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regained some lost ground Thursday, but the company's disappointing guidance Wednesday has taken some of the shine off one of the year's hottest IPOs.


Siebel Systems


, the online business software vendor's major competitor, announced Wednesday that it has formed a new business unit to take dead aim at the upstart company.

In recent trading, shares of were up 88 cents, or 7.5%, to $12.58 after tumbling $4.63, or 28%, to $11.70 on Wednesday. Siebel, meanwhile, which announced results in line with reduced guidance, was recently up 27 cents, or 3.5%, to $8.01.

Salesforce CFO Steve Cakebread said at the company's first analysts' day that he expects fiscal 2005 net income of break-even to 3 cents a share and revenue of $160 million to $165 million.

But the three analysts who follow the company had expected a profit of 6 cents per share on revenue of $174.88 million, according to Thomson First Call. The analysts made their projections without the benefit of guidance from the company, because it had been in an

Securities and Exchange Commission

-mandated quiet period for some time.

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Donovan Gow, an analyst at American Technology Research, has been skeptical of Salesforce for some time, and Thursday he lowered his earnings estimates and price targets for the San Francisco-based company. "The lack of guided earnings growth supports our thesis that the company will have a tough time growing earnings in the face of a tough competitive environment," he said.

Gow, who recently initiated coverage of the company with a sell recommendation, said Siebel's expanded efforts at the low end of the market for customer relationship management software is a "significant negative" for Salesforce. He added that Salesforce "has had great top-line growth, but is spending tons of money to do it." (ATR does not have an investment banking business.) poured $33 million into sales and marketing last year, an astonishing 65% of the young company's revenue.

Other analysts had a more positive view of the new company's first analyst meeting.

Prudential's Brent Thill called Salesforce's guidance "very conservative" and wrote in a note to clients: "In our opinion, CRM is showcasing the direction where the entire software industry needs to go -- easy to access, hosting-based applications priced for widespread consumption. While our forecast includes some fairly aggressive growth expectations, at the current stock price, we believe CRM's valuation is beginning to look a little more interesting."

Thill noted that CRM announced net paying subscriber count of 161,000 as of June 30, meaning the company signed 14,000 subs in the two months since the end of its fiscal first quarter. That 7,000-per-month average puts it on track to meet his growth estimates. Prudential does not have an investment banking relationship with

Meanwhile, Siebel said on Wednesday that it has moved its nascent online software efforts into a new business unit reporting to veteran Siebel executive Bruce Cleveland. The company said that the SMB, or small and medium business, unit will sell both conventional software and hosted software from the On Demand unit. Siebel will boost the SMB unit's resources by 50% during the current quarter.

Siebel, which warned earlier this month that license revenue would plummet to the lowest level since 1999,

announced second-quarter results Wednesday largely in line with significantly reduced analyst expectations.

Under generally accepted accounting principles, San Mateo, Calif.-based Siebel reported net income of $8.2 million, or 2 cents a share, in the second quarter. That was a decline from net income of $9.8 million, or 2 cents a share, in the same period a year earlier.

Excluding a $6 million acquisition-related charge, Siebel said it earned pro forma net income of $11.8 million, or 2 cents a share, in the second quarter.

Revenue declined nearly 10% from a year ago to $301.1 million. License revenue -- a benchmark of new software sales -- totaled $94.8 million, down 13.7% from a year ago.