Bounce Candidate?
The
Siebel Systems warning on Tuesday is not good news. Slowing
software sales led to a slowing
top-line; Siebel’s revenues for the quarter coming in at around $300 million, $7
million below prior expectations.
I think a big chunk of
Siebel’s news was just the difficulty of getting people to shell out money for
software, and for that reason we have been having these episodes of companies
missing. However while demand is lower in some software categories it is higher
in others. CRM (Customer Relationship Management) and ERP (Enterprise Resource
Planning) are both basically flat to down in the large enterprise market.
Business intelligence / analytical apps are up by a fair amount (COGN, Hyperion
Solutions). Content management (FileNet Corp. and the old Documentum – now part
of storage-company EMC) is generally up but, as FileNet demonstrated last year,
is not immune to the one quarter miss.
One
of the things I believed about years ago was that in most quarters there would
be a bunch of software companies randomly missing. MatrixOne was another one
like this earlier this week. In their case, it’s a bit less surprising because
the standard deviation of deals not closing for a company this size is quite a
bit higher than Siebel. Yet Siebel hasn’t had this bad a first quarter license
number since 1998.
Siebel has its own problems. There was a fair amount of poor execution, I think,
because the sales people are not aware of all the hoops they have to jump
through to close the deal and therefore are not pushing hard enough. Siebel also
does not place enough emphasis on analytics – which would be a sure way of
getting more deals sold more quickly. The good news is the inventory is
beginning to decline – a lot of the seats sold in the 1999 to 2001 period are
being absorbed. At best I think Siebel will show a 5 percent decline in license
revenues and maybe a 10% increase in services so maybe a net of 3 to 5 percent
increase in total revenues.
I
don’t think the software business is any stronger today than it was last year –
still a real possibility that any company is going to miss in any given quarter.
Software’s just like any other capital good: a strong cycle is followed by a
weak one. Companies bought too much software/hardware in the 1990s. During the
recession they realized they didn’t “have†to buy anything. CFOs, meanwhile,
have centralized and elevated software spending decisions. It’s harder to sell
any kind of software. When times were great, Siebel had a killer sales force.
Now that they’re not, they’re not.
So, is software in general weak? I’d say it’s a
mixed bag. The whole problem with picking software stocks in this environment is
that “every†company is at risk. Cognos and Hyperion Solutions are all doing
well. Microstrategy is also doing OK. Adobe, too. It’s hit and miss. It’s also a
question of expectations. SAP is doing real well relative to others like Oracle
apps, Lawson, etc. There are probably a handful of private companies with market
caps under 50 million doing well-ish. However the business is not remotely as
good as it was in the bubble years, partly because CFOs have been taking
spending authority back under their control.
SEBL
stock looks damaged technically. It sliced through its recent base of $8.50
quite convincingly. I would only play it for a bounce. It will take some time —
three to four months — of basing to give longer-term buyers more confidence;
otherwise, they will continue to feel like they are getting beaten like a pinata.Â
Melanie Hollands
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