raked in $106 million, or 20 cents a share, on sales of $581.6 million.

The stock rallied up to a 52-week high of $119.88 in November before crashing to a low of $22.95 earlier this month.

Seventeen of the 21 analysts covering the stock maintain either a "buy" or "strong buy" recommendation.

Its shares closed off 30 cents to $32.88 Tuesday.

Melanie Austria Farmer contributed to this report.