Siebel's Small Step

If the longest journey starts with a series of small steps, then give Siebel Systems (Nasdaq: SEBL  ) its due.

The maker of customer relationship management (CRM) software strolled forward yesterday, reporting that first-quarter net income rose more than 500% to $32 million, or $0.06 a share, over last year's first quarter. Gross margins rose by five percentage points over the same period.

But it's not like Siebel blew estimates away, either. Total revenue was down slightly, to $329 million, from $333 million during the same period a year ago. Siebel colored the news by announcing that its $127 million in license revenue exceeded guidance. That's true. Siebel in January said its license revenue would come in between $110 million and $125 million, and then revised estimates earlier this month, happily jumping over what many perceived to be a pretty low bar.

That's not to say Siebel isn't doing well. By growing license revenue, the firm is putting itself in a position to generate recurring cash flow from new customers signed to annual service and maintenance contracts. Siebel says that during the quarter, new deals were inked with Computer Sciences (NYSE: CSC  ) , Ford Motor (NYSE: F  ) , Kraft Foods (NYSE: KFT  ) , and IBM (NYSE: IBM  ) , among others.

While Siebel's progress is impressive, a full recovery to 2001 or even 2002 levels is anything but assured. The company still faces stiff competition from Oracle (Nasdaq: ORCL  ) , PeopleSoft (Nasdaq: PSFT  ) , and Salesforce.com, which, along with Google, is expected to debut to investors in an initial public offering (IPO) this year.

At this point, you might be asking why I sound so down on Siebel. To be honest, it's the hype. Siebel could have easily produced an earnings release that touted its small victories, conceded there was more work to do, and moved on. But it didn't. It chose instead to produce four-plus pages of marketing fluff before showing investors the financial statements. Frankly, it wouldn't be much of an issue, but Siebel skipped much of this hyperbole in its fourth-quarter and year-end earnings release.

As Fool Bill Mann often points out, what a company says counts in your investing research. Hype is often a warning. Is it here? Not likely, but it's troubling that Siebel is resorting to hype when it doesn't need to.

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Fool contributor Tim Beyers knows hype. When not behind the pen for the Fool, he serves as an independent marketing and PR consultant. He owns no stake in, nor has a relationship with, any company in this story. View his Fool profile here.


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