Shares of Siebel Systems ( SEBL) sank Tuesday after the company disclosed second-quarter swap revenue doubled and Goldman Sachs issued a report saying tight IT budgets will continue to constrain customer-relationship management projects.

Siebel shares fell $1.11, or 12.8%, to close at $7.59. Siebel was the fourth-largest loser by volume among U.S. stocks, according to Instinet.

In its 10-Q filing Friday with the Securities and Exchange Commission, Siebel reported that $30.7 million in revenue during the June quarter, or 18% of total software license revenue, came from suppliers who bought software about the same time Siebel purchased goods or services from them. That compares to $12.2 million, or 4.3% of total software license revenue, in the same quarter a year earlier and $19.8 million, or 8% of total software license revenue, in the previous quarter.

The so-called concurrent revenue, also referred to as revenue from barter or swap deals, was higher than JMP Securities analyst Pat Walravens estimated, based on guidance from the company when it announced earnings in July. Walravens estimated concurrent revenue would come in at $27 million, or about 15% of total software license revenue.

"In general, I think that that kind of revenue is lower quality, so as the percentage of your swap or concurrent revenue goes up, the presumption is that the demand for the software is going down," Walravens said Tuesday. He has a market perform rating on Siebel and his firm hasn't done any banking with the company.

The 10-Q filing also revealed that Siebel expects cash and noncash restructuring charges to reach up to $275 million, or about $25 million more than the company suggested on its earnings call a month ago. Siebel said in its filing that cash outlays under the restructuring, including severance tied to the layoff of 16% of its workforce, would be approximately $200 million to $225 million.

That cash expense was also higher than Walravens expected. "(Taken) as a whole, I think it's a sign that business is worse than we thought it was when they had the call," Walravens said.

Near term, business isn't expected to get much better, Goldman Sachs analyst Rick Sherlund indicated in a note Tuesday. "Siebel will likely benefit as a continued relative high demand for CRM is funded by stronger IT budgets, but near term, tight IT budgets will likely continue to constrain the funding of these projects," wrote Sherlund, who lowered his rating on Siebel to market perform after its last earnings report.

"This allows competitors particularly SAP to work on product functionality while market growth is constrained by IT budgets."

Oracle's ( ORCL) August quarter results, which will be announced as most software companies are finishing up their third quarter ending in September, is likely to be viewed as a proxy for the rest of the software sector, Sherlund said.

At meetings last week with New York investors, Oracle CFO Jeff Henley left the impression that results are probably in line with estimates, which have been reduced several times, Sherlund wrote. The consensus estimate pegs Oracle's first-quarter earnings at 7 cents a share on $2.1 billion in revenue, according to Thomson Financial/First Call.

"An in-line August quarter for Oracle would probably be viewed as a further sign of stabilization of the software business following many quarters of earnings shortfalls and estimate reductions," wrote Sherlund, who has a market outperform rating on Oracle. Stabilization in business could boost Oracle stock, but he believes the growth rate in Oracle's core database market will tend to lag the general software sector.

Shares of Oracle fell 65 cents, or 6.7%, to close at $9.08.

Sherlund said he tends to prefer Microsoft ( MSFT), which is on his recommend list, because of the buildup of the software behemoth's deferred revenue stemming from its new licensing model for customers. Microsoft shares declined $1.42, or 2.9%, to close at $47.05. Sherlund's firm has done banking business with Microsoft in the past year and expects to receive or seek compensation for investment banking services in the next three months from Microsoft, Oracle and Siebel.

In the near term, Sherlund said he's expecting more back-and-forth volatility in the software sector, with a potential upward bias, if seasonal strength pans out in the December quarter.

But overall, Sherlund said he believes tech spending in 2002 will be flat relative to last year; "anemic economic growth" expected for 2003 will require more estimate reductions; and longer-term growth rates also need to be pulled down. He's forecasting 3% to 5% growth in tech spending in 2003 and revenue growth for the software sector at 13%.

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