**UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549**

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**FORM 10-Q**

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**[X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended March 31, 2004**

**OR**

**[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934**

**For the transition period from ________to _________**

**Commission file number 0-20725**

**SIEBEL SYSTEMS, INC.**
(Exact name of Registrant as specified in its charter)



|**Delaware**                                                   | **94-3187233**                      
|-------------------------------------------------------------- | ------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.)

**2207 Bridgepointe ParkwaySan Mateo, CA   94404**(Address of principal executive offices, including zip code)

**(650) 477-5000**(Registrant's telephone number, including area code)







Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [  ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act). YES [X] NO [  ]

The number of shares outstanding of the Registrant's common stock, par value
      $.001 per share, as of April 19, 2004, was 503,828,953.







**SIEBEL SYSTEMS, INC.
                                    FORM 10-Q
                 For the Quarterly Period Ended March 31, 2004**

Table of Contents



|Part I.  Financial Information                                                                                                   | Page
|-------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                                 |     
|Item 1.   Financial Statements                                                                                                   |     
|                                                                                                                                 |     
|Consolidated Balance Sheets as of
          
December 31, 2003 and March 31, 2004                                                | 1   
|                                                                                                                                 |     
|Consolidated Statements of Operations and Comprehensive Income
          
    for the three months ended March 31, 2003 and 2004 | 2   
|                                                                                                                                 |     
|Consolidated Statements of Cash Flows
          
    for the three months ended March 31, 2003 and 2004                          | 3   
|                                                                                                                                 |     
|Notes to Consolidated Financial Statements                                                                                       | 4   
|                                                                                                                                 |     
|Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations            | 15  
|                                                                                                                                 |     
|Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                                             | 47  
|                                                                                                                                 |     
|Item 4. Controls and Procedures                                                                                                  | 49  
|                                                                                                                                 |     

**Part II.  Other Information**



|Item 1.   Legal Proceedings                | 51
|------------------------------------------ | --
|                                           |   
|Item 6.   Exhibits and Reports on Form 8-K | 52
|                                           |   
|**Signatures**                             | 53

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**Part I.  Financial Information**

**Item 1.  Financial Statements**

**SIEBEL SYSTEMS, INC.
Consolidated Balance Sheets**
(in thousands, except per share data; unaudited)

`December 31,    March 31,
                                                                               2003          2004
                                                                          ------------- -------------
Assets

Current assets:
   Cash and cash equivalents...........................................   $    583,532  $    659,685
   Short-term investments..............................................      1,439,674     1,473,242
                                                                          ------------- -------------
          Total cash, cash equivalents and short-term investments......      2,023,206     2,132,927

   Accounts receivable, net............................................        259,834       231,097
   Deferred income taxes...............................................         61,742        59,786
   Prepaids and other..................................................         52,186        38,637
                                                                          ------------- -------------
          Total current assets.........................................      2,396,968     2,462,447

Property and equipment, net............................................        157,391       131,016
Goodwill...............................................................        140,957       144,795
Intangible assets, net.................................................         10,786        11,576
Other assets...........................................................         48,892        47,060
Deferred income taxes..................................................         95,866        94,866
                                                                          ------------- -------------
          Total assets.................................................   $  2,850,860  $  2,891,760
                                                                          ============= =============

Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable....................................................   $     18,907  $     13,570
   Accrued expenses....................................................        333,270       303,080
   Restructuring obligations...........................................         53,676        46,346
   Deferred revenue....................................................        282,217       311,375
                                                                          ------------- -------------
          Total current liabilities....................................        688,070       674,371

Restructuring obligations, less current portion........................        104,405        98,697
Other long-term liabilities............................................          8,159         6,478
                                                                          ------------- -------------
          Total liabilities............................................        800,634       779,546
                                                                          ------------- -------------

Commitments and contingencies

Stockholders' equity:
  Common stock; $0.001 par value; 2,000,000 shares authorized;
     498,305 and 503,096 shares issued and outstanding, respectively...            498           503
  Additional paid-in capital...........................................      1,550,834     1,581,725
  Deferred compensation................................................         (1,479)       (1,235)
  Accumulated other comprehensive income...............................         58,650        57,846
  Retained earnings....................................................        441,723       473,375
                                                                          ------------- -------------
          Total stockholders' equity...................................      2,050,226     2,112,214
                                                                          ------------- -------------
          Total liabilities and stockholders' equity...................   $  2,850,860  $  2,891,760
                                                                          ============= =============`

See accompanying notes to consolidated financial statements.

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**SIEBEL SYSTEMS, INC.
Consolidated Statements of Operations and Comprehensive Income**
(in thousands, except per share data; unaudited)

`Three Months Ended
                                                                        March 31,
                                                                 ---------------------
                                                                    2003       2004
                                                                 ---------- ----------
Revenues:
   Software....................................................  $ 112,092  $ 126,799
   Professional services, maintenance and other................    220,663    202,488
                                                                 ---------- ----------
       Total revenues..........................................    332,755    329,287
                                                                 ---------- ----------
Cost of revenues:
   Software....................................................      4,721      3,207
   Professional services, maintenance and other................    125,512    107,925
                                                                 ---------- ----------
       Total cost of revenues..................................    130,233    111,132
                                                                 ---------- ----------
            Gross margin.......................................    202,522    218,155
                                                                 ---------- ----------
Operating expenses:
   Product development.........................................     79,271     72,024
   Sales and marketing.........................................    100,172     86,257
   General and administrative..................................     26,366     21,574
   Restructuring and related expenses..........................         --        598
                                                                 ---------- ----------
       Total operating expenses................................    205,809    180,453
                                                                 ---------- ----------
            Operating income (loss)............................     (3,287)    37,702
                                                                 ---------- ----------
Other income, net:
   Interest and other income, net..............................     15,397     12,075
   Interest expense............................................     (4,894)      (320)
                                                                 ---------- ----------
       Total other income, net.................................     10,503     11,755
                                                                 ---------- ----------
            Income before income taxes.........................      7,216     49,457
Income taxes...................................................      2,598     17,805
                                                                 ---------- ----------
            Net income.........................................  $   4,618  $  31,652
                                                                 ========== ==========

Diluted net income per share...................................  $    0.01  $    0.06
                                                                 ========== ==========
Basic net income per share.....................................  $    0.01  $    0.06
                                                                 ========== ==========

Shares used in diluted share computation.......................    511,391    546,401
                                                                 ========== ==========
Shares used in basic share computation.........................    487,254    501,128
                                                                 ========== ==========
Comprehensive income:
Net income.....................................................  $   4,618  $  31,652
Other comprehensive income (loss), net of taxes:
   Foreign currency translation adjustments....................      5,316     (3,844)
   Realized gain on marketable investments previously
      recognized in other comprehensive income.................     (1,547)    (1,872)
   Unrealized gain on investments, net.........................      2,422      4,912
                                                                 ---------- ----------
       Other comprehensive income (loss).......................      6,191       (804)
                                                                 ---------- ----------
            Total comprehensive income.........................  $  10,809  $  30,848
                                                                 ========== ==========`

See accompanying notes to consolidated financial statements.

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**SIEBEL SYSTEMS, INC.
Consolidated Statements of Cash Flows**
(in thousands; unaudited)

`Three Months Ended
                                                                                     March 31,
                                                                            --------------------------
                                                                                 2003         2004
                                                                            ------------- ------------
Cash flows from operating activities:
   Net income.............................................................. $      4,618  $    31,652
   Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation and amortization........................................       39,518       31,478
      Amortization of identifiable intangible assets.......................        1,959        1,710
      Compensation related to stock options, net...........................          505          195
      Provision for doubtful accounts and sales returns....................        3,779       (1,000)
      Tax benefit from exercise of stock options...........................           --        1,500
      Deferred income taxes................................................           55           --
      Write-down of cost-method investments to fair value..................          253        1,083
      Net realized gains on marketable investments.........................       (1,547)      (1,872)
      Changes in operating assets and liabilities:
         Accounts receivable...............................................       37,338       30,234
         Prepaids and other................................................        7,959       14,305
         Accounts payable and accrued expenses.............................      (30,249)     (34,980)
         Restructuring obligations.........................................      (15,300)     (13,641)
         Deferred revenue..................................................       13,923       29,135
                                                                            ------------- ------------
           Net cash provided by operating activities.......................       62,811       89,799
                                                                            ------------- ------------
Cash flows from investing activities:
   Purchases of property and equipment, net................................       (9,255)        (225)
   Purchases of short-term investments.....................................     (531,759)    (413,446)
   Sales and maturities of short-term investments..........................      475,808      382,507
   Proceeds from sale of marketable equity securities......................          126           --
   Purchase consideration for acquired businesses, net of cash received....       (1,500)      (4,821)
   Other non-operating assets and non-marketable securities................        1,332            4
                                                                            ------------- ------------
           Net cash used in investing activities...........................      (65,248)     (35,981)
                                                                            ------------- ------------
Cash flows from financing activities:
   Proceeds from issuance of common stock..................................        5,266       29,379
   Repayments of capital lease obligations.................................       (3,256)      (3,278)
                                                                            ------------- ------------
           Net cash provided by financing activities.......................        2,010       26,101
                                                                            ------------- ------------
Effect of exchange rate fluctuations.......................................        5,304       (3,766)
                                                                            ------------- ------------
Change in cash and cash equivalents........................................        4,877       76,153
Cash and cash equivalents, beginning of period.............................      667,511      583,532
                                                                            ------------- ------------
Cash and cash equivalents, end of period................................... $    672,388  $   659,685
                                                                            ============= ============
Supplemental disclosures of non-cash activities:
   Fair value of common stock and stock options issued for acquisitions.... $      1,670  $        --
                                                                            ============= ============`

See accompanying notes to consolidated financial statements.

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SIEBEL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Summary of Significant Accounting Policies

Basis of Presentation



The accompanying unaudited consolidated financial
statements include the accounts of Siebel Systems, Inc. and its wholly owned
subsidiaries (the "Company").  The accompanying unaudited consolidated
financial statements have been prepared on substantially the same basis as the
audited consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2003.  Certain information
and footnote disclosures normally included in annual financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to the rules and
regulations regarding interim financial statements.  All amounts included herein
related to the consolidated financial statements as of March 31, 2004 and the
three months ended March 31, 2003 and 2004 are unaudited.  These unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003.



In the opinion of management, these financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for their fair presentation.  The interim results presented are not
necessarily indicative of results for any subsequent quarter or for the year
ending December 31, 2004.  Certain prior year amounts have been reclassified to
conform to the current year presentation.



Use of Estimates



The Company's consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States.  The preparation of these financial statements requires that the
Company make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities.  On an ongoing basis, the Company evaluates its estimates,
including those related to revenue recognition, provision for doubtful accounts
and sales returns, fair value of investments, fair value of acquired intangible
assets and goodwill, useful lives of intangible assets and property and
equipment, income taxes, restructuring obligations, and contingencies and
litigation, among others.  The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources.  Actual results could differ significantly
from the estimates made by management with respect to these and other items that
require management's estimates.



Stock-Based Compensation



The Company accounts for its employee stock-based
compensation plans using the intrinsic value method, as prescribed by APB No. 25
"Accounting for Stock Issued to Employees" and interpretations thereof
(collectively referred to as "APB 25").  Accordingly, the Company
records deferred compensation costs related to its employee stock options when
the current market price of the underlying stock exceeds the exercise price of
each stock option on the date of grant.  The Company records and measures
deferred compensation for stock options granted to non-employees, other than
members of the Company's Board of Directors, based on the fair value of the
stock options.  Deferred compensation is expensed on a straight-line basis over
the vesting period of the related stock option.  The Company did not grant any
stock options at exercise prices below the fair market value of the Company's
common stock on the date of grant during any period presented.



As of December 31, 2003 and March 31, 2004, the Company's
deferred compensation balances primarily related to restricted stock awards
issued in the fourth quarter of 2002 and the remaining unamortized portion of
compensation expense associated with stock options granted by certain acquired
companies and converted under the terms of the agreements between the Company
and the companies acquired.  The Company is amortizing the deferred compensation
on a straight-line basis over the respective vesting periods, which is generally
five years.



An alternative method to the intrinsic value method of
accounting for stock-based compensation is the fair value approach prescribed by
SFAS No. 123 "Accounting for Stock-Based Compensation," as amended by
SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and
Disclosure" (collectively referred to as "SFAS 123").  If the
Company followed the fair value approach, the Company would be required to
record deferred compensation based on the fair value of the stock option at the
date of grant.  The fair value of the stock option is required to be computed
using an option-pricing model, such as the Black-Scholes option valuation model,
at the date of the stock option grant.  The deferred compensation calculated
under the fair value method would then be amortized over the respective vesting
period of the stock option.



As required by SFAS 123, the Company has prepared a
reconciliation of its earnings as reported on the statement of operations to the
earnings that the Company would have reported if it had followed SFAS 123 in
accounting for its stock-based compensation arrangements.  For purposes of this
reconciliation, the Company added back all stock-based employee compensation
expense recorded in accordance with APB 25 in its statement of operations, then
deducted the stock-based employee compensation expense determined under SFAS
123.  Summarized below are the pro forma effects on net income and net income
per share data, as if the Company had elected to use the fair value approach
prescribed by SFAS 123 to account for its employee stock-based compensation
plans (in thousands, except per share data):

`Three Months Ended
                                                                                March 31,
                                                                         ----------------------
                                                                             2003       2004
                                                                         ----------- ----------
Net income (loss):                                                                             
  As reported..........................................................  $    4,618  $  31,652
                                                                         ----------- ----------
  Compensation expense related to:
    Stock options accounted for in accordance with APB 25..............         505        195
    In-the-money stock options.........................................      (4,097)    (4,503)
    Stock purchase rights under the Purchase Plan......................        (863)    (2,559)
                                                                         ----------- ----------
       Total pro forma expense related to "in the money" stock
         options and Purchase Plan.....................................      (4,455)    (6,867)
    Out-of-the-money stock options.....................................     (42,170)   (40,276)
    Stock options cancelled for no consideration.......................    (251,821)        --
    Stock options forfeited/cancelled in connection with terminations..      (9,166)        --
                                                                         ----------- ----------
       Total pro forma expense giving effect to SFAS 123...............    (307,612)   (47,143)
                                                                         ----------- ----------
  Pro forma giving effect to SFAS 123..................................  $ (302,994) $ (15,491)
                                                                         =========== ==========
Diluted net income (loss) per share:                                                           
  As reported..........................................................  $     0.01  $    0.06
                                                                         =========== ==========

  Pro forma giving effect to SFAS 123..................................  $    (0.62) $   (0.03)
                                                                         =========== ==========

Basic net income (loss) per share:                                                             
  As reported..........................................................  $     0.01  $    0.06
                                                                         =========== ==========

  Pro forma giving effect to SFAS 123..................................  $    (0.62) $   (0.03)
                                                                         =========== ==========`

Consistent with the Company's accounting for deferred tax
assets resulting from the exercise of employee stock options in the accompanying
consolidated financial statements, the Company has not provided a tax benefit on
the pro forma expense in the above table.



In-the-money stock options in the above table have
exercise prices below the closing price of the Company's common stock as of the
end of each of the respective periods, and out-of-the-money stock options have
exercise prices equal to or greater than the closing price of the Company's
common stock as of the end of each of the respective periods.  The closing
prices as of March 31, 2003 and 2004 were $8.01 and $11.53, respectively.



As the table above illustrates, total pro forma expense
for stock options includes $303,157,000 and $40,276,000 of expense during the
three months ended March 31, 2003 and 2004, respectively, related to: (i) the
Company's CEO's stock options that were cancelled for no consideration; (ii)
stock options forfeited by employees upon termination for no consideration; and
(iii) stock options that are significantly out of the money (e.g., the weighted-average
exercise price of the out-of-the-money stock options was $21.95 per
share compared to a closing price of $11.53 per share as of March 31, 2004).
These items represented 99% and 85% of the pro forma expense in the above table
for the three months ended March 31, 2003 and 2004, respectively.

The Company determined the assumptions used in computing
the fair value of stock options or stock purchase rights as discussed in the
remainder of this paragraph.  The Company estimated the expected useful lives,
giving consideration to the vesting and purchase periods, contractual lives,
expected employee turnover, and the relationship between the exercise price and
the fair market value of the Company's common stock, among other factors.  The
expected volatility was estimated giving consideration to the expected useful
lives of the stock options, the Company's current expected growth rate, implied
expected volatility in traded options for the Company's common stock, and recent
volatility of the Company's common stock, among other factors.  The risk-free
rate is the U.S. Treasury bill rate for the relevant expected life.  The fair
value of stock options was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average
assumptions:

`Three Months Ended
                                                                                March 31,
                                                                          ---------------------
                                                                             2003       2004
                                                                          ----------- ---------
Risk-free interest rate................................................        1.93 %     2.09 %
Expected life (in years)...............................................         3.0        3.4
Expected volatility....................................................          65 %       42 %`

Using the Black-Scholes option valuation model, stock
options granted during the three months ended March 31, 2003 and 2004 had
weighted average fair values of $3.63 and $4.39 per share, respectively.



