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S&P cuts Siebel outlook
Standard & Poor's confirmed the ratings for Siebel Systems Inc., including the convertibles at B+, but revised the outlook to negative from stable, reflecting a large decline in license revenues amid a still-challenging software spending environment.
Ratings continue to reflect a narrow product and revenue base amid very competitive industry conditions. These are offset somewhat by Siebel's leading niche market position and ample cash balances.
Although Siebel has developed a leadership position in its market, the company faces technology risks and competitive threats from entrenched and larger competitors, S&P said.
Despite lower profitability levels, Siebel increased cash balances $500 million in 2002 and an additional $59 million in the March 2003 quarter, from lower working capital and capital spending levels.
Cash and investments of $2.2 billion as of March, which exceeded an estimated $1 billion in total lease-adjusted debt outstanding, provide sufficient financial flexibility to fund obligations and pursue a moderate-size acquisition program.
The company has no bank lines or other external sources of liquidity.
Long-term restructuring obligations related to employee and lease terminations were $98 million at March - the majority of which are due in 2004 and afterward. Siebel has no funded debt due before the $300 million convertible in September 2006.
While Siebel's large cash balances exceed lease-adjusted debt, deterioration in operating performance reflects a protracted downturn in enterprise software spending levels, S&P said. Failure to stabilize or improve operating margins over the mid term could result in lower ratings.
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