Analysts Take Dim View of Siebel's Silence

"You just can't move the needle selling hosted products at $70 per person per month because it takes too long to recognize the revenue," Walravens said. He has a market perform rating on Siebel, does not own the stock and his firm has not done banking with the company.

Pacific Growth Equities analyst Patrick Mason went further Thursday, estimating in a note that OnDemand could generate $115 million in 2004. But only $25 million to $30 million -- less than 2% of Mason's estimate for 2004 revenue -- will show up immediately on the income statement, he said. Mason has an overweight rating on Siebel and his firm hasn't done banking business.

Separately, Siebel Executive VP David Schmaier said there's still "a lot of runway" in the analytics business, which he said is the fastest growing in the industry, because only 300 of the company's base of 3,500 customers have bought the software. Siebel analytics has produced $140 million in revenue in the first three quarters of 2003, compared to $157 million in all of 2002.

Without the analytics business, U.S. Bancorp Piper Jaffray analyst Tad Piper estimates Siebel's revenue would be down 25% this year. Instead, analysts are projecting it will be down 18%. He has a market perform rating on Siebel and his firm hasn't done banking business with Siebel.

Despite its analytics growth, Siebel's license revenue -- a benchmark of new software sales -- has declined year over year for nine straight quarters amid the downturn in information technology spending, and more competition from software suite vendors such as Oracle(ORCL - Cramer's Take - Stockpickr), PeopleSoft(PSFT - Cramer's Take - Stockpickr) and SAP(SAP - Cramer's Take - Stockpickr). The company has responded with major staff cuts and restructuring.

The third quarter, however, offered a sign of stability, with license revenue up sequentially. Before that, 2000 was the last time Siebel registered a sequential jump in license revenue outside of the typically strong fourth quarter. Furthermore, CEO Siebel said on the call "we're done" with restructuring (and presumably with accompanying layoffs).