The fair value of employees' stock purchase rights under
the Company's employee stock purchase plans (the "Purchase Plan") was
estimated using the Black-Scholes model with the following weighted average
assumptions used for purchases:

`Three Months Ended
                                                                                March 31,
                                                                          ---------------------
                                                                             2003       2004
                                                                          ----------- ---------
Risk-free interest rate................................................        1.13 %     1.00 %
Expected life (in years)...............................................         0.5        0.5
Expected volatility....................................................          63 %       46 %`

The weighted average estimated fair value of the common
stock purchase rights granted under the Purchase Plan during the three months
ended March 31, 2003 and 2004 was $1.86 and $3.69 per share, respectively,
including the 15% discount from the quoted market price.



Restructuring Obligations



In response to a deterioration of economic conditions,
the Company initiated a Restructuring of its operations in July 2002, which the
Company completed in December 2002 (the "2002 Restructuring").  The
2002 Restructuring was designed to better align the Company's operating
structure with expected revenue levels.  In connection with the 2002
Restructuring, the Company recorded restructuring and related expenses of
$205,305,000.



Due in part to the continued weakening in the global
economy and reduced revenue expectations, the Company initiated a further
restructuring of its operations in the second quarter of 2003, which the Company
completed in September 2003 (the "2003 Restructuring" and collectively
with the 2002 Restructuring, the "2002 and 2003 Restructurings").
During 2003, the Company recorded restructuring and related expenses of
$104,391,000 associated with the 2002 and 2003 Restructurings.  This charge
consisted of (i) $88,791,000 incurred in connection with the 2003 Restructuring,
(ii) $14,891,000 incurred as a result of a change in estimate related to the
2002 Restructuring, and (iii) accretion expense of $709,000 associated with the
2003 Restructuring obligations.



The 2002 and 2003 Restructurings included the following
key measures: (i) the reduction of the Company's workforce across all functional
areas; (ii) the consolidation of its excess facilities; (iii) the abandonment of
certain long-lived assets, including leasehold improvements, furniture and
fixtures; and (iv) the transfer of certain technical support, quality assurance
and other product development positions overseas to labor markets with lower
cost structures.



The following table summarizes the restructuring and
related expenses incurred during the three months ended March 31, 2004, and the
remaining obligations related to the 2002 and 2003 Restructurings as of December
31, 2003 and March 31, 2004 (in thousands):

`Employee      Facility-
                                                              Termination     Related
                                                               Costs (1)     Costs (2)      Total
                                                             ------------ -------------- -----------
Restructuring obligations, December 31, 2003................ $     3,805  $     154,276  $  158,081

Restructuring and related expenses:
  Recognized related to changes in estimate.................          96           (101)         (5)
  Accretion related to the 2003 Restructuring (3)...........          --            603         603
                                                             ------------ -------------- -----------
     Total..................................................          96            502         598
Cash payments...............................................        (875)       (12,761)    (13,636)
                                                             ------------ -------------- -----------
Restructuring obligations, March 31, 2004................... $     3,026  $     142,017  $  145,043
                                                             ============ ==============
     Less: Restructuring obligations, short-term............                                 46,346
                                                                                         -----------
     Restructuring obligations, long-term...................                             $   98,697
                                                                                         ===========`

1. The costs associated with the Company's workforce
reductions consist primarily of severance payments, COBRA benefits, payroll
taxes and other associated employment termination costs.  The remaining
obligations as of March 31, 2004 relate to approximately 90 terminations that
have yet to be completed, primarily due to regulatory requirements in certain
countries and the Company's ongoing transition of certain product development
positions overseas.  The Company expects to complete the reduction of the
remaining employees within the next six months.
2. The costs associated with the Company's facilities
consolidation primarily relate to lease termination costs, costs associated with
satisfying remaining lease commitments, and expected brokerage and other
re-letting costs, partially offset by estimated sublease income.
3. Represents the accretion of the 2003 Restructuring
obligations.  The Company will continue to accrete its obligations related to
the 2003 Restructuring to the then present value and, accordingly, will
recognize additional accretion expense as a Restructuring and related expense in
future periods.

The total Restructuring charge and related cash outlay
are based on management's current estimates, which may change materially if
further consolidations are required or if actual lease-related expenditures or
sublease income differ from amounts currently expected.  The Company will review
the status of its Restructuring activities quarterly and, if appropriate, record
changes to its Restructuring obligations in current operations based on
management's most current estimates.



Commitments and
Contingencies

Legal Proceedings



On May 6, 2003, the Enforcement Division staff
("Staff") of the Securities & Exchange Commission
("SEC") contacted the Company and indicated that a May 1, 2003 article
on CBS MarketWatch had raised questions regarding the Company's compliance with
Regulation FD.  In August 2003, the SEC Staff notified the Company and two of
its officers of the SEC Staff's preliminary decision to recommend that the SEC
take enforcement action against the Company and these officers in regard to
statements allegedly made prior to and during an April 30, 2003 dinner.  No such
enforcement action has been initiated, and no findings have been issued.  The
Company and its officers have filed submissions with the SEC in response to the
SEC notices and the Company believes that these submissions contain numerous
meritorious defenses to these allegations.  As the Company disclosed during its
earnings call on January 21, 2004, it appears that this matter may soon go
before the SEC for a decision.  If the SEC decides to pursue this matter, the
Company expects that it will continue though its normal course of civil
action.



On March 10, 2004, William Wollrab, on behalf of himself
and purportedly on behalf of a class of the Company's shareholders, filed an
action in the United States District Court for the Northern District of
California against the Company and certain of its officers.  This action alleges
claims in connection with various public statements made by the Company and
seeks damages together with interest and reimbursement of costs and expenses of
litigation.  A number of follow-on actions have been filed alleging
substantially similar claims.  The Company believes the allegations in this
action are without merit and it intends to defend vigorously against these
claims.



In addition, the Company is subject to legal proceedings
and claims, either asserted or unasserted, which arise in the ordinary course of
business.  While the outcome of these proceedings and claims cannot be predicted
with certainty, management does not believe that the outcome of any pending
legal matter will have a material adverse effect on the Company's consolidated
financial position, although results of operations or cash flows could be
affected in a particular period.



Income and Payroll Taxes



The Company's U.S. Federal income tax returns for 1998,
1999 and 2000 are currently under examination by the Internal Revenue Service
("IRS").  During 2003 and 2004, the Company received notices from the
IRS of proposed adjustments to these tax returns.  While the final resolution of
the IRS's ongoing examination is uncertain, the Company believes it has made
adequate provision in the accompanying consolidated financial statements for any
adjustments that the IRS has or may propose with respect to the U.S. Federal
income tax returns.  Based on currently available information, management
believes that the ultimate outcome will not have a material adverse effect on
the Company's financial position, cash flows or overall trends in results of
operations.  There exists the possibility that the Company may receive an
assessment related to the audit of its U.S. income tax returns that exceeds
amounts provided for by the Company.   Any such assessment could have a material
adverse impact on the Company's results of operations for the period in which
the matter is ultimately resolved, or an unfavorable outcome becomes probable
and reasonably estimable.



Certain of the Company's U.S. and international payroll
tax returns, primarily related to stock option exercises, are currently under
examination by the applicable taxing authority.  The Company believes it has
made adequate provision in the accompanying consolidated financial statements
for any adjustments the taxing authorities may propose with respect to these
payroll tax returns.  There exists the possibility that the Company may receive
an assessment related to the audit of its U.S. and international payroll tax
returns that exceeds amounts provided for by the Company.  In the event of such
an assessment, there exists the possibility of a material adverse impact on the
Company's results of operations for the period in which the matter is ultimately
resolved, or an unfavorable outcome becomes probable and reasonably
estimable.



Indemnifications



The Company sells software licenses and services to its
customers under contracts which the Company refers to as Software License and
Service Agreements (each an "SLSA").  Each SLSA contains the relevant
terms of the contractual arrangement with the customer, and generally includes
certain provisions for indemnifying the customer against losses, expenses, and
liabilities from damages that may be awarded against the customer in the event
the Company's software is found to infringe upon a patent, copyright, trademark,
or other proprietary right of a third party.  The SLSA generally limits the
scope of and remedies for such indemnification obligations in a variety of
industry-standard respects, including but not limited to certain time- and
geography-based scope limitations and a right to replace an infringing product.



The Company believes its internal development processes
and other policies and practices limit its exposure related to the
indemnification provisions of the SLSA.  In addition, the Company requires its
employees to sign a proprietary information and inventions agreement, which
assigns the rights to its employees' development work to the Company.  To date,
the Company has not had to reimburse any of its customers for any losses related
to these indemnification provisions and no material claims are outstanding as of
March 31, 2004.  For several reasons, including the lack of prior
indemnification claims and the lack of a monetary liability limit for certain
infringement cases under the SLSA, the Company cannot determine the maximum
amount of potential future payments, if any, related to such indemnification
provisions.



Lease Obligations



As of March 31, 2004, the Company leased facilities and
certain equipment under non-cancelable operating leases expiring between 2004
and 2022.  The Company also leases certain assets, primarily computer equipment,
under capital leases expiring between 2004 and 2005.  Future minimum lease
payments under both operating and capital leases as of March 31, 2004 are as
follows (in thousands):

`Capital     Operating
                                                        Leases      Leases
                                                      ---------- ------------
Nine months ending December 31, 2004................  $   9,127  $    56,396
Year ending December 31, 2005.......................      6,500       68,023
Year ending December 31, 2006.......................         --       67,432
Year ending December 31, 2007.......................         --       67,467
Year ending December 31, 2008.......................         --       67,350
Year ending December 31, 2009, and thereafter.......         --      388,253
                                                      ---------- ------------
     Total minimum lease payments...................     15,627  $   714,921
                                                                 ============
     Amounts representing interest..................       (730)
                                                      ----------
     Present value of minimum lease payments........     14,897
     Less: capital lease obligations, short-term
        portion (included in accrued expenses)......     10,288
                                                      ----------
     Capital lease obligations, long-term portion
       (included in other long-term liabilities)....  $   4,609
                                                      ==========`

Operating lease commitments related to properties
included in the 2002 and 2003 Restructurings are not reflected in the above
table, as the Company has reflected the fair value of these obligations in the
accompanying consolidated balance sheet under the caption "Restructuring
obligations."  Please refer to Note 2 for further discussion of the
Restructuring obligations.



Acquisitions, Goodwill and Intangible
Assets

Acquisitions



In January 2004, the Company acquired all of the
outstanding securities of Ineto Services, Inc. ("Ineto"), a provider
of hosted call center services over the Internet, for a net cash payment of
$4,821,000.  The Company has integrated Ineto's hosted telephony service, which
the Company re-branded as Contact OnDemand, with its Siebel CRM OnDemand product
offering.  The Company expects the acquisition of Ineto to further accelerate
its penetration of the hosted CRM market and expand customer choice in this
market.

The Company allocated the purchase price of $4,821,000 to
the tangible net assets and liabilities and intangible assets acquired, based on
their estimated fair values as follows (in thousands):

`Tangible assets:                                               
   Accounts receivable and other current assets...  $      507
   Property and equipment.........................          40
   Other assets-long term.........................           5
                                                    -----------
        Total tangible assets.....................         552
                                                    -----------
Intangible assets:                                             
   Customer relationships.........................       1,250
   Non-compete agreements.........................         750
   Acquired technology............................         500
   Goodwill.......................................       3,842
                                                    -----------
        Total intangible assets...................       6,342
                                                    -----------
Liabilities assumed:                                           
   Accounts payable and other accrued liabilities.      (1,006)
   Deferred revenue...............................         (23)
   Deferred tax liability.........................      (1,000)
   Other liabilities-long term....................         (44)
                                                    -----------
        Total liabilities assumed.................      (2,073)
                                                    -----------
        Net assets acquired.......................  $    4,821
                                                    ===========`

The customer relationship intangible asset is being
amortized over a period of six years based on the estimated customer attrition
rates, currently estimated at approximately 30% per year of the remaining
acquired customers.  The non-compete agreements and acquired technology are
being amortized over their estimated lives of two and three years, respectively,
using the straight-line method.  In performing this purchase price allocation,
the Company considered, among other factors, its intention for future use of the
acquired assets, analyses of historical financial performance and estimates of
the future performance of the acquired business.



The excess of the purchase price over the fair value of
the identifiable tangible and intangible net assets acquired of $3,842,000 was
assigned to goodwill.  In accordance with SFAS No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142"), goodwill will not be amortized
but will be tested for impairment at least annually.  This amount is not
expected to be deductible for tax purposes.  The operating results of Ineto have
been included in the Company's consolidated financial statements from the date
of acquisition.  Pro forma information giving effect to this acquisition has not
been presented because the pro forma information would not differ materially
from the historical results of the Company.

Goodwill



The changes in the carrying amount of goodwill during the
three months ended March 31, 2004 were as follows (in thousands):

`Balance as of December 31, 2003.....................  $   140,957
Purchase of Ineto...................................        3,842
Foreign currency fluctuation and other..............           (4)
                                                      ------------
Balance as of March 31, 2004........................  $   144,795
                                                      ============`

As required by SFAS 142, the Company does not amortize
its goodwill balances, but instead tests its goodwill for impairment in
accordance with the provisions of SFAS 142 annually on July 1 and more
frequently upon the occurrence of certain events.

Intangible Assets



Intangible assets consist of the following (in
thousands):

`December 31,    March 31,
                                                          2003          2004
                                                      ------------  ------------
Gross assets:                                                                    
   Acquired technology..............................  $     9,977   $    10,477
   Customer relationships...........................        6,700         7,950
   Non-compete agreements...........................           --           750
                                                      ------------  ------------
      Intangible assets, gross......................       16,677        19,177
                                                      ------------  ------------ 

Accumulated amortization:                                                        
   Acquired technology..............................       (5,549)       (6,621)
   Customer relationships...........................         (342)         (917)
   Non-compete agreements...........................           --           (63)
                                                      ------------  ------------
      Total accumulated amortization................       (5,891)       (7,601)
                                                      ------------  ------------
        Intangible assets, net......................  $    10,786   $    11,576
                                                      ============  ============`

The Company is amortizing its intangible assets as
follows: (i) acquired technology is being amortized using the straight-line
method over the estimated useful lives, which range from fourteen months to
three years (generally three years); (ii) the customer relationship intangible
asset is being amortized over a period of six years based on the estimated
customer attrition rates, currently estimated at approximately 30% per year of
the remaining acquired customers; and (iii) the non-compete agreements are being
amortized using the straight-line method over their estimated lives of two
years.  Based on identified intangible assets recorded as of March 31, 2004 and
assuming no subsequent impairment of the underlying assets, amortization expense
is expected to be as follows (in thousands):

`Period
----------------------------------------------------              
Nine months ending December 31, 2004................  $     5,128
Year ending December 31, 2005.......................        2,464
Year ending December 31, 2006.......................        1,425
Year ending December 31, 2007.......................          893
Year ending December 31, 2008.......................          889
Year ending December 31, 2009, and thereafter.......          777
                                                      ------------
     Total..........................................  $    11,576
                                                      ============`

Net Income per Share



The following is a reconciliation of the number of shares
used in the basic and diluted net income per share computations for the periods
presented (in thousands):

`Three Months Ended
                                                                                 March 31,
                                                                          ---------------------
                                                                             2003       2004
                                                                          ----------  ---------
Shares used in basic net income per share computation..................     487,254    501,128
Effect of dilutive potential common shares resulting from stock
   options and common stock warrants...................................      23,978     45,197
Effect of dilutive potential common shares resulting from common
  stock subject to repurchase..........................................         159         76
                                                                          ----------  ---------
Shares used in diluted net income per share computation................     511,391    546,401
                                                                          ==========  =========`

The dilutive impact of the Company's stock options for
the three months ended March 31, 2004 is calculated based on the average share
price of the Company's common stock, using the treasury stock method.  The
average share price of the Company's common stock during the three months ended
March 31, 2003 and 2004 was $8.57 and $13.23 per share, respectively. Under the
treasury stock method, the proceeds that would be hypothetically received from
the exercise of all stock options with exercise prices below the average share
price of the Company's common stock are assumed to be used to repurchase shares
of the Company's common stock.



The Company excludes all potentially dilutive securities
from its diluted net income per share computation when their effect would be
anti-dilutive. The following common stock equivalents were excluded from the
earnings per share computation, as their inclusion would have been anti-dilutive
(in thousands):

`Three Months Ended
                                                                                 March 31,
                                                                          ---------------------
                                                                             2003       2004
                                                                          ----------  ---------
Stock options excluded due to the exercise price exceeding
  the average fair value of the Company's common stock
  during the period....................................................      87,761     63,033
Weighted average shares issuable upon conversion of the
  convertible subordinated debentures..................................      12,867         --
                                                                          ----------  ---------
Total common stock equivalents excluded from diluted net
  income per share computation.........................................     100,628     63,033
                                                                          ==========  =========`

Under the treasury stock method, stock options with
exercise prices exceeding the average share price of the Company's common stock
during the applicable period are excluded from the diluted earnings per share
computation. These stock options had weighted average exercise prices of $21.81
and $22.46 per share during the three months ended March 31, 2003 and 2004,
respectively. The Company redeemed its $300,000,000 convertible subordinated
debentures (the "Debentures") on September 30, 2003 and, accordingly,
the Debentures are no longer outstanding and therefore are not potentially
dilutive as of March 31, 2004.



Segment and Geographic
Information

The Company and its subsidiaries are principally engaged
in the design, development, marketing and support of Siebel eBusiness
Applications, its family of industry-specific business software applications.
Substantially all revenues result from the license of the Company's customer
relationship management ("CRM") software products and related
professional services and customer support (maintenance) services.  The
Company's chief operating decision-maker (i.e., chief executive officer) reviews
financial information presented on a consolidated basis, accompanied by
disaggregated information about revenues by geographic region for purposes of
making operating decisions and assessing financial performance.  Accordingly,
the Company considers itself to be in a single reporting segment, specifically
the license, implementation and support of its software.



