Given the choice, would you rather come up short on the top line or bottom? The question isn't hypothetical. Last night, Siebel Systems (NASDAQ:SEBL) announced that it would nail its quarterly profit targets but miss its revenue mark.
Welcome to the club! Rival Oracle (NASDAQ:ORCL) posted similarly mixed results last month.
Of course, there's more than one way to boost a bottom line in tough times. Running a leaner operation and fudging the numbers are two that come to mind. Sadly, our experience with Siebel has us more inclined to fear the former than assume the latter -- especially when dealing with preliminary results.
But let's do just that for a moment and assume that companies operate above board and legitimately earn their keep despite producing weaker-than-expected sales.
In theory, the low sales-high earnings combo meal results in higher net profit margins than Wall Street was banking on. That's good. It also reflects (and ultimately eases) the downsizing pains that companies have gone through in recent years. As a result of trying to run lean operations in lean times, many companies have set themselves up to produce exponentially stronger earnings when demand makes a return appearance.
So while few may be celebrating the state of enterprise software just now, it's easy to get excited that such companies as Oracle and Siebel seem to be positioning themselves and saving up for a sunny quarter.
More importantly, the cyclical downturn has made many companies stronger. Now it's just a matter of biding time until the moment is right to flex those muscles.
