For years, Siebel, the customer relationship management (CRM) software supplier, was a high-profile Wall Street favourite. It turned in quarter after quarter of strong growth, and founder Tom Siebel’s rapacious appetite for the fight, not least against his erstwhile employer Larry Ellison of Oracle, made him a popular candidate for conference keynotes and magazine covers.
But every successful company has its critics, and in Siebel’s case, the doomsayers have been warning for years that CRM is not a large software ‘platform’ category like enterprise resource planning (ERP) or database software. Eventually, they have been saying, the CRM business will be subsumed as the likes of SAP, Oracle and Microsoft expand their range.
Siebel’s first quarter results, for the three months to 30 March, do not necessarily confirm that analysis, but they have certainly spooked investors – especially because rival SAP’s CRM sales are now booming.
After a surprisingly good fourth quarter, it now looks as though Siebel kept little in reserve for the new year. Revenues in this latest period fell by 9%, resulting in a $4 million loss. Of most concern, software licence fees, used by Wall Street as the key indicator of underlying health, fell dramatically from $127 million in the first quarter of 2004 to $75 million in the comparable period of 2005.
It might have been worse: losses were reduced by nearly $16 million due to the interest generated by Siebel’s $2.5 billion cash pile and were further helped by favourable currency movements.
Siebel, which is already on its third CEO in a year, is now being harried by some of its shareholders who would like the management to sell the company or at least return a large chunk of its cash horde to investors. Unswayed by such calls, Siebel has now put in some rudimentary takeover defences. Once again, Oracle has been cited as an obvious buyer, although with two CRM product sets already following its acquisition of PeopleSoft, there is considerable doubt over whether it needs Siebel.
The big ERP vendors are not the only companies worrying Siebel. Salesforce.com, which provides CRM software as an online service, is tearing into Siebel’s territory at the low end. In the first quarter, Salesforce’s revenues jumped 84% to $64 million as profits rose to $4 million from a mere $0.4 million in the year-earlier period. However, it was not all bad news for Siebel. Sales of its equivalent service, Siebel OnDemand, grew by 250% to $11 million, suggesting that, given a year or two, it could yet stand up to its young rival.
Meanwhile, another high profile and troubled company, systems and services giant Hewlett-Packard (HP), announced its first set of results since new CEO Mike Hurd took over. With revenues up 7%, profits up from $844 million to $966 million and overall margins also slightly up, it is at first glance difficult to see exactly why Wall Street carried out its earlier coup, forcing out previous CEO Carly Fiorina. But dig deeper, and there are many trouble spots: margins in printing and imaging, HP’s most profitable business, are deteriorating; Dell is rampant in the server and PC market while HP is only edging forward slowly; and HP’s software business remains unprofitable – just.
Hurd, of course, was not in office while some $130 billion of shareholder value was gambled or withered away, so investors are ready to give him a chance. Most are impressed by the fact that, rather like Lou Gerstner when he took the helm before ‘saving’ IBM in the early 1990s, Hurd is saying little and doing a lot of investigating. So far, he is seen as a steadying hand. “He has about one-tenth the polish of Carly Fiorina, but his believability quotient is about 10 times greater,” wrote one analyst. By the end of the calendar year, however, investors will be expecting to see some substantive actions.
Security software is one sector that stood out in the first quarter for its strong performance – to no one’s surprise. Shares in Symantec, the largest independent security software company, have been drifting down since December, but that is nothing to do with its success in the market; rather, investors do not want its growth and profitability harmed by its proposed takeover of storage software supplier Veritas, which is slower-growing but entirely healthy.
Symantec’s latest results conformed to its recent pattern of success. Fourth quarter revenues surged by 28% to $713 million as home and corporate users invested in software to protect themselves against hackers, viruses and other sorts of malware; profits edged up slightly to $120 million. For the year, Symantec’s sales rose 38% to $2.58 billion, making it the world’s fourth largest software company after Microsoft, SAP, Oracle and Computer Associates. Veritas, a similarly sized company, also reported sales up by 15%, to $559 million for the same quarter, with profits up from $100 million to $104 million.
Three other security companies, ISS, McAfee and RSA all reported growth, though none is doing as well as Symantec. Analysts might see this as a sign of ‘breakout’ for Symantec – the point when a company establishes such a clear lead that it starts to consume the lion’s share of the market and extend its product set to such an extent that many rivals are eliminated.