The Company evaluates the performance of its geographic
regions based only on revenues.  The Company does not assess the performance of
its geographic regions on other measures of income or expense, such as
depreciation and amortization, operating income or net income.  In addition, the
Company's assets are primarily located in the United States and not allocated to
any specific region.  The Company does not produce reports for, or measure the
performance of, its geographic regions on any asset-based metrics.  Therefore,
geographic information is presented only for revenues.  The following geographic
information for total revenues is presented for the three months ended March 31,
2003 and 2004 (in thousands):

`March 31,
                                                  ----------------------
                                                     2003        2004
                                                  ----------- ----------
United States...................................  $  193,564  $ 196,774
Europe..........................................     104,665    101,264
Asia Pacific....................................      20,584     24,885
Canada and Latin America........................      13,942      6,364
                                                  ----------- ----------
                                                  $  332,755  $ 329,287
                                                  =========== ==========`

International software license revenues for the three
months ended March 31, 2003 and 2004 were $57,354,000 and $57,223,000,
respectively.  The Company's international software license revenues are derived
from countries principally in Europe and Asia Pacific, which includes Japan.



The following is a summary of the Company's software
license revenues, by CRM product, for the three months ended March 31, 2003 and
2004 (in thousands):

`March 31,
                                                    ----------------------
                                                       2003        2004
Software license revenue by product:                ----------- ----------
   Sales, marketing and service automation........  $   87,509  $  95,712
   Analytics......................................      13,500     25,268
   Employee relationship management ("ERM").......       8,952      2,296
   UAN and business integration applications......       2,131      3,523
                                                    ----------- ----------
        Total.....................................  $  112,092  $ 126,799
                                                    =========== ==========`

At times the Company licenses a combination of its
products to its customers, with the actual product selection and number of
licensed users determined subsequent to the initial license.  The Company refers
to these licenses as "Enterprise Licenses."  The Company recognizes
revenue from its Enterprise Licenses upon delivery of the first copy, or product
master, for all of the products within the license, as all products have been
licensed and delivered, and the customer has the right of use.  During the three
months ended March 31, 2003 and 2004, software license revenues from Enterprise
Licenses were $15,366,000 and $23,065,000, respectively.  The Company estimates
the allocation of the revenue from these Enterprise Licenses to individual
software products based upon the expected usage by its customers and in a manner
consistent with its determination of compensation for its sales personnel.  The
actual deployment of Enterprise Licenses by the Company's customers may differ
from the revenue allocated in the above table.



Although the Company believes the above methodology of
allocating revenue from its Enterprise Licenses is reasonable, there can be no
assurance that such allocated amounts reflect the amounts that would result had
the Company individually licensed each specific software solution.  Further, the
Company generally does not re-evaluate the allocation of its revenue from
Enterprise Licenses based on actual deployment by its customers.



The following is a summary of the Company's professional
services, maintenance and other revenues, by service offering, for the three
months ended March 31, 2003 and 2004 (in thousands):

`March 31,
                                                    ----------------------
                                                       2003        2004
                                                    ----------- ----------
  Maintenance.....................................  $  108,522  $ 114,877
  Professional services and other.................     112,141     87,611
                                                    ----------- ----------
      Total.......................................  $  220,663  $ 202,488
                                                    =========== ==========`

No single customer accounted for 10% or more of total
revenues during the three months ended March 31, 2003 and 2004.



Subsequent Events



Acquisition of Eontec Limited



On April 20, 2004, the Company acquired all of the issued
shares of Eontec Limited ("Eontec"), a global provider of multichannel
retail banking solutions, for initial cash consideration of approximately
$70,000,000.  In the event certain revenue targets defined in the purchase
agreement are met for the period from April 20, 2004 to March 31, 2005, the
Company could be required to pay up to an additional $37,500,000 in cash to the
former shareholders of Eontec and up to an additional $22,500,000 in cash to the
former employees of Eontec who are employees of the Company at the time of
payment.  Any amounts paid by the Company to the Eontec shareholders will be
recorded as additional purchase price and amounts paid to the former employees
of Eontec will be recorded as compensation expense when earned.



The Company believes that Eontec's existing technology
and certain products and functionality under development by Eontec at the time
of purchase will enhance the Company's current offerings in the retail banking
market.  With this purchase, the Company expands its solutions offering for
banking to include branch teller and Internet banking systems, creating one of
the first retail banking solutions that enables banks to increase branch
profitability using an integrated suite of financial transactions, marketing,
sales, service, and business intelligence capabilities.  The Company expects
that its solution will also offer a standards-based, service oriented
architecture to handle a wide range of customer interactions through multiple
channels, including the branch, call center, Internet and ATM.



Because the Company purchased Eontec in such close
proximity to the date of the filing of this quarterly report, the Company has
not had an opportunity to determine the fair value of the assets acquired and
liabilities assumed. Accordingly, it is not practicable to provide a purchase
price allocation or the valuation of acquired intangible assets at this time.
The Company is currently in the process of completing this analysis and expects
to include the purchase price allocation in its quarterly report on Form 10-Q
for the second quarter ending June 30, 2004.  The operating results of Eontec
will be included in the Company's consolidated financial statements from the
date of purchase.

---

Item 2.  Management's Discussion and Analysis of
Financial Condition and Results of Operations



The statements contained in this quarterly report that
are not historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934.  Forward-looking statements include, without limitation, statements
regarding the extent and timing of future revenues, restructuring and other
expenses and customer demand, statements regarding the development and
deployment of our products, and statements regarding reliance on third parties.
All forward-looking statements included in this quarterly report are based on
information available to us as of the date of this quarterly report.  We assume
no obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, unless we are required to
do so by law.  We have based these forward-looking statements on our current
expectations and projections about future events.  These forward-looking
statements are not guarantees of future performance and are subject to risks,
uncertainties and assumptions, including those in the section entitled
"Risk Factors" and elsewhere in this quarterly report.



Executive Summary



Our consolidated financial statements are included in
Item 1 of this Quarterly Report on Form 10-Q.  The following discussion is
designed to provide a better understanding of these financial statements,
including (i) a brief discussion of our business and products, (ii) key factors
that impacted our performance, (iii) a summary of our operating results and
certain key financial metrics, and (iv) our outlook for the second quarter of
2004, including certain risks that may impact our on-going operations.  This
executive summary should be read in connection with the more detailed discussion
and analysis of our financial condition and results of operations in this Item
2, the section below entitled "Risk Factors", and our consolidated
financial statements, which are included in Item 1 of this quarterly report.



Overview of Our Business and Products



We are a leading provider of business applications
software for the customer relationship management, or CRM, market.
Substantially all of our revenues are derived directly or indirectly from a
perpetual license of our software products.  Specifically, we license our
software solutions in multi-element arrangements that include a combination of
our software, customer support and/or professional services (e.g., training or
implementation services).  Payment terms for our customer arrangements are
negotiated with the individual customer and determined based on a variety of
factors, including the customer's credit standing and our history with the
customer.



Our CRM applications enable an organization to better
manage its relationships with its customers, partners and employees.  A
substantial portion of our software license revenue is derived from our sales,
marketing and service automation solutions, which provide organizations with an
integrated approach to identifying, acquiring and retaining customers.  For
example, these applications: (i) provide sales organizations with a
comprehensive view into the sales pipeline, enabling sales professionals to
identify specific actions that will help them better manage opportunities to
rapid closure, (ii) assist marketing organizations to increase campaign response
rates and reduce customer-acquisition costs, and (iii) assist service
organizations to reduce response times with customers, improving customer
satisfaction.



We also provide CRM software solutions that help
organizations manage their employee relationships, better analyze corporate and
customer data, and lower the cost of integrating software applications.
Specifically, our employee relationship management applications enable an
organization to increase employee and organizational performance and improve
employee satisfaction by aligning employee performance with corporate objectives
and providing employees with the information resources they need to be
successful.  Our business intelligence (otherwise known as analytics) and
integration software applications help organizations to more fully leverage the
value of their corporate information.  Specifically, our analytics applications
make it possible to analyze large volumes of corporate data quickly and easily,
while our integration applications allow organizations to share data and
processes among different software applications.



In addition to licensing our CRM applications on a
per-user basis, we introduced Siebel CRM OnDemand in the fourth quarter of 2003.
Siebel CRM OnDemand is a hosted software solution that provides CRM
functionality over the Internet.  Siebel CRM OnDemand is provided to our
customers for a monthly per-user subscription fee, with a typical contractual
period of one year.  Siebel CRM OnDemand allows our customers to implement CRM
software solutions quickly, easily and cost effectively.  Siebel CRM OnDemand
integrates with our on-premise licensed suite of products, enabling
organizations to deploy our solutions in any combination of online hosted or
on-premise delivery models.



Our Global Services Organization, which is comprised of
our professional services and technical support organizations, provides: (i)
implementation services (i.e., assistance with the integration of our software
with the customers' other software and hardware applications), (ii) training
services for our customers regarding how to use our software, and (iii) customer
support services, otherwise known as maintenance, which include technical
support for the related software product and future product updates.



Our professional services are typically initiated and
provided over a period of three to nine months subsequent to the licensing of
our software and, accordingly, our professional services revenues vary directly
with the levels of software license revenue generated in the preceding three to
nine month period.  Substantially all of our professional service arrangements
are billed on a time and materials basis.  Maintenance is typically sold with
the related software license for a period of one year and is renewable at the
option of the customer on an annual basis thereafter.  Our maintenance revenues
depend upon both our ability to generate additional software license revenue and
annual renewals of maintenance agreements by our existing customer base.



Internal Controls and Corporate Governance



We have historically considered our internal controls
over financial reporting a high priority and will continue to do so through a
continual review of and resulting improvement in our internal controls.  For
example, we substantially completed the documentation and testing of our
internal controls as required by Section 404 of the Sarbanes-Oxley Act, or SOX,
as of December 31, 2003.  In accordance with SOX, we will test our internal
controls each year and, accordingly, we have begun our testing for 2004 and
expect to complete this testing in the third or fourth quarter.  Based on the
testing of our internal controls performed to date, we believe that our internal
controls are functioning as designed and provide reasonable assurance that
transactions are recorded as necessary to permit preparation of our financial
statements in accordance with generally accepted accounting principles in the
United States.  With the work we have completed to date and planned, we believe
that we are well-positioned for our auditors to issue their audit report on our
internal controls at the end of 2004.  In addition, we have formed an Internal
Controls Committee, comprised primarily of senior financial and legal personnel,
which helps ensure our internal controls over financial reporting are complete,
accurate and appropriately documented.



In addition to maintaining robust internal controls, we
follow high professional standards in measuring and reporting our financial
performance.  Specifically, we have adopted a code of ethics for all of our
employees and directors, which requires a high level of professionalism and
ethical behavior.  We believe that our accounting policies are prudent and
provide a clear view of our financial performance.  We utilize our internal
audit function to help ensure that we follow these accounting policies and
maintain our internal controls.  We have formed a Disclosure Committee,
comprised primarily of senior financial and legal personnel, to help ensure the
completeness and accuracy of our financial results and disclosures.  In
addition, prior to the release of our financial results, key members of our
management review our operating results and key accounting policies and
estimates with our Audit Committee, which is comprised solely of independent
members of our Board of Directors.  Please refer to the section entitled
"Item 10. Directors and Executive Officers of the Registrant" of our
Annual Report on Form 10-K for the year ended December 31, 2003 for a further
discussion of our policies regarding corporate governance and our code of
ethics.



Operating Environment during the Three Months Ended March 31,
2004



For the better part of two and half years (from the first
quarter of 2001 to third quarter of 2003), macro-economic conditions either
deteriorated or stabilized at depressed levels, with the information technology
industry in which we operate disproportionately impacted.  Beginning in the
latter part of 2003, many key economic indicators, such as the U.S. gross
domestic product, or GDP, and certain labor statistics, began to show signs of
strengthening.  Economic conditions appeared to continue to strengthen in the
first quarter of 2004, with improvement in many economic indicators such as the
GDP, productivity, labor statistics and consumer confidence, among others.  We
believe capital spending--and more specifically information technology
spending--continues to stabilize and may also be showing signs of strengthening.  As an
example, during the first quarter of 2004 we were able to grow our software
license revenues, operating income and net income on a year-over-year basis for
the first time since economic conditions began deteriorating at the beginning of
2001.



While corporations remain cautious in setting and
executing on their capital spending budgets, due in part to continued concerns
regarding potential terrorist attacks and further geopolitical conflicts, we
believe that corporations are becoming more "cautiously optimistic."
For example, recent surveys indicate a growing number of information technology
executives plan to increase their company's spending on selective information
technology in 2004.  While it is still too early to determine if the improvement
in information technology spending will continue, we are cautiously optimistic
that our operating results may continue to improve both on a year-over-year
basis and on a sequential quarterly basis.



Summary of Our Operating Results for 2004 and Certain Key
Financial Metrics



During the first quarter of 2004, we continued to improve
the majority of our operating metrics, including year-over-year increases in our
software license revenues of 13% and net income of over 500%.  In addition, we
continued to improve our operating margin on a year-over-year basis, achieving
an operating margin of 11.4% in the first quarter of 2004.  We believe the
majority of this improvement is due to the continued recovery in the economy
discussed above and previous actions taken by management in 2002 and 2003,
including the restructuring of our operations, reorganization of our worldwide
sales organization and certain cost control initiatives.  The following is a
brief summary of our key financial metrics and operating results for the three
months ended March 31, 2003 and 2004 (in thousands, except EPS, percentages and
DSO):

`Three Months Ended March 31,
                                                        ----------------------------
                                                            2003           2004
                                                        ------------   -------------
  Revenues:                                                                          
   Software license.................................    $   112,092    $    126,799
   Maintenance......................................        108,522         114,877
   Professional services and other..................        112,141          87,611
                                                        ------------   -------------
        Total revenues..............................    $   332,755    $    329,287
                                                        ============   =============
   Annualized total revenue per employee............    $       226    $        269
                                                        ============   =============

  Other key operating statistics:                   
   Total cost and expenses..........................    $   336,042    $    291,585
   Operating income (loss)..........................    $    (3,287)   $     37,702
   Operating margin.................................             (1)%            11 %
   Earnings per share, diluted ("EPS")..............    $      0.01    $       0.06
   Cash flows from operations.......................    $    62,811    $     89,799

                                                        December 31,     March 31,
                                                            2003           2004
                                                        ------------   -------------
  Other key financial statistics:                   
   Cash and short-term investments..................    $ 2,023,206    $  2,132,927
   Days sales outstanding ("DSO")...................             64              63
   Working capital..................................    $ 1,708,898    $  1,788,076
   Total stockholders' equity.......................    $ 2,050,226    $  2,112,214`

- Software license revenues increased by 13% from
$112.1 million for the three months ended March 31, 2003 to $126.8 million for
the three months ended March 31, 2004, primarily due to: (i) a greater breadth
of our products and the strength of our analytics products, UAN product and
industry-specific versions of our products; (ii) an improving global economy;
(iii) the realignment of our worldwide sales organization into three geographic
operating units-the Americas, Europe Middle East and Africa ("EMEA"),
and Asia Pacific; and (iv) an increase in the number of customer evaluations of
CRM applications, with a conversion rate comparable to our historical win
rates.
- Maintenance revenues
- Professional services and other revenues,
- Total revenue per employee
- Total quarterly costs and expenses
- Operating margin
- Earnings and EPS
- Cash and short-term investments
- Deferred revenues
- Credit and collections
- Working capital
- Stockholders' equity
- Stock option overhang



Outlook for the Second Quarter of 2004



We intend to continue to work to improve the above
financial metrics, including returning our professional services and other
revenues to sequential quarterly growth.  For the second quarter of 2004, we
currently anticipate that our total revenues will continue to increase
sequentially from the first quarter to between $340 million and $365 million.
We expect the individual components of our total revenues to be within the
following ranges:

- software license revenues-between $120 million and $140 million;
- maintenance revenues-between $112 million and $118 million; and
- professional services and other revenues-between $95 million to $107
million.

Our expectations regarding our revenues may be negatively
impacted by many factors, including: (i) a deterioration in global economic
conditions and/or information technology spending; (ii) additional terrorist
attacks; (iii) geopolitical uncertainties, including continued hostilities
involving the United States; (iv) corporate and consumer confidence in the
economy; (v) continued intense competition, including new technological
innovations within our industry; (vi) the uncertainty in the application
software industry and resulting reductions in capital expenditures; (vii) the
loss of key employees; and (viii) other factors described under "Risk
Factors" below.

We expect "total costs and expenses" to
increase in the second quarter of 2004 from the levels incurred in the first
quarter of 2004, primarily due to: (i) increased expenditures resulting from our
acquisition of Eontec Limited ("Eontec") in April 2004 (please refer
to Note 7 to the accompanying unaudited consolidated financial statements for a
further discussion of our acquisition of Eontec), and (ii) an increase in
expenses that vary directly with revenue levels such as "cost of
revenues" and commissions.  Partially offsetting these increases, we expect
to continue to realize cost savings from the 2003 Restructuring and additional
reductions in depreciation expense from our cost control initiatives.  As a
result of the anticipated increase in our revenues coupled with our continued
expense controls, we expect operating income and margin for the second quarter
of 2004 to remain comparable to or increase from levels obtained in the first
quarter of 2004.  Our expectations regarding operating income are directly
dependent upon our ability to continue to grow software license revenues and
return our professional services and other revenues to sequential quarterly
growth.

Uncertainty with respect to the timing and amount of our
future revenues could significantly impact the above expectations and our future
operations.  Our sales personnel monitor the status of all proposals, including
the estimated closing date and potential dollar amount of each transaction. We
aggregate these estimates periodically to generate a sales pipeline and then
evaluate the pipeline to identify trends in our business.  This pipeline
analysis and related estimates of revenue may differ significantly from actual
revenues in a particular reporting period as the estimates and assumptions were
made using the best available data at the time.  A variation in the pipeline or
in the conversion rate of the pipeline into contracts could cause us to plan or
budget inaccurately and thereby could adversely affect our business, financial
condition or results of operations.  In addition, because a substantial portion
of our software license contracts close in the latter part of a quarter,
management may not be able to adjust our cost structure to respond to a
variation in the conversion of the pipeline, which may adversely and materially
affect our business, financial condition and results of operations.

We expect other income, net to remain comparable in the
second quarter of 2004 to levels obtained in the first quarter of 2004.

We currently expect our effective tax rate for the second
quarter of 2004 to be approximately 36%.  The estimated effective tax rate is
based on current tax law and our expected annual income and may be affected by
the jurisdictions in which profits are determined to be earned and taxed and our
ability to realize deferred tax assets.

As discussed in Note 3 to the accompanying unaudited
consolidated financial statements, our U.S. Federal income tax returns for 1998,
1999 and 2000 are currently under examination by the Internal Revenue Service
("IRS").  During 2003 and 2004, we received notices from the IRS of
proposed adjustments to these tax returns.  While the final resolution of the
IRS's ongoing examination is uncertain, we believe that we have made adequate
provision in the accompanying consolidated financial statements for any
adjustments that the IRS has or may propose with respect to our U.S. Federal
income tax returns.  The final determination of our tax obligations may exceed
the amounts provided by us in the accompanying consolidated financial
statements.  We will continually review our estimates related to our income tax
obligations, including potential assessments from the IRS of additional taxes,
penalties and/or interest, and revise our estimates, if deemed necessary.  A
revision in our estimates of our tax obligations will be reflected as an
adjustment to our income tax provision at the time of the change in our
estimates.  Such a revision could materially impact our effective tax rate,
income tax provision and net income.

Discussion of the Results of
Operations for the Three Months Ended March 31, 2003 and 2004



Revenues



Our total revenues during the first quarter of 2004
remained comparable with levels obtained in the first quarter of 2003, with a
slight decrease of 1%, or $3.5 million, from $332.8 in the 2003 period to $329.3
million in the 2004 period.  We were able to maintain our total revenues at
nearly the same levels in 2003, primarily due to a 13%, or $14.7 million,
year-over-year increase in our software license revenues.  The growth of our software
license revenues partially offset an 8%, or $18.2 million, year-over-year
decrease in our professional services, maintenance and other revenues.  As more
fully described below, we believe our professional services, maintenance and
other revenues decreased on year-over-year basis during the first quarter of
2004 due to previous declines in our software license revenues that occurred in
the first nine months of 2003 (i.e., trends in these revenues generally lag
software license revenues by up to nine months).



While our total revenues decreased slightly from the
first quarter of 2003 to the first quarter of 2004, we continued to improve our
total revenue per average employee, one of our key operating metrics.
Specifically, our total revenue per average employee increased from $226,000 per
employee in the first quarter of 2003 and $249,000 per employee for the full
year 2003 to $269,000 per employee for the first quarter of 2004.  This
represents one of our best quarters, measured in terms of total revenue per
employee, in the last three years and we expect this metric may continue to
improve in the second quarter of 2004.



In order to provide a better understanding of the
year-over-year changes in our total revenue, we have provided the following
discussion of each of the individual components of our total revenues:



Software



The following table sets forth our software license
revenues and certain key metrics related to our software license revenues for
the three months ended March 31, 2003 and 2004 (in thousands, except percentages
and number of transactions):

`Three Months Ended March 31,
                                                                -------------------------
                                                                    2003         2004
                                                                -----------  ------------
Software license revenue metrics:                              
   Software license revenues................................... $ 112,092    $  126,799
   Percentage of total revenues................................      33.7 %        38.5 %
   Year-over-year change, absolute dollars.....................        --    $   14,707
   Year-over-year change, percentage...........................        --            13 %

Other key software license metrics:                            
   Number of transactions equal to or greater than $5 million..         2             3
   Number of transactions between $1 and $5 million............        32            26
   Total number of transactions................................       397           306
   Average transaction size.................................... $     282    $      414`

Software license revenues increased on a year-over-year
basis by $14.7 million, or 13%, from the first quarter of 2003 to the first
quarter of 2004, with significant increases in the majority of our product
lines.  Much of this growth was related to our newest product lines, analytics
and business integration applications, which increased on a year-over-year basis
by over 80% and 60%, respectively.  Our sales, marketing and service automation
products increased on a year-over-year basis by 9%, primarily due to the
strength of our industry-specific versions of our products.  The following is a
summary of our software license revenues by CRM product for the three months
ended March 31, 2003 and 2004 (in thousands):

`March 31,
                                                    ----------------------
                                                       2003        2004
Software license revenue by product:                ----------- ----------
   Sales, marketing and service automation........  $   87,509  $  95,712
   Analytics......................................      13,500     25,268
   Employee relationship management ("ERM").......       8,952      2,296
   UAN and business integration applications......       2,131      3,523
                                                    ----------- ----------
        Total.....................................  $  112,092  $ 126,799
                                                    =========== ==========`

We believe the increase in our software license revenues
is due primarily to: (i) a greater breadth of our products; (ii) an improving
global economy; (iii) the realignment of our worldwide sales organization into
three geographic operating units-the Americas; Europe, Middle East and Africa
("EMEA"); and Asia Pacific; and (iv) an increase in the number of
customer evaluations of CRM applications, with a conversion rate comparable to
our historical win rates (i.e., we were able to maintain or increase our market
share in the majority of our product categories).



In addition to increases in our software license revenues
in terms of absolute dollars and as a percentage of total revenues, many of our
key software license metrics (described in the above table) improved on a
year-over-year basis.  The following is a discussion of these key metrics:

- The number of our higher dollar value transactions
increased, with the number of deals generating software license revenue equal to
or greater than $5 million increasing from two in the first quarter of 2003 to
three in the first quarter of 2004.  Further, while the number of transactions
generating software license revenue between $1 million and $5 million decreased
on a year-over-year basis, a greater proportion of these transactions were in
the $2 to $4 million range in 2004 compared to 2003.
- The average software license transaction size increased
from $282,000 in the first quarter of 2003 to $414,000 in the first quarter of
2004 (our best performance in over two years).  Much of this increase is due to
a significant increase in the number of new customer engagements, which
typically purchase higher quantities of our software in the initial purchase.
Specifically, software license revenues from new customers or new projects at
existing customers increased to 61% during the first quarter of 2004 compared to
a range of 50% to 55% during each of the last three years.
- While the total number of transactions decreased from 397
to 306, the majority of the decrease related to our smallest orders (i.e.,
transactions with total license revenues of less than $50,000).  These
transactions have not historically accounted for a significant portion of our
software license revenue.  Further, the increase in our average software license
transaction size more than offset the reduction in the number of software
license transactions.

We market our products through our direct sales force and
to a limited extent through distributors, primarily in Europe, Asia Pacific,
Japan and Latin America.  International license revenues accounted for 51% and
45% of software license revenues during the three months ended March 31, 2003
and 2004, respectively.  We expect international software license revenues will
continue to account for a significant portion of our overall software license
revenues in the foreseeable future.  Because the majority of our software
license arrangements and related operating activities are denominated in U.S.
dollars, foreign currency did not have a significant impact on software license
revenues, total revenues or net income for any period presented.

Professional Services, Maintenance and Other



Professional services, maintenance and other revenues are
primarily comprised of professional services (i.e., implementation services and
training) and maintenance (i.e., technical support and product updates).  Also
included in professional services, maintenance and other revenues for the first
quarter of 2004 is revenue from our newest product offering, Siebel CRM
OnDemand, which we introduced in the fourth quarter of 2003.  The revenues
derived from Siebel CRM OnDemand were not significant for the first quarter of
2004.  Our professional services are typically initiated and provided over a
period of three to nine months subsequent to the licensing of our software and
depend in large part upon our software license revenues in the immediate
preceding periods.  Our maintenance revenues depend upon both our software
license revenues and renewals of maintenance agreements by our existing customer
base.

Professional services, maintenance and other revenues
decreased by $18.2 million, or 8%, from $220.7 million for the three months
ended March 31, 2003 to $202.5 million for the three months ended March 31,
2004.  This decrease was primarily due to a decline in revenues derived from our
implementation and training services (i.e., professional services), partially
offset by an increase in the installed base of customers receiving maintenance.
In order to better understand the changes within our professional services,
maintenance and other revenues, we have provided the following table, which sets
forth the individual components of these revenues in terms of absolute dollars
and as a percentage of total revenues (in thousands, except percentages):

`Three Months Ended March 31,
                                                                -------------------------
                                                                    2003         2004
                                                                -----------  ------------
Maintenance revenues:                                          
   Absolute dollars............................................ $ 108,522    $  114,877
   Percentage of total revenues................................      32.6 %        34.9 %
   Year-over-year change, absolute dollars.....................        --    $    6,355
   Year-over-year change, percentage...........................        --             6 %

Professional services and other revenues:                      
   Absolute dollars............................................ $ 112,141    $   87,611
   Percentage of total revenues................................      33.7 %        26.6 %
   Year-over-year change, absolute dollars.....................        --    $  (24,530)
   Year-over-year change, percentage...........................        --           (22)%`





While maintenance revenues have continued to increase on
a year-over-year basis, professional services and other revenues decreased by
$24.5 million, or 22%, from the first quarter of 2003 to the first quarter of
2004.  As a percentage of total revenues, professional services revenues
decreased from 34% in the 2003 period to 27% in the 2004 period.  We believe
this decline was primarily due to:  (i) a lag effect, as discussed further
below, related to our software license revenues; (ii) a decline of $2.2 million
related to rebillable travel and entertainment ("T&E") expenses,
which decreased in part due to lower demand for our professional services and
resulting decline in the utilization of our professional services personnel;
(iii) a decline in our professional services revenue in North America; and
(iv) the effect of the transition to new leadership in our Global
Services Organization.



While each of these factors impacted our professional
services and other revenues, we believe the primary reason for the decrease in
these revenues is a lag effect related to our software license revenues.
Specifically, our implementation and training services are initiated and
performed over a period of three to nine months subsequent to the initial
software license and, as a result, our implementation and training services
typically vary directly with the amount of software license revenues generated
in the preceding three- to nine-month period.  Accordingly, we believe the
decrease in our professional services and other revenues is primarily the result
of previous declines in our software license revenues that occurred in the first
nine months of 2003.



We are optimistic that our professional services and
other revenues will return to sequential quarterly growth in 2004, as we expect
the impact of the recent increases in our software license revenues (i.e., the
fourth quarter of 2003 and the first quarter of 2004) will begin to be realized
in our professional services and other revenues in the second and third quarters
of 2004 (i.e., trends in our software license revenues are typically realized
within a three- to nine-month period).



Further, we have taken and will continue to take steps to
improve the performance of our Global Services Organization and return our
professional service revenues to positive sequential quarterly growth.  We are
committed to realizing the benefits of these efforts in an expansion of our
professional services' margins, including further cost controls, if necessary,
to achieve our gross margin goals.  Despite our focus to grow our professional
service revenues, we expect to balance our growth initiatives with our desire to
manage our professional services organization to ensure that it does not compete
with our implementation partners.



Cost of Revenues



Total cost of revenues decreased on a year-over-year
basis from the first quarter of 2003 to the first quarter of 2004 by $19.1
million, or 15%, and decreased as a percentage of total revenues from 39% (a
gross margin of 61%) in the 2003 period to 34% (a gross margin of 66%) during
the 2004 period.  The decline in total cost of revenues in terms of absolute
dollars was due primarily to cost savings from the 2003 Restructuring, our cost
controls and further reductions in our professional services staff commensurate
with the decline in our professional services and other revenues.  The decline
of total cost of revenues as a percentage of total revenues was due to each of
the above factors, along with an increase in the percentage of our total
revenues derived from our higher margin software and maintenance revenues.



In order to better understand the changes within our cost
of revenues and resulting gross margins, we have provided the following
discussion of the individual components of our cost of revenues:

Software



The following table sets forth our cost of software
license revenues in terms of absolute dollars and as a percentage of software
license revenues for the three months ended March 31, 2003 and 2004 (in
thousands, except percentages):

`Three Months Ended March 31,
                                                                -------------------------
                                                                    2003         2004
                                                                -----------  ------------
Cost of software license revenues:                             
   Absolute dollars............................................ $   4,721    $    3,207
   Percentage of software license revenues.....................       4.2 %         2.5 %
   Year-over-year change, absolute dollars.....................        --    $   (1,514)
   Year-over-year change, percentage...........................        --           (32)%`

Cost of software license revenues includes amortization
of acquired technology, third-party software royalties, and product packaging,
production and documentation.  All costs incurred in the research and
development of software products and enhancements to existing products have been
expensed as incurred.



Cost of software license revenues decreased in absolute
dollars and as a percentage of software license revenues from the first quarter
of 2003 to the first quarter of 2004 primarily due to a reduction of $1.3
million from the cessation of amortization expense related to the technology
acquired from Sales.com, Inc., which was written-off at the time of abandonment
in July 2003.



Professional Services, Maintenance and Other



The following table sets forth our cost of professional
services, maintenance and other revenues in terms of absolute dollars and as a
percentage of these revenues for the three months ended March 31, 2003 and 2004
(in thousands, except percentages):

`Three Months Ended March 31,
                                                                -------------------------
                                                                    2003         2004
                                                                -----------  ------------
Cost of professional services, maintenance
  and other revenues:                                          
   Absolute dollars............................................ $ 125,512    $  107,925
   Percentage of professional services, maintenance
      and other revenues.......................................        57 %          53 %
   Year-over-year change, absolute dollars.....................        --    $  (17,587)
   Year-over-year change, percentage...........................        --           (14)%`

Cost of professional services, maintenance and other
revenues consist primarily of personnel, facilities and systems costs incurred
to provide training, consulting, technical support and other global services.
These costs decreased from the first quarter of 2003 to the first quarter of
2004 by $17.6 million, or 14%, primarily as a result of the following:

- A net decrease of $5.7 million in personnel costs
resulting from our reduction of personnel in response the decline in the demand
for our professional services (average headcount in our Global Services
Organization decreased from 2,410 in the first quarter of 2003 to 2,020 in the
first quarter of 2004).

- A decrease of $3.0 million in outside consulting expenses
resulting from our reduced use of outside consultants, commensurate with the
decline in our implementation revenues and decline in utilization rates of our
own personnel.

- A decrease of $2.2 million in rebillable T&E expenses
due in part to lower demand for our professional services and resulting decline
in the utilization of our professional services personnel.

- A decrease of $4.3 million in facility-related costs
resulting from the consolidation of our facilities in connection with the 2003
Restructuring.

- A decrease of $3.4 million due to the further realization
of savings from our cost control initiatives, including reductions in
depreciation expense of $1.9 million and non-billable travel and entertainment
expenditures of $1.5 million.

Partially offsetting these cost savings were increases in
compensation costs from the renewal of merit increases and certain other
incentive compensation.



Cost of professional services, maintenance and other
revenues as a percentage of the corresponding revenues decreased from 57% in the
first quarter of 2003 to 53% in the first quarter of 2004, primarily due to: (i)
a higher percentage of our professional services, maintenance and other revenues
being derived from our higher-margin maintenance revenues in the 2004 period
compared to the 2003 period; and (ii) our ability to reduce personnel, facility
and other costs as described above.  Primarily as a result of these factors, our
gross margin related to our professional services maintenance and other revenues
improved from 43% in the first quarter of 2003 to 47% in the first quarter of
2004.  This year-over-year improvement in our gross margin was partially offset by a decline
in the utilization rates of our professional services staff.

Operating Expenses



Product Development



The following table sets forth our product development
expense in terms of absolute dollars and as a percentage of total revenues for
the three months ended March 31, 2003 and 2004 (in thousands, except
percentages):

`Three Months Ended March 31,
                                                                -------------------------
                                                                    2003         2004
                                                                -----------  ------------
Product development expense:                                   
   Absolute dollars............................................ $  79,271    $   72,024
   Percentage of total revenues................................        24 %          22 %
   Year-over-year change, absolute dollars.....................        --    $   (7,247)
   Year-over-year change, percentage...........................        --            (9)%`

Product development expense includes costs associated
with the development of new products, enhancements of existing products, quality
assurance activities and vertical engineering.  These costs consist primarily of
employee salaries and benefits, occupancy costs, consulting costs and the cost
of software development tools and equipment.  Product development expense
decreased from the first quarter of 2003 to the first quarter of 2004 by $7.2
million, or 9%, primarily due to cost savings from our 2003 Restructuring and
our cost control initiatives, including reductions in depreciation expense and
discretionary expenditures such as travel and entertainment.



Specifically, we have reduced the average headcount in
our product development organization from 1,610 in the first quarter of 2003 to
1,315 in first quarter of 2004, primarily as the result of the 2003
Restructuring, including the transition of a portion of our quality assurance
and testing activities overseas to labor markets with lower cost structures.  As
a result, personnel costs included in product development expense decreased on a
year-over-year basis by a net amount $4.4 million (a $5.4 million decrease in
personnel costs, partially offset by an increase of $1 million related primarily
to outside consultants performing our quality assurance and testing activities
overseas).



In addition to the reductions in our personnel costs, we
have reduced the facility-related cost component of product development expense
by $2.4 million in the first quarter of 2004 compared to the first quarter of
2003, primarily as a result of the consolidation of facilities in connection
with the 2003 Restructuring.  The remaining decrease in our product development
expense is primarily due to the further realization of savings from our cost
control initiatives, including reductions in depreciation expense of $1.8
million.  Partially offsetting these cost savings were increases in product
development expenditures from acquired companies and compensation costs from the
renewal of merit increases and certain other incentive compensation.



Product development expense decreased as a percentage of
total revenues from 24% in the first quarter of 2003 to 22% in the first quarter
of 2004, primarily due to the reasons discussed in the preceding paragraphs.
Despite the reductions in personnel in our product development organization, we
anticipate that we will continue to devote substantial resources to develop new
products and new versions of and additional modules for our existing
products.



Sales and Marketing



The following table sets forth our sales and marketing
expense in terms of absolute dollars and as a percentage of total revenues for
the three months ended March 31, 2003 and 2004 (in thousands, except
percentages):

`Three Months Ended March 31,
                                                                -------------------------
                                                                    2003         2004
                                                                -----------  ------------
Sales and marketing expense:                                   
   Absolute dollars............................................ $ 100,172    $   86,257
   Percentage of total revenues................................        30 %          26 %
   Year-over-year change, absolute dollars.....................        --    $  (13,915)
   Year-over-year change, percentage...........................        --           (14)%`

We continue to place significant emphasis, both
domestically and internationally, on direct sales through our sales force.
Sales and marketing expense is comprised primarily of costs associated with our
sales and marketing personnel and consists primarily of: (i) salaries,
commissions and bonuses; (ii) facility-related (i.e., rent) and equipment-related
(i.e., depreciation) expenses; (iii) travel and entertainment expenses;
and (iv) promotional and advertising expenses.



Sales and marketing expense decreased from the first
quarter of 2003 to the first quarter of 2004 by $13.9 million, or 14% primarily
due to cost savings from our 2003 Restructuring and our cost control
initiatives, including reductions in depreciation expense and discretionary
expenditures such as travel and entertainment.



Specifically, we have reduced the average headcount in
our sales and marketing organizations from 1,260 in the first quarter of 2003 to
1,025 in first quarter of 2004, primarily as the result of the 2003
Restructuring.  As a result, personnel costs included in sales and marketing
expense decreased on a year-over-year basis by a net amount of $7.5 million.  In
addition, as a result of the consolidation of facilities in connection with the
2003 Restructuring, we have reduced the facility-related cost component of sales
and marketing expense by $2.3 million in the first quarter of 2004 compared to
the first quarter of 2003.  The remaining decrease in our sales and marketing
expense is primarily due to the further realization of savings from our cost
control initiatives, including reductions in (i) depreciation expense of $2.4
million, (ii) marketing and advertising of $2.6 million and (iii) travel and
entertainment of $1.2 million.



Partially offsetting these cost savings were: (i) an
increase in compensation costs from the renewal of merit increases and certain
other incentive compensation; and (ii) an increase in our sales commissions of
$1.5 million resulting from an increase in our software license revenues.



Sales and marketing expense decreased as a percentage of
total revenues from 30% in the first quarter of 2003 to 26% in the first quarter
of 2004, primarily due to the reasons discussed in the preceding paragraphs.



General and Administrative



The following table sets forth our general and
administrative expense in terms of absolute dollars and as a percentage of total
revenues for the three months ended March 31, 2003 and 2004 (in thousands,
except percentages):

`Three Months Ended March 31,
                                                                -------------------------
                                                                    2003         2004
                                                                -----------  ------------
General and administrative expense:                            
   Absolute dollars............................................ $  26,366    $   21,574
   Percentage of total revenues................................         8 %           7 %
   Year-over-year change, absolute dollars.....................        --    $   (4,792)
   Year-over-year change, percentage...........................        --           (18)%`

General and administrative expense is comprised primarily
of costs associated with our administrative personnel (finance, human resource
and facility) and executive personnel and consists primarily of salaries and
occupancy costs, along with bad debt expense.  General and administrative
expense decreased from the first quarter of 2003 to the first quarter of 2004 by
$4.8 million, or 18%, primarily as a result of the following:



- A net decrease of $0.8 million in personnel costs
resulting from the 2003 Restructuring (average headcount of our administrative
organization decreased from 605 in the first quarter of 2003 to 540 in first
quarter of 2004).

- A decrease of $1.0 million in facility-related costs
resulting from the consolidation of our facilities in connection with the 2003
Restructuring.

- A decrease of $1.2 million in depreciation expense
resulting from a further realization of savings from our cost control
initiatives.

- A decrease of $4.3 million in bad debt expense resulting
from continued improvement in our collection efforts, including further
reductions in accounts receivable levels, an improved accounts receivable aging
and the recovery of certain receivables previously written-off.

Partially offsetting these cost savings were: (i) an
increase in compensation costs from the renewal of merit increases and certain
other incentive compensation; and (ii) an increase of $2.0 million related to an
increase in legal expenses (please refer to Note 3 to the accompanying unaudited
consolidated financial statements for further discussion of legal
proceedings).



General and administrative expense decreased as a
percentage of total revenues from 8% in the first quarter of 2003 to 7% in the
first quarter of 2004, primarily due to the reasons discussed in the preceding
paragraphs.



Restructuring and Related Expenses



As further described in Note 2 to the accompanying
unaudited financial statements, we completed two restructurings of our
operations, the first of which was initiated in 2002 and completed in December
2002 (the "2002 Restructuring"), and the second of which we initiated
in mid 2003 and completed in September 2003 (the "2003 Restructuring"
and collectively with the 2002 Restructuring, the "2002 and 2003
Restructurings").



The 2002 and 2003 Restructurings consisted primarily of
the following key measures: (i) the reduction of our workforce across all
functional areas, including reductions related to the consolidation of our
management organization and sales force organization; (ii) the consolidation of
additional facilities, including ceasing operations in certain geographic
locations; (iii) the abandonment of certain long-lived assets, including
leasehold improvements, furniture and fixtures; and (iv) the transfer of certain
technical support, quality assurance and other product development positions
overseas to labor markets with lower cost structures.



Restructuring and related expenses of $598,000 for the
first quarter of 2004 primarily represents interest expense associated with
accreting these obligations to the then present value.  We will continue to
accrete our 2003 Restructuring obligations to the then present value and,
accordingly, will recognize additional accretion expense as a Restructuring and
related expense in future periods.  We incurred no restructuring and related
expenses during the first quarter of 2003.



Please refer to Note 2 to the accompanying unaudited
consolidated financial statements for a summary of our 2002 and 2003
Restructuring obligations, including a rollforward of these obligations from
December 31, 2003 to March 31, 2004.  We will continue to review the status of
our obligations related to the 2002 and 2003 Restructurings quarterly and, if
appropriate, record changes in estimates related to these obligations in current
operations.



Operating Income (Loss) and Operating Margin



The following table sets forth our operating income
(loss) and operating margin for the three months ended March 31, 2003 and 2004
(in thousands, except percentages):

`Three Months Ended March 31,
                                                                -------------------------
                                                                    2003         2004
                                                                -----------  ------------
Operating income (loss)........................................ $  (3,287)   $   37,702
Operating margin...............................................      (1.0)%        11.4 %`

Operating income and margin have increased on a
year-over-year basis primarily due to (i) the increase in our software license
revenues, which are at higher margins than professional services, maintenance
and other revenues, and (ii) the significant cost savings from the 2003
Restructuring, which we estimate to be approximately $40 million.  With an
increase in our operating margin from a negative operating margin of 1% in the
first quarter of 2003 to an operating margin of 11% in the first quarter of
2004, we have made significant progress towards our mid-term goal of an
operating margin of 15%.  We intend to continue to build on this progress and
work towards our target operating margin of 15% throughout the remainder of
2004.

Other Income, Net

For the three months ended March 31, 2003 and
2004, other income, net was comprised of the following (in thousands):

`Three Months Ended
                                                   March 31,
                                             ---------------------
                                                2003       2004
                                             ---------- ----------
Interest income............................. $  14,236  $  11,699
Interest expense............................    (4,894)      (320)
Net gains on marketable investments.........     1,547      1,872
Write-down of cost-method investments.......      (253)    (1,083)
Other, net..................................      (133)      (413)
                                             ---------- ----------
                                             $  10,503  $  11,755
                                             ========== ==========`

Interest income represents earnings on our cash and
short-term investments.  Interest income decreased by $2.5 million from the
three months ended March 31, 2003 to the three months ended March 31, 2004
primarily due to a decline in our cash and short-term investments from $2,220.8
million as of March 31, 2003 to $2,132.9 million as of March 31, 2004, along
with a decline in interest rates.  Cash and short-term investments decreased on
a year-over-year basis due primarily to the redemption of our $300.0 million
convertible subordinated debentures (the "Debentures") in accordance
with their terms for $307.1 million on September 30, 2003, partially offset by
an increase in cash flows from operations.



Primarily as a result of our redemption of the
Debentures, interest expense decreased by $4.6 million from $4.9 million during
the first quarter of 2003 to $320,000 during the first quarter of 2004.
Interest expense for the first quarter of 2004 primarily represents interest
associated with our capital lease obligations.



Net gains on marketable investments represent gains on
the sale of certain short-term debt instruments.  We hold several minority
interests, included in other assets, in companies having operations or
technology in areas within our strategic focus.  Write-down of cost-method
investments in the above table represents adjustments to certain of these
investments to the estimated fair value as the decline in these investments was
deemed to be other-than-temporary.  Other, net for all periods presented is
primarily comprised of banking fees and foreign currency transaction gains or
losses.

Provision for Income Taxes



Income taxes totaled $2.6 million and $17.8 million for
the three months ended March 31, 2003 and 2004, respectively.  Income taxes as a
percentage of pretax income (i.e., the "Effective Rate") were 36% for
all periods presented.  As part of the process of preparing our unaudited
consolidated financial statements, we are required to estimate our full-year
income and the related income tax expense in each jurisdiction in which we
operate.  Changes in the geographical mix or estimated level of annual pretax
income can impact our overall effective tax rate.  This process involves
estimating our current tax liabilities in each jurisdiction in which we operate,
including the impact, if any, of additional taxes resulting from tax
examinations, as well as making judgments regarding the recoverability of
deferred tax assets.  To the extent recovery of deferred tax assets is not
likely based on our estimation of future taxable income in each jurisdiction, a
valuation allowance is established.  Tax liabilities can involve complex issues
and may require an extended period to resolve. While we have considered future
taxable income and the existence of prudent and feasible tax planning strategies
in assessing our valuation allowance, in the event we were to determine that we
would not be able to realize all or part of our net deferred tax assets in the
future, we would charge to income an adjustment to the valuation allowance in
the period such determination was made.



As discussed in Note 3 to the accompanying unaudited
consolidated financial statements, our U.S. Federal income tax returns for 1998,
1999 and 2000 are currently under examination by the Internal Revenue Service
("IRS").  During 2003 and 2004, we received notices from the IRS of
proposed adjustments to these tax returns.  While the final resolution of the
IRS's ongoing examination is uncertain, we believe that we have made adequate
provision in the accompanying consolidated financial statements for any
adjustments that the IRS has or may propose with respect to our U.S. Federal
income tax returns.  The final determination of our tax obligations may exceed
the amounts provided by us in the accompanying consolidated financial
statements.  We will continually review our estimates related to our income tax
obligations, including potential assessments from the IRS of additional taxes,
penalties and/or interest, and revise our estimates, if deemed necessary.  We
will reflect any revision in our estimates of our tax obligations as an
adjustment to our income tax provision at the time of the change in our
estimates.  Such a revision could materially impact our effective tax rate,
income tax provision and net income.

Liquidity and Capital Resources



Overview



We derive our liquidity and capital resources
primarily from our cash flows from operations and from our working capital.  Our
working capital increased by 5% from $1,708.9 million as of December 31, 2003 to
$1,788.1 million as of March 31, 2004.  The increase was primarily due to our
cash flows from operations of $89.8 million.  With virtually no debt and a
strong working capital position, we believe that we have the flexibility to
continue to invest in further developing our technology and, when necessary or
appropriate, make selective acquisitions to continue to strengthen our product
portfolio.



The significant components of our working capital are
liquid assets such as cash, short-term investments and trade accounts
receivable, reduced by accounts payable, accrued expenses, restructuring
obligations and deferred revenue.  We continue to operate a cash-positive
business and, accordingly, we have been able to eliminate substantially all of
our long-term debt and maintain our cash and short-term investment balances at
over $2.0 billion.  Specifically, our cash, cash equivalents and short-term
investments increased from $2,023.2 million as of December 31, 2003 to $2,132.9
million as of March 31, 2004, representing approximately 71% and 74% of total
assets, respectively.  In addition, our days sales outstanding in accounts
receivable ("DSO") remained consistent with levels at December 31,
2003, with a DSO of 64 days as of December 31, 2003 and 63 days as of March 31,
2004.



We believe our current working capital and anticipated
cash flows from operations will be adequate to meet our cash needs for our daily
operations and capital expenditures for at least the next 12 months.  Our
liquidity could be negatively impacted by a decrease in revenues resulting from
a decline in demand for our products, which are subject to rapid technological
changes, or a reduction of capital expenditures by our customers as a result of
a downturn in the global economy, among other factors.  We did not repurchase
any of our common stock during the first quarter of 2004 and do not currently
anticipate repurchasing any of our common stock in the remainder of 2004.



Commitments



Our future fixed commitments have not changed
significantly since December 31, 2003.  Please refer to "Liquidity and
Capital Resources" in Item 7 of our Annual Report on Form 10-K for the year
ended December 31, 2003 for a further discussion of our future fixed
commitments, including a five-year schedule of future cash payments under these
obligations.



Cash Flows



As discussed above, one of the primary sources of our
liquidity is our ability to generate positive cash flows from operations.  The
following is a discussion of our primary sources and uses of cash in our
operating activities, along with significant sources and uses in our investing
and financing activities:



Operations



Net cash provided by operating activities increased from $62.8
million during the three months ended March 31, 2003 to $89.8 million for the
three months ended March 31, 2004, primarily due to the increase in our net
income from $4.6 million during the first quarter of 2003 to $31.7 million for
the first quarter of 2004.  During each of these periods, our cash flows from
operations were primarily derived from: (i) our earnings from on-going
operations prior to non-cash expenses such as depreciation, amortization, and
bad debt; (ii) the tax benefit related to the exercise of employee stock
options, which reduces our cash outlay for income tax expense; and (iii) changes
in our working capital, which is primarily composed of net collections of accounts
receivable and increases in deferred revenue (collectively representing cash inflows of $51.2
million and $59.4 million in the 2003 and 2004 periods, respectively), partially
offset by payments of accounts payable, accrued expenses and restructuring
obligations (collectively representing cash outflows of $45.5 million and $48.6 million in
the 2003 and 2004 periods, respectively).



As we settle our remaining Restructuring obligations ($145.0
million as of March 31, 2004), our future operating cash flows will be reduced from what
it otherwise would have been in the period of settlement.  We currently estimate that we will
settle $46.3 million of these obligations in the next 12 months.



We currently anticipate that we will continue to operate a
cash-positive business in the second quarter of 2004.  Our ability to meet these
expectations is directly dependent upon our ability to achieve positive earnings
and maintain or increase the level of our software license revenues.  In
addition, our ability to generate future cash flows from operations could be
negatively impacted by a decrease in demand for our products, which are subject
to rapid technological change, or a reduction of capital expenditures by our
customers as a result of a downturn in the global economy, among other
factors.



Investing



Net cash used in investing activities was $65.2 million and $36.0
million for the three months ended March 31, 2003 and 2004, respectively.
During each of these periods, our investment activities primarily related to
transactions within our short-term investments, with reinvestments of our cash
into short-term investments in net amounts of $56.0 million and $30.9 million
during the three months ended March 31, 2003 and 2004, respectively.



We also utilize our cash positions to invest in new property
and equipment, with net purchases of property and equipment of $9.3 million and
$0.2 million during the three months ended March 31, 2003 and 2004,
respectively.  Capital expenditures continued to decrease in the 2004 period
primarily due to (i) the reduction of our employees from approximately 5,900 at
the end of the first quarter of 2003 to approximately 4,800 at the end of the
first quarter of 2004, resulting in a decrease in our information technology
requirements for computers and other equipment; (ii) the consolidation of our
data centers, resulting in a decrease in our information technology requirements
for servers and other equipment; and (iii) the reduction in the number of
offices we are occupying, which allowed us to reduce our purchases of tenant
improvements, furniture and fixtures.  In addition, in response to the weakening
economy and as a part of our cost control initiatives, we have maintained our
reduced capital expenditure levels in the first quarter of 2004.



We expect to continue to closely monitor our capital
expenditures; however, we expect our quarterly capital expenditures to increase
in the remainder of 2004 from levels incurred in the first quarter of 2004.
Specifically, we expect capital expenditures to be between $20 and $30 million
for all of 2004, as we increase our investment in hosted CRM infrastructure and
increase our spending on information technology in order to meet the needs of an
expanded workforce.



The remaining cash flows used in investing activities
consisted of the acquisition of Ineto Services, Inc. ("Ineto"), a
provider of hosted call center services over the Internet, for a net cash
payment of $4.8 million.  Please refer to Note 4 to the accompanying unaudited
consolidated financial statements for a further discussion of this acquisition.

Financing



Net cash provided by financing activities increased from $2.0
million during the three months ended March 31, 2003 to $26.1 million for the
three months ended March 31, 2004 primarily as the result of an increase in the
proceeds from the issuance of common stock pursuant to the exercise of stock
options and our employee stock purchase plan ("ESPP").  Proceeds from
exercise of stock options and our ESPP increased from $5.3 million in the first
quarter of 2003 to $29.4 million in the first quarter of 2004 due primarily to
the implementation of the Siebel Systems, Inc. 2003 Employee Stock Purchase Plan
(the "2003 ESPP") on July 1, 2003.  Under the terms of the 2003 ESPP,
employees purchase shares in the first and third quarter of each year, as
compared to purchases in the second and fourth quarters prior to the adoption of
the 2003 ESPP.  Our cash flow from financing activities were partially offset by
our repayment of capital lease obligations, which amounted to $3.3 million in
both the three months ended March 31, 2003 and 2004.



Off-Balance Sheet Arrangements



We do not use off-balance-sheet arrangements with
unconsolidated entities or related parties, nor do we use other forms of
off-balance-sheet arrangements such as research and development arrangements.
Accordingly, our liquidity and capital resources are not subject to off-balance-sheet
risks from unconsolidated entities.  As of March 31, 2004, we did not have
any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC
Regulation S-K.



We have entered into operating leases for most U.S. and
international sales and support offices and certain equipment in the normal
course of business.   These arrangements are often referred to as a form of
off-balance sheet financing.  As of March 31, 2004, we leased facilities and certain
equipment under non-cancelable operating leases expiring between 2004 and 2022.
Please refer to Note 3 to the accompanying unaudited consolidated financial
statements for detail of our future minimum lease payments under our operating
leases as of March 31, 2004.



Application of Critical Accounting
Policies and Use of Estimates



Use of Estimates



Our consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States
("GAAP") and the application of GAAP requires management to make
estimates that affect our reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities.  In many
instances, we could have reasonably used different accounting estimates, and in
other instances changes in the accounting estimates are reasonably likely to
occur from period to period.  Accordingly, actual results could differ
significantly from the estimates made by management.  To the extent that there
are material differences between these estimates and actual results, our future
financial statement presentation of our financial condition or results of
operations will be affected.



On an ongoing basis, we evaluate our estimates, including
those related to revenue recognition, provision for doubtful accounts and sales
returns, fair value of investments, fair value of acquired intangible assets and
goodwill, useful lives of intangible assets and property and equipment, income
taxes, restructuring obligations, and contingencies and litigation, among
others.  We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.  We
refer to accounting estimates of this type as "critical accounting
estimates."



Critical Accounting Policies



In addition to making critical accounting estimates, we
must ensure that our financial statements are properly stated in accordance with
GAAP.  In many cases, the accounting treatment of a particular transaction is
specifically dictated by GAAP and does not require management's judgment in its
application, while in other cases, management's judgment is required in
selecting among available alternative accounting standards that allow different
accounting treatment for similar transactions (e.g., stock-based compensation,
restructuring activities, depreciation methodology, etc.).  We believe that the
following accounting policies are critical to understanding our historical and
future performance, as these policies relate to the more significant areas
involving management's judgments and estimates:

- Revenue recognition;
- Restructuring and related expenses;
- Impairment of long-lived assets;
- Provision for doubtful accounts;
- Acquired intangible assets;
- Stock-based compensation;
- Legal contingencies; and
- Income taxes.

Our management has reviewed our critical accounting
policies, our critical accounting estimates, and the related disclosures with
our Disclosure and Audit Committees.  These policies and our procedures related
to these policies are described further in our Annual Report on Form 10-K for
the year ended December 31, 2003 in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," under the
heading "Application of Critical Accounting Policies and Use of
Estimates."



Employee Stock Options



Section I.  Description of Plans



Since our inception, we have believed in broad-based
employee stock ownership.  Accordingly, our stock option program has been
instrumental in attracting and retaining talented employees and aligning their
interests with the interests of existing stockholders.  Our stock option program
consists primarily of two plans: the Siebel Systems, Inc. 1996 Equity Incentive
Plan (the "1996 Plan"), and the Siebel Systems, Inc. 1998 Equity
Incentive Plan (the "1998 Plan").  Stock options granted to executive
officers, key employees and non-employee directors are made under the 1996 Plan
and stock options granted to employees other than officers and directors are
made under the 1998 Plan.  Our Board of Directors and stockholders have approved
the 1996 Plan, and our Board of Directors has approved the 1998 Plan.



Substantially all stock option grants are made after a
review by, and with the approval of, the Compensation Committee of the Board of
Directors.  All members of our Compensation Committee are independent directors,
as defined in the applicable rules for issuers traded on The Nasdaq Stock
Market.  Substantially all of our employees participate in one of the above
plans, thereby providing us the ability to meet our goal of long-term retention
of our employees.  Stock options granted under these plans expire no later than
ten years from the grant date (2003 and 2004 grants expire six years from grant
date) and generally vest over five years.  Please refer to the "Report of
the Compensation Committee of the Board of Directors on Executive
Compensation" appearing in "Item 11. Executive Compensation" of
our Annual Report on Form 10-K for the year ended December 31, 2003 for further
information concerning our policies and the Compensation Committee's policies
regarding the use of stock options.



Section II.  Summary of Stock Option Activity During
2004



As the following table shows, stock options outstanding
decreased by 5.9 million, or 4%, during the three months ended March 31, 2004,
primarily due to forfeitures upon terminations.  Combined plan activity for the
three months ended March 31, 2004 is summarized as follows:

`Shares                       Wtd. Avg.
                                                      Available     Number of        Exercise
                                                      for Grant      Options      Price per Share
                                                     ------------ --------------  ---------------  
   Balances, December 31, 2003.....................  192,295,796    143,902,815    $       13.20
     Repurchase of restricted stock................       70,000             --
     Options granted to employees..................   (1,096,350)     1,096,350    $       12.96
     Options granted to officers and directors.....     (600,000)       600,000    $       14.19
     Options exercised.............................           --     (3,205,844)   $        5.09
     Options forfeited/canceled upon termination...    4,381,318     (4,393,688)   $       18.01
                                                     ------------ --------------  ---------------
   Balances, March 31, 2004........................  195,050,764    137,999,633    $       13.23
                                                     ============ ==============`

The following table details the "in-the-money"
and "out-of-the-money" status of our stock options outstanding as of
March 31, 2004:

`Options Outstanding             Options Exercisable
                 ---------------------------------------  -----------------------
                                 Wtd. Avg.     Wtd. Avg.                Wtd. Avg.
                    Number       Remaining     Exercise     Number      Exercise
Options           of Shares    Life (Years)     Price      of Shares     Price
---------------- ------------  -------------  ----------  -----------  ----------
In-the-money      71,701,850            3.9    $   5.17   51,531,126    $   3.97
Out-of-the-money  66,297,783            6.9    $  21.95   36,385,200    $  23.15
                 ------------  -------------  ----------  -----------  ----------
                 137,999,633            5.3    $  13.23   87,916,326    $  11.90
                 ============                             ===========`

In-the-money stock options in the above table have
exercise prices below $11.53, the closing price of our common stock as of March
31, 2004, and out-of-the money stock options have exercise prices equal to or
greater than $11.53.

Section III. Stock Option Dilution



Summary



Historically, stock options have been an important
component of total compensation for our employees.  Accordingly, substantially
all employees are granted stock options upon commencement of employment.  We
have on occasion assumed stock options of acquired businesses and rewarded
existing employees for high levels of performance with additional grants of
stock options (consideration of additional grants is typically scheduled to
occur by the end of the second quarter of each year).



In order to maintain the proper balance between the need
to attract and retain employees and minimize the dilution to existing
stockholders, we have maintained our adjusted compensation structure, which
significantly reduced the number of stock options issued to new and existing
employees.  In addition, commencing in February 2003, we began granting stock
options with a contractual life of six years, as opposed to ten years for stock
options granted prior to such time.



Immediately upon voluntary or involuntary termination, an
employee forfeits all unvested stock options.  Any vested stock options of the
terminated employee that are not exercised within three months from the
termination date are forfeited at the expiration of the three months.



Summarized below is the net dilution to our stockholders
during the years ended December 31, 2002 and 2003 and the three months ended
March 31, 2004, along with our option overhang as of the end of each of these
respective periods (in thousands, except percentages):

`Three Months
                                                                          Year Ended December 31,    Ended
                                                                          -----------------------   March 31,
                                                                             2002         2003        2004
                                                                          ----------- ----------- ------------
Net options granted:                                                   
Total options granted..................................................       5,887     22,787        1,696
Less options forfeited/cancelled upon termination......................     (28,910)   (27,660)      (4,394)
                                                                          ----------- ----------- ------------
      Net options granted (forfeited)..................................     (23,023)    (4,873)      (2,698)
                                                                          =========== =========== ============
Dilution percentage (1)................................................          (5)%       (1)%         (1)%
                                                                          =========== =========== ============
Option overhang (2)....................................................          38 %       29 %         27 %
                                                                          =========== =========== ============`

1. The potential dilution to stockholders from stock options
(the "Dilution Percentage") is calculated as new stock options granted
during the year, net of stock options forfeited by employees terminating
employment, divided by the total outstanding shares of common stock at the
beginning of the year.
2. Stock options outstanding relative to shares outstanding
("Stock Option Overhang") is calculated by dividing total stock
options outstanding by the total outstanding shares of common stock at the end
of each reporting period.

Distribution of Grants

We continue to believe in broad-based employee stock
ownership.  As the table below indicates, we have continued to allocate the
majority of our stock options to employees who are not officers and directors.
"Named Executive Officers" in the below table represent our CEO and
four most highly compensated executive officers for the respective year.  For
all 2004 periods presented in this quarterly report on Form 10-Q, Named
Executive Officers  represent our CEO and four most highly compensated executive
officers for the year ended December 31, 2003, as disclosed in Item 11.
"Executive Compensation" of our Annual Report on Form 10-K for the
year ended December 31, 2003.  Summarized below is the distribution of our stock
options for the years ended December 31, 2002 and 2003 and the three months
ended March 31, 2004:

`Three Months
                                                                          Year Ended December 31,    Ended
                                                                          -----------------------   March 31,
                                                                             2002         2003        2004
                                                                          ----------- ----------- ------------
Grants during the period as a percentage of total
  stock options granted:
      Named Executive Officers.........................................         3.4 %      4.6 %         -- %
      All other officers and directors as a group......................         0.3        3.3         35.4
                                                                          ----------- ----------- ------------
         Total for all officers and directors..........................         3.7        7.9         35.4
      All other employees as a group...................................        96.3       92.1         64.6
                                                                          ----------- ----------- ------------
         Total all grants..............................................       100.0 %    100.0 %      100.0 %
                                                                          =========== =========== ============`

All stock options granted in the first quarter of 2004
related to stock options issued to new employees upon commencement of
employment, with the exception of an aggregate of 100,000 stock options granted
to non-employee members of the board of directors, as described further
below.

Section IV. Accounting for Stock-Based Compensation



We account for our employee stock-based compensation
plans using the intrinsic value method, as prescribed by APB No. 25
"Accounting for Stock Issued to Employees" and interpretations thereof
(collectively "APB 25").  Accordingly, deferred compensation is only
recorded if the current market price of the underlying stock exceeds the
exercise price of the stock option on the date of grant.  We record and measure
deferred compensation for stock options granted to non-employees at their fair
value.  Deferred compensation is expensed on a straight-line basis over the
vesting period of the related stock option, which is generally five years.



An alternative to the intrinsic value method of
accounting for stock options is the fair value approach prescribed by SFAS No.
123 "Accounting for Stock-Based Compensation" ("SFAS 123").
We have continued to follow the intrinsic value method of APB 25, as we believe
the accounting for stock options under SFAS 123 could be extremely confusing to
investors, and perhaps may even misinform our stockholders.  Specifically, the
expense associated with stock options under SFAS 123 has no relationship to: (i)
the value realized by our employees, (ii) the potential dilution to our
stockholders, or (iii) the cost incurred by us.  In addition, we believe the use
of option valuation models as required by SFAS 123 is highly subjective.  The
following is a discussion of each of these assertions:



Value Realized by Our Employees



It is our belief that our employees and most of our
stockholders measure the "value" of stock options by subtracting the
exercise price of the stock option from the current market price of our common
stock, and would expect that, if we were to account for a stock option as an
expense, that the expense would approximate that value.  To the contrary, stock
options that have a low exercise price relative to the market price of common
stock, and therefore the most potential value, will carry the least amount of
expense in the financial statements under SFAS 123.  Conversely, stock options
that have a high exercise price relative to the market price of common stock
(i.e., they are "out-of-the-money"), and therefore the least potential
value, will carry the largest expense in the financial statements.



Information relating to stock options that we granted in
2000 illustrate this significant disparity.  In 2000, we granted stock options
with weighted-average exercise prices of $62.42 per share.  Employees have
realized $8.8 million in value on these stock options; however, if we were to
expense stock options in accordance with SFAS 123, we would be required to
recognize nearly $1.6 billion of expense in our financial statements.  In other
words, we would be required to recognize a compensation expense that was over
180 times the compensation received by our employees.  The amount
"realized" represents the actual realized gains upon exercise of the
stock options, plus the unrealized gains on stock options that remain
outstanding as of March 31, 2004 (i.e., closing price as of March 31, 2004 of
$11.53 less the applicable exercise price).



As this example illustrates, expensing stock options under SFAS 123 does
not provide reliable or meaningful information as to the amount of compensation
that may be realized by our employees.   Accordingly, we believe that expensing
stock options may obscure our required disclosures regarding executive equity
compensation (disclosed in Section V below of this quarterly report) and confuse
or misinform investors.



Potential Dilution to our Stockholders



We believe certain provisions of SFAS 123 may actually
discourage a company's efforts to reduce dilution to its stockholders.  For
example, if we had followed the provisions of SFAS 123 in 2003, we would have
faced the difficult decision to incur an expense of $251.8 million in order to
accept the cancellation for no consideration of 26 million stock options by our
CEO, representing potential dilution to our stockholders of 5%.  We believe that
the prospect of incurring significant charges such as this will discourage
companies from taking actions that reduce dilution to stockholders.



In addition, SFAS 123 requires companies to recognize an
expense for all stock options that vest, regardless as to whether the stock
options are subsequently forfeited by the employee upon termination.  For
example, we would have recognized an aggregate of approximately $270 million of
expense from 2001 to 2003 related to stock options that were subsequently
forfeited upon termination, despite the fact that the stock options did not
provide an equivalent monetary value in compensation to the employee or dilute
existing stockholders.



Cost Incurred by Us



It has been our experience that the compensation expense
under SFAS 123 has little relationship to the cost incurred by us.  For example,
in September 2002, we repurchased 28.1 million stock options for total
consideration of $51.9 million, which we reflected as an expense in our
financial statements.  If we had followed the provisions of SFAS 123, we would
have been required to reflect an additional $595.3 million of compensation
expense in our financial statements in 2002.  This would have been in addition
to the approximately $400 million that would have been expensed under SFAS 123 in
1999 to 2001 related to these same stock options.  In other words, our financial
statements would reflect an aggregate "cost" to us in excess of $1
billion, when in reality we repurchased all of these stock options at cost of
only $51.9 million.  Accordingly, we believe that the expense required to be
recognized under SFAS 123 has no bearing on the actual cost incurred by a
corporation.



Valuation Models



In accordance with the fair value approach prescribed by
SFAS 123, employee stock options are required to be valued at grant date using
an option valuation model, such as the Black-Scholes or Binomial models.  We
believe there are limitations to the appropriateness of these option valuation
models, including the fact that these option valuation models were developed for
use in estimating the fair value of traded options, which have no vesting
restrictions, are fully transferable, and typically have shorter terms.  In
addition, in accordance with SFAS 123, we must use subjective assumptions,
including expected stock price volatility and the expected remaining life as
inputs to the Black-Scholes option valuation model.  The number of subjective
assumptions required is increased exponentially under the Binomial model.
Because our stock-based awards have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in our opinion, the existing
models that are available to value stock options do not provide an appropriate
measure of the fair value of stock-based awards to our employees.



Summary of Pro Forma Expense Under SFAS 123



As required by SFAS 123, we have prepared a
reconciliation of our earnings as reported on the statement of operations to the
earnings that we would have reported if we had followed SFAS 123 in accounting
for our stock-based compensation arrangements.  For purposes of this
reconciliation, we added back all stock-based employee compensation expense
recorded in accordance with APB 25 in the statement of operations, then deducted
the pro forma stock-based employee compensation expense determined under SFAS
123.  This pro forma effect on earnings represents the amortization of the
deferred compensation that is computed using the Black-Scholes option valuation
model at the date of the stock option grant.  Summarized below are the pro forma
effects on our net income, as if we had elected to use the fair value approach
prescribed by SFAS 123 to account for our employee stock-based compensation
plans (in thousands):

`Three Months Ended
                                                                                March 31,
                                                                         ----------------------
                                                                             2003       2004
                                                                         ----------- ----------
Net income (loss):                                                                             
  As reported..........................................................  $    4,618  $  31,652
                                                                         ----------- ----------
  Compensation expense related to:
    Stock options accounted for in accordance with APB 25..............         505        195
    In-the-money stock options.........................................      (4,097)    (4,503)
    Stock purchase rights under the Purchase Plan......................        (863)    (2,559)
                                                                         ----------- ----------
       Total pro forma expense related to "in the money" stock
         options and Purchase Plan.....................................      (4,455)    (6,867)
    Out-of-the-money stock options.....................................     (42,170)   (40,276)
    Stock options cancelled for no consideration.......................    (251,821)        --
    Stock options forfeited/cancelled in connection with terminations..      (9,166)        --
                                                                         ----------- ----------
       Total pro forma expense giving effect to SFAS 123...............    (307,612)   (47,143)
                                                                         ----------- ----------
  Pro forma giving effect to SFAS 123..................................  $ (302,994) $ (15,491)
                                                                         =========== ==========`

In-the-money stock options in the above table have
exercise prices below the closing price of our common stock as of the end of
each of the respective periods, and out-of-the-money stock options have exercise
prices equal to or greater than the closing price of our common stock as of the
end of each of the respective periods.  The closing prices as of March 31, 2003
and 2004 were $8.01 and $11.53, respectively.



As the table above illustrates, total pro forma expense
for stock options includes $303.2 million and $40.3 million of expense during
the three months ended March 31, 2003 and 2004, respectively, related to: (i)
our CEO's stock options that were cancelled for no consideration; (ii) stock
options forfeited by employees upon termination for no consideration; and (iii)
stock options that are significantly out of the money (e.g., the weighted-average
exercise price of the out-of-the-money stock options was $21.95 per
share compared to a closing price of $11.53 per share as of March 31, 2004).
These items represented 99% and 85% of the pro forma expense in the above table
for the three months ended March 31, 2003 and 2004, respectively.



Please refer to Note 1 to the accompanying unaudited
consolidated financial statements for a further discussion of the fair value
approach prescribed by SFAS 123, including the assumptions used to determine the
fair value of and resulting SFAS 123 expense related to stock options granted,
and the procedures followed by us in determining those assumptions.



Section V. Executive and Director Stock-Based
Compensation



Executive Stock-Based Compensation



We did not grant any stock options to our Named Executive
Officers during the three months ended March 31, 2004.  The following summarizes
the distribution and dilutive impact of the stock options held by our Named
Executive Officers as of December 31, 2002 and 2003, and March 31, 2004:

`Three Months
                                                                          Year Ended December 31,    Ended
                                                                          -----------------------   March 31,
                                                                             2002         2003        2004
                                                                          ----------- ----------- ------------
Stock options held by Named Executive Officers
   as a percentage of:                                                                                        
      Total options outstanding........................................        29.3 %     18.7 %       19.2 %
                                                                          =========== =========== ============
      Outstanding shares of common stock...............................        11.2 %      5.4 %        5.3 %
                                                                          =========== =========== ============`

The following table sets forth for each of the Named
Executive Officers the shares acquired and the value realized on each exercise
of stock options during the three months ended March 31, 2004 and the number and
value of securities underlying unexercised options held by the Named Executive
Officers as of March 31, 2004:

`Number of
                                                                   Securities Underlying         Value of Unexercised
                                                                   Unexercised Options at       In-the-Money Options at
                                   Shares                            March 31, 2004 (2)            March 31, 2004 (3)
                                 Acquired on        Value       ---------------------------  ----------------------------
       Officer Name               Exercise      Realized (1)    Exercisable   Unexercisable   Exercisable   Unexercisable
-----------------------------   ------------  ---------------   ------------  -------------  -------------  -------------
Thomas M. Siebel                         --    $          --     18,686,134             --   $162,802,766   $         --
R. David Schmaier                   250,000    $   2,260,938      1,518,217      1,154,643   $  3,798,034   $  1,509,502
Kenneth A. Goldman                       --    $          --      1,627,500      1,242,500   $         --   $    717,500
Edward Y. Abbo                       50,000    $     666,438        518,700        387,500   $  2,643,912   $    717,500
Steven M. Mankoff                    30,000    $     279,113        826,800        560,000   $  3,346,029   $    717,500`

1. Based on the fair market value of our common stock on the
exercise date, minus the exercise price, multiplied by the number of shares
exercised.
2. Represents the total number of shares of our common stock
subject to stock options held by the Named Executive Officers as of March 31,
2004.
3. Based on the fair market value of our common stock as of
March 31, 2004 ($11.53 per share), minus the exercise price, multiplied by the
number of shares underlying the stock options.

Director Stock-Based Compensation



Our directors do not currently receive any cash
compensation for service on the Board of Directors or any committee thereof, but
are eligible for reimbursement for certain expenses incurred in attending Board
of Directors and committee meetings.  Historically, our non-employee directors
have received discretionary periodic stock option grants under the 1996 Plan for
service on our Board of Directors.  In May 2003, after considering the criteria
relating to awarding stock options and general market conditions, our Board of
Directors approved the following formal guidelines relating to the grant of
stock options to our non-employee directors:

- Initial Grants--Each new non-employee director will be
granted an option to purchase 80,000 shares of our common stock as soon as
practicable following such director's appointment to the Board of
Directors.
- Annual Grants--Each non-employee director who has served
on the Board of Directors for more than six months will be granted an option to
purchase 20,000 shares of our common stock in January of each
year.

We do not intend for stock options granted to
non-employee directors to qualify as incentive stock options under the Internal
Revenue Code.  We believe that these option grant guidelines will motivate and
reward our non-employee directors for their service in a manner that is
consistent with good corporate practice and the independence requirements of the
Nasdaq National Market applicable to members of boards of directors and
compensation committees.  Notwithstanding the foregoing guidelines, from time to
time, including prior to any option grant made to any non-employee director, the
Compensation Committee of the Board of Directors will review the appropriateness
and adequacy of these compensation guidelines, taking into consideration actual
performance by us and the non-employee director and such other factors and
circumstances as deemed necessary and appropriate, and exercising such other
power and authority as may be permitted or required under the 1996 Plan.



During the three months ended March 31, 2004, we granted
20,000 stock options with an exercise price of $15.39 to each of our
non-employee directors, including James C. Gaither, Marc F. Racicot, Eric E.
Schmidt, Charles R. Schwab and George T. Shaheen.  The exercise price per share
was equal to the fair market value of common stock on the date of grant.  The
fair value of each of these stock options on the date of grant was approximately
$106,000, or $5.31 per share, as determined using the Black-Scholes option
valuation model.  At the one year anniversary of each grant, 20% of the shares
subject to such grant vest and become exercisable, with the remaining shares
vesting thereafter in 16 equal quarterly installments upon the director's
completion of each quarter of service on the Board of Directors.  The term of
these stock options was six years.



Section VI. Equity Compensation Plan Information



Information related to each of our stock option plans is
summarized as follows:

`Number of Shares
                                       Number of       Weighted    Remaining Available
                                      Shares to Be     Average         for Future
                                       Issued Upon     Exercise      Issuance Under
                                       Exercise of     Price of    Equity Compensation
                                       Outstanding    Outstanding   Plans (Excluding
           Plan Category                 Options       Options     Options Outstanding)
------------------------------------  -------------  ------------  -------------------
 Equity compensation plans:
   Approved by shareholders (1).....    50,270,795    $     7.40           84,435,646
   Not approved by shareholders (2).    86,718,044    $    16.66          123,960,389
   Acquired companies' plans (3)....     1,010,794    $     9.00                   --
                                      -------------    ----------  -------------------
                                       137,999,633    $    13.23          208,396,035
                                      =============                ===================`

1. Represents shares available under the 1996 Plan, which is
used for grants to our officers and directors.  The shares remaining available
for future issuance amount also includes 13.3 million shares available under our
2003 Employee Stock Purchase Plan.
2. Represents shares available under the 1998 Plan, which is
used for grants to our employees other than officers and directors.
3. We have assumed certain stock options granted to former
employees of acquired companies (the "Acquired Options").  All of the
Acquired Options have been adjusted to give effect to the conversion under the
terms of the agreements between us and the companies acquired.  The Acquired
Options generally become exercisable over a four-year period and expire ten
years from the date of grant.  Additional stock options will not be granted
under any of the acquired companies' plans, and these plans have not been
approved by our stockholders.



Risk Factors



Set forth below and elsewhere in this quarterly report
and in the other documents we file with the SEC are risks and uncertainties that
could cause actual results to differ materially from the results contemplated by
the forward-looking statements contained in this quarterly report.  Prospective
and existing investors are strongly urged to carefully consider the various
cautionary statements and risks set forth in this quarterly report and our other
public filings.



Our total revenue and operating results may
fluctuate.



We have experienced and in the future may experience a
shortfall in revenue or earnings or otherwise fail to meet public market
expectations, which could materially and adversely affect our business and the
market price of our common stock.  Our total revenue and operating results may
fluctuate significantly because of a number of factors, many of which are
outside of our control.  These factors include:

- Corporate and consumer confidence in the economy, evidenced, in part, by
stock market levels;
- Changes in the domestic and international economic, business and political
conditions;
- Economic conditions within the information technology industry;
- Level of product and price competition;
- Length of our sales cycle and customer licensing patterns;
- Size and timing of individual license transactions;
- Delay or deferral of customer implementations of our products;
- Success in expanding our Global Services Organization, direct sales force
and indirect distribution channels;
- Timing of new product introductions and product enhancements;
- Appropriate mix of products licensed and services sold;
- Levels of international transactions;
- Activities of and acquisitions by competitors;
- Timing of new hires and the allocation of our resources;
- Increases in the cost of software and professional services;
- Changes in foreign currency exchange rates;
- Success of integrating and achieving the anticipated benefits of our
acquired companies; and
- Our ability to develop and market new products and control costs.

One or more of the foregoing factors may cause our
operating expenses to be disproportionately high during any given period or may
cause our net revenue and operating results to fluctuate significantly.  Based
upon the preceding factors, we may experience a shortfall in revenue or earnings
or otherwise fail to meet public market expectations, which could materially and
adversely affect our business, financial condition, results of operations and
the market price of our common stock.



Our quarterly operating results may fluctuate.



Our total revenue and operating results may vary
significantly from quarter-to-quarter.  The main factors that may affect these
fluctuations are:

- Domestic and international economic, business and political conditions;
- Economic conditions within the information technology industry;
- The discretionary nature of our customers' purchase and budget cycles;
- The size and complexity of our license transactions;
- The potential delays in recognizing revenue from license transactions;
- The timing of new product releases;
- Hiring additional personnel, including sales staff, programmers and other
staff;
- Seasonal variations in operating results; and
- Variations in the fiscal or quarterly cycles of our customers.

Each customer's decision to implement our products and
services is discretionary, involves a significant commitment of resources and is
subject to its budget cycles.  In addition, the timing of license revenue is
difficult to predict because of the length of our sales cycle.  We base our
operating expenses on anticipated revenue trends.  Because a high percentage of
these expenses are relatively fixed, a delay in recognizing revenue from license
transactions could cause significant variations in operating results from
quarter-to-quarter and could result in operating losses.  If these expenses
precede, or are not subsequently followed by, increased revenues, our business,
financial condition or results of operations could be materially and adversely
affected.



As a result of these and other factors, revenues for any
quarter are subject to significant variation, and we believe that period-to-period
comparisons of our results of operations are not necessarily meaningful.
The reader should not rely on these comparisons as indications of future performance.
Our future quarterly operating results from time to time may not meet the
expectations of market analysts or investors, which would likely have an adverse
effect on the price of our common stock.



Economic conditions could adversely affect our revenue
growth and ability to forecast revenue.



The revenue growth and profitability of our business
depends on the overall demand for business applications software and services,
particularly within the industries in which we offer specific versions of our
products.  Because our sales are primarily to major corporate customers in the
high technology, telecommunications, financial services (including insurance),
pharmaceutical, utilities and consumer packaged goods industries, our business
depends on the overall economic conditions and the economic and business
conditions within these industries.  For example weak global economic conditions
in 2001, 2002 and 2003, significantly impacted capital spending, particularly
information technology spending within the industries listed above, resulting in
a decrease in our software license revenues in 2001, 2002 and 2003.  Future
decreases in demand for computer software caused, in part, by weakness of the
global economy may result in a decrease in revenues, operating income and/or our
growth rates.



Hostilities involving the United States and/or
terrorist attacks could harm our business.



Our operations could be negatively impacted if there are
additional terrorist attacks or hostilities involving the United States
escalate.  In the past, terrorist attacks, including attacks on the United
States and internationally, have had a significant impact on global economic
conditions and our operations.  For example, the equity markets have reacted
with significant declines in response to past terrorist actions.  Further, as a
result of past terrorist attacks and hostilities involving the United States, we
believe many of our customers and potential customers were much more cautious in
setting and spending against their capital expenditure budgets.  Subsequent
terrorist acts and/or the threat of future outbreak or continued escalation of
hostilities involving the United States or other countries could adversely
affect the growth rate of our software license revenue and have an adverse
effect on our business, financial condition or results of operations.  In
addition, any escalation in these events or similar future events may disrupt
our operations or those of our customers, distributors and suppliers, which
could adversely affect our business, financial condition or results of
operations.



A variation in the conversion of our revenue pipeline
to contracts could adversely affect our revenues and ability to forecast
operations.



Our revenue pipeline estimates may not consistently
correlate to actual revenues in a particular quarter or over a longer period of
time.  A slowdown in the global economy has caused and may continue to cause
customer purchasing decisions to be delayed, reduced in amount or canceled, all
of which have reduced and could continue to reduce the rate of conversion of the
pipeline into contracts.  A variation in the pipeline or in the conversion of
the pipeline into contracts could cause us to plan or budget inaccurately and
thereby could adversely affect our business, financial condition or results of
operations.  In addition, primarily due to a substantial portion of our license
revenue contracts closing in the latter part of a quarter, management may not be
able to adjust our cost structure in response to a variation in the conversion
of the pipeline into contracts in a timely manner, thereby adversely affecting
our business, financial condition or results of operations.



The length of time required to engage a client and to
implement our products may be lengthy and unpredictable.



The timing of the sales and implementation of our
products and services is lengthy and not predictable with any degree of
accuracy.  Prior sales and implementation cycles should not be relied upon as
any indication of future cycles.  The license of our software products is often
an enterprise-wide decision by prospective customers and generally requires us
to provide a significant level of education to prospective customers regarding
the use and benefits of our products.  In addition, the implementation of our
products involves a significant commitment of resources by prospective customers
and is commonly associated with reengineering efforts that may be performed by
the customer or third-party systems integrators.  The cost to the customer of
our product is typically only a portion of the related hardware, software,
development, training and integration costs of implementing a large-scale
business software system.  For these and other reasons, the period between
initial contact and the implementation of our products is often lengthy and is
subject to a number of factors that may cause significant delays, over many of
which we have little or no control.  These factors include the size and
complexity of the overall project and delays in our customers' implementation of
Web-based computing environments.  A delay in the sale or implementation of even
a limited number of license transactions could have a material adverse effect on
our business, financial condition or results of operations and cause our
operating results to vary significantly from quarter to quarter.  As a result of
current economic conditions and increased competition, our sales cycle has
recently become longer than historical sales cycles.



An unfavorable government review of our income and
payroll tax returns or changes in our effective tax rates could adversely affect
our operating results.



Our operations are subject to income, payroll and
transaction taxes in the United States and in multiple foreign jurisdictions.
We exercise judgment in determining our worldwide provision for income taxes,
and in the ordinary course of our business there may be transactions and
calculations where the ultimate tax determination is uncertain.  Further, the
rules related to the remittance of certain payroll taxes are onerous and the
compliance with these filing requirements is often difficult to determine.



Our U.S. Federal income tax returns for 1998, 1999 and
2000 are currently under examination by the Internal Revenue Service
("IRS").  During 2003 and 2004, we received notices from the IRS of
proposed adjustments to these income tax returns.  In addition, certain of our
U.S. and international payroll tax returns, primarily related to stock option
exercises, are currently under examination by the applicable taxing authority.
While we believe that we have made adequate provisions related to the audits of
these income and payroll tax returns, the final determination of our income and
payroll tax obligations may exceed the amounts provided for by us in the
accompanying consolidated financial statements.



Specifically, we may receive an assessment related to the
audit of our U.S. income and payroll tax returns or international payroll tax
returns that exceeds amounts provided for by us.  In the event we are
unsuccessful in reducing the amount of such assessment, our business, financial
condition or results of operations could be adversely affected.  Further, if
additional taxes and/or penalties are assessed as a result of these audits,
there could be a material effect on our income tax provision, operating expenses
and net income in the period or periods for which that determination is
made.



We do not have an adequate history with our Siebel CRM
OnDemand subscription model to predict the rate of the conversion of our sales
pipeline, customer subscription renewals and the impact these renewals will have
on our revenue or operating results.



We began offering Siebel CRM OnDemand, a hosted
software application delivered as an online service, in the fourth quarter of
2003.  Siebel CRM OnDemand is offered on a subscription basis, rather than as a
perpetual license.  Siebel CRM OnDemand customers have no obligation to renew
their service subscriptions after the expiration of the initial subscription
period and in fact, some former customers of acquired businesses have elected
not to renew their subscriptions.  In addition, our customers may renew their
service for fewer users.  Because the fee structure for Siebel CRM OnDemand is
based on the number of users, this could reduce our revenue generated from this
service.  We have limited historical data with respect to rates of customer
subscription renewals, so we cannot accurately predict customer renewal rates.
Our customers' renewal rates may decline or fluctuate as a result of a number of
factors, including their inability to continue their operations and/or spending
levels.  If our customers do not renew their subscriptions for our service, our
expectations regarding future revenues from this new product offering may be
incorrect, which could adversely affect our business, financial condition or
results of operations.  Further, we do not have an adequate operating history
related to this subscription model to effectively estimate expense assumptions
and thus we may not be able to adequately predict profitability of this
business.  Further, for the remainder of 2004 we expect to invest significantly
more in our Siebel CRM OnDemand business model than we expect to realize in
revenues from this hosted service.

The market for Siebel CRM OnDemand and on-demand
application services is immature and volatile, and if it does not develop or
develops more slowly than we expect, our business may be harmed.

The market for on-demand or "hosted"
application services is new and unproven, and it is uncertain whether these
services will achieve and sustain high levels of demand and market acceptance.
Our success will depend in part on the willingness of enterprises to increase
their use of on-demand application services in general and for CRM, in
particular.  If enterprises do not perceive the benefits of on-demand
application services, then the market for these services may not develop at all,
or it may develop more slowly than we expect, either of which could
significantly adversely affect our operating results.  In addition, if the
demand for our Siebel CRM OnDemand service does not materialize as expected, our
ability to recover our investment in UpShot Corporation, referred to herein as
UpShot, and Ineto Services, Inc., referred to herein as Ineto, may be impaired.
As of March 31, 2004, we have approximately $62.5 million of goodwill and $8.9
million of amortizable intangibles related to UpShot and Ineto.



Interruptions or delays in our Siebel CRM OnDemand
service from our third-party hosting partners could impair the delivery of our
service and harm our business.



We have entered into strategic relationships with hosting
partners, including IBM and British Telecom, to provide our CRM OnDemand service
through computer hardware located at the facilities of these third parties.  We
do not control the operation of these facilities, which could be subject to
damage or interruption from a variety of sources, including earthquakes, fires,
power loss, telecommunications failures and similar events.   The occurrence of
one of these events or other unanticipated problems at these facilities could
result in lengthy interruptions in our service.  In addition, the failure by one
of our hosting partners to provide the required data communications capacity
could result in interruptions in our service.  Interruptions in our service may
reduce our revenue, cause us to issue credits or pay penalties, cause customers
to terminate their subscriptions and adversely affect our renewal rates.



If our security measures are breached and an
unauthorized party obtains access to a customer's data, our Siebel CRM OnDemand
service may be perceived as being insecure and customers may curtail or stop
using our service.

Our Siebel CRM OnDemand service involves the storage and
transmission of customers' proprietary information, and security breaches could
expose us to a risk of loss of this information, litigation and potential
liability.  Because techniques used to obtain unauthorized access or to sabotage
systems change frequently and generally are not recognized until launched
against a target, we may be unable to anticipate these techniques or to
implement adequate preventative measures.  If an actual or perceived breach of
our security occurs, the market perception of the effectiveness of our security
measures could be harmed and we could lose existing customers and our ability to
obtain new customers.



We may not successfully complete the integration of our
recent acquisitions into our Siebel CRM OnDemand business model.



In order to expedite our entrance into the hosted CRM
market, we acquired UpShot in November 2003 and Ineto in January 2004.  The
integration of these companies into a fully integrated Siebel OnDemand business
model will take time and the remaining integration work may be difficult and
time consuming, particularly in light of this being a new business model for us.
The combined companies must successfully complete the integration of, among
other things, certain product and service offerings, product development, sales
and marketing, administrative and customer service functions, and management
information systems.  In addition, we must retain the key management, key
employees, customers, distributors, vendors and other business partners of both
companies in order to achieve certain desired synergies.  It is possible that
these integration efforts will not be completed as efficiently as planned or
will distract management from the operations of the combined businesses.  If we
do not successfully complete the integration of these operations in a timely
manner, or at all, the combined companies may not realize the anticipated
benefits of the acquisition to the extent anticipated, which could adversely
affect our business, financial condition or results of operations.

We need to successfully integrate our other
acquisitions.



Our business strategy includes pursuing opportunities to
grow our business, internally and through selective acquisitions, investments,
joint ventures and strategic alliances.  For example, we recently completed two
acquisitions: Ineto in January 2004 and Eontec Limited in April 2004.  Please
refer to Notes 4 and 7 to the accompanying unaudited consolidated financial
statements for a further discussion of these acquisitions.  Our ability to
implement this business strategy depends, in part, on our success in making such
acquisitions, investments, joint ventures and strategic alliances on
satisfactory terms and successfully integrating them into our operations.
Implementation of this strategy may impose significant strains on our
management, operating systems and financial resources.  Failure to manage this
growth, or unexpected difficulties encountered during expansion, could have an
adverse effect on our business, financial condition or results of
operations.



Integration of personnel and operations relating to our
previous or future acquisitions may disrupt our business and management.



We have in the past and may in the future acquire
additional companies, products or technologies.  We may not realize the
anticipated benefits of any acquisition or investment.   We may not be able to
successfully assimilate the additional personnel, customers, operations,
acquired technology and products obtained in the acquisition of these companies
into our business.  In particular, we will need to assimilate and retain key
professional services, sales, engineering and marketing personnel.  Key
personnel from the acquired companies have in certain instances decided, and
they may in the future decide, to pursue other opportunities.  In addition, it
may be necessary to integrate products of these companies with our technology,
and it is uncertain whether we may accomplish this easily or at all.  These
integration difficulties could disrupt our ongoing business, distract management
and employees or increase expenses.  Acquisitions are inherently risky, and we
may also face unexpected costs, which may adversely affect operating results in
any quarter.  In addition, our profitability may suffer because of acquisition-related
costs or amortization costs for acquired intangible assets.



We may incur future restructuring charges, which may
adversely impact our operations.



During 2002 and 2003, we completed a restructuring of our
operations involving, among other things, the reduction of our workforce and the
consolidation of excess facilities (collectively the "2002 and 2003
Restructurings").  As part of the 2002 and 2003 Restructurings, we ceased
to use certain of our leased facilities.  The removal of these facilities from
our operations will require us to negotiate certain lease terminations and/or
subleases of our facilities.  We cannot predict when or if we will be successful
in negotiating lease termination agreements or subleases of our facilities on
terms acceptable to us.  Should we be unsuccessful in such negotiations or if
the negotiated terms are less favorable than currently anticipated, we may be
required to materially increase our Restructuring and related expenses in future
periods.



We cannot assure you that we will not reduce or otherwise
adjust our workforce again in the future or that the related transition issues
associated with such a reduction will not occur again.  In addition, employees,
whether or not directly affected by the reduction, may seek future employment
with our business partners, customers or competitors.  Although our employees
are required to sign a confidentiality agreement at the time of hire, we cannot
assure you that the confidential nature of certain proprietary information will
be maintained in the course of such future employment.  Further, we believe that
our future success will depend in large part upon our ability to attract and
retain highly skilled personnel.  We may have difficulty attracting such
personnel as a result of a perceived risk of future workforce reductions.



If we do not successfully manage the size of our
operations, our business may be negatively impacted.



If we fail to manage the size of our operations
effectively, our business, financial condition or results of operations could be
materially and adversely affected.  Since we began operations in 1994 and
continuing throughout early 2001, our business grew rapidly.  Beginning in early
2001 and continuing through much of 2003, our revenues declined as a result of a
deterioration of the overall economy and information technology industry.  These
rapid changes in our business have placed a significant strain on our management
systems and resources.  In response to the deterioration in the information
technology industry, management completed the 2002 and 2003 Restructurings.  The
2002 and 2003 Restructurings have particular risks, many of which are discussed
above under "We may incur future restructuring charges, which may adversely
impact our operations."  In addition, if the recent growth of operations
that occurred in the fourth quarter of 2003 and first quarter of 2004 continues,
we may have to implement new systems or upgrade current systems, and the failure
to successfully implement such new or improved systems could materially and
adversely affect our business.



Rapid change will require us to manage the size of our
employee base, particularly our direct sales force and global support staff.



The majority of our expenses are personnel-related costs
such as employee compensation and benefits, along with the cost of the
infrastructure (occupancy and equipment) to support our employee base.  The
failure to adjust our employee base, particularly our direct sales force and
technical and global services staff, to the appropriate level to support our
revenues could materially and adversely affect our business, operating results
and financial condition.  In addition, expanding the distribution of our
products may place new and increased demands on our direct sales force and
technical and sales support staff.  Although we currently invest sufficient
resources in our direct sales force and our technical and global services staff,
there are only a limited number of qualified personnel in these areas.  Our
ability to achieve expanded distribution and revenue growth in the future will
depend, in part, on our success in recruiting and training sufficient direct
sales, technical and global services personnel.  We may not be able to expand
our direct sales force and technical support staff as necessary to support our
operations.



If requirements relating to accounting treatment for
employee stock options are changed, we may be forced to change our business
practices or our earnings may be affected.



Generally accepted accounting principles in the United
States are subject to interpretation by the Financial Accounting Standards
Board, or FASB, the American Institute of Certified Public Accountants, the
Public Company Accounting Oversight Board, the Securities and Exchange
Commission, and various bodies formed to promulgate and interpret appropriate
accounting principles. A change in these principles or interpretations could
have a significant effect on our reported financial results, and could affect
the reporting of transactions completed before the implementation of a new
accounting principle.



We currently account for stock options under APB 25 and,
accordingly, we only record compensation expense related to stock options if the
current market price of the underlying stock exceeds the exercise price of the
stock option on the date of grant.  On March 31, 2004, the FASB issued a draft
accounting pronouncement which, if implemented, will require us to expense all
outstanding unvested stock options and grants of new stock options effective
January 1, 2005.  The final statement is expected to be issued in the third
quarter of 2004.  If we are required to change our accounting policy in
accordance with this draft accounting pronouncement, we estimate that our
quarterly earnings in 2005 could be reduced by up to approximately $35 million.
This estimate is based solely on the expense associated with stock options
outstanding as of March 31, 2004 and therefore does not take into consideration
new stock option grants, which would increase this estimate, or forfeitures of
stock options, which would reduce this estimate.  This could affect our ability
to retain existing employees, attract qualified candidates, and increase the
cash compensation we would have to pay to them.



We rely on strategic relationships with systems
integrators, distributors, resellers and technology vendors.



Failure to maintain existing strategic relationships with
systems integrators, distributors, resellers and technology vendors, or to
establish new relationships in the future, could have a material adverse effect
on our business.  We have established strategic relationships with a number of
organizations that we believe are important to our sales, marketing and support
activities and the implementation of our products.  We believe that our
relationships with these organizations provide marketing and sales opportunities
for our direct sales force and expand the distribution of our products.  These
relationships allow us to keep pace with the technological and marketing
developments of major software vendors and provide us with technical assistance
for our product development efforts.



In particular, we have established non-exclusive
strategic relationships with Accenture, Capgemini, Deloitte Consulting, IBM
Corporation and BearingPoint, among others.  A significant portion of our
revenues has historically been derived from customers that have engaged systems
integrators with which we have a relationship.  Any deterioration of our
relationship with these significant third-party systems integrators could have a
material adverse effect on our business, financial condition or results of
operations.  We also have relationships with technology vendors such as
Hewlett-Packard, Microsoft and Sun Microsystems, among others.  Failure to maintain
existing relationships on terms equally favorable to us, or to establish new
relationships in the future, could have a material adverse effect on our
business, financial condition or results of operations.



Our current and potential customers may also rely on
third-party systems integrators to develop, deploy or manage Siebel
eBusiness Applications.  If we do not adequately train a sufficient
number of systems integrators, or if these integrators do not have, or do not
devote, the resources necessary to implement our products, our business,
financial condition or results of operations could be materially and adversely
affected.



Our customers may not successfully implement our
products.



If existing customers have difficulty deploying Siebel
eBusiness Applications or for any other reason are not satisfied with
Siebel eBusiness Applications, our business, operating results and
financial condition could be materially and adversely affected.  Many of our
customers purchase and implement our products in phases.  Our customers
frequently deploy our products to large numbers of sales, marketing and customer
service personnel.  These end users may not accept our products.  Our products
are also being deployed on a variety of computer hardware platforms and used
with a number of third-party software applications and programming tools.  This
use may present significant technical challenges, particularly as large numbers
of personnel attempt to use our products concurrently.



A limited number of products provide a substantial part of
our license revenues.



A majority of our software license revenues are
attributable to sales of our sales, marketing and service automation products,
particularly Siebel Sales, Siebel Service, Siebel Call Center, Siebel
Interactive Selling and related products.  We have also expanded our product
offerings to include Siebel Analytics, Siebel Employee Relationship Management,
Universal Application Network and Siebel CRM OnDemand. We expect that these
applications, along with the related consulting, maintenance and training
services, will continue to account for a majority of our future revenues.
Factors adversely affecting the cost and pricing of, or demand for, these
products, such as competition or technological change, could have a material
adverse effect on our business, financial condition or results of
operations.



Our software license revenue is dependent on our
ability to enter into significant software license transactions with new and
existing customers.



Our success depends on gaining new customers and
maintaining relationships with our existing customers.  In particular, if the
number of software license transactions and/or the average size of these
transactions decrease, our software license revenue may be negatively impacted.
For example, during the first quarter of 2004 we were able to grow revenues on a
year-over-year basis due primarily to a year-over-year increase in the number of
transactions generating software license revenues greater than $5 million.
Conversely, in periods when the number of transactions generating software
license revenues greater than $5 million decreased, our total software license
revenues also decreased (i.e., from 2001 to 2003).  The failure to enter into
these larger software license transactions and/or maintain or increase the
number of software license transactions could have a material adverse effect on
our business, financial condition or results of operations.



Our distribution channels may create additional
risks.



Failure to minimize channel conflicts could materially
and adversely affect our business, operating results and financial condition.
We have a number of relationships with resellers, which assist us in obtaining
broad market coverage.  We have generally avoided exclusive relationships with
resellers of our products.  Discount policies and reseller licensing programs
are intended to support each distribution channel with a minimum level of
channel conflicts.



Our continued success will require us to keep pace with
technological developments, evolving industry standards and changing customer
needs.



The software market in which we compete is characterized
by: (i) rapid technological change; (ii) frequent introductions of new products;
(iii) changing customer needs; and (iv) evolving industry standards.  To keep
pace with technological developments, evolving industry standards and changing
customer needs, we must support existing products and develop new products.  We
may not be successful in developing, marketing and releasing new products or new
versions of Siebel eBusiness Applications that respond to technological
developments, evolving industry standards or changing customer requirements.  We
may also experience difficulties that could delay or prevent the successful
development, introduction and sale of these enhancements.  In addition, these
enhancements may not adequately meet the requirements of the marketplace and may
not achieve any significant degree of market acceptance.  If release dates of
any future products or enhancements to Siebel eBusiness Applications are
delayed, or if these products or enhancements fail to achieve market acceptance
when released, our business, operating results and financial condition could be
materially and adversely affected.  In addition, new products or enhancements by
our competitors may cause customers to defer or forego purchases of our
products, which could have a material adverse effect on our business, financial
condition or results of operations.



We may not be able to compete effectively in the
Internet-related products and services market.



Siebel eBusiness Applications communicate through
public and private networks over the Internet.  The success of our products may
depend, in part, on our ability to continue developing products that are
compatible with the Internet.  Additionally, expansion in the sales of our
service depends on the continued acceptance of the Internet as a communications
and commerce platform for enterprises.  The Internet could lose its viability as
a business tool due to delays in the development or adoption of new standards
and protocols to handle increased demands of Internet activity, security,
reliability, cost, ease-of-use, accessibility, and quality-of-service.  The
performance of the Internet and its acceptance as a business tool has been
harmed by "viruses," "worms," and similar malicious programs
and the Internet has experienced a variety of outages and other delays as a
result of damage to portions of its infrastructure.  If for any reason the
Internet does not remain a widespread communications medium and commercial
platform, the demand for our service would be significantly reduced, which would
harm our business.  We cannot predict with any assurance whether the demand for
Internet-related products and services will increase or decrease in the future.
The increased commercial use of the Internet could require substantial
modification and customization of our products and the introduction of new
products.



Critical issues concerning the commercial use of the
Internet, including security, privacy, demand, reliability, cost, ease of use,
accessibility, quality of service and potential tax or other government
regulation remain unresolved and may affect the use of the Internet as a medium
to support the functionality of our products and distribution of our software.
If these critical issues are not favorably resolved, our business, financial
condition or results of operations could be materially and adversely
affected.



We operate in a competitive and rapidly changing
market.



If the Web-based applications market fails to grow, our
business, operating results and financial condition could be materially and
adversely affected.  The market for Web-based applications software is
relatively new, highly competitive and rapidly changing.  We market our products
primarily to customers who have migrated or are in the process of migrating
their enterprise computing systems to Web-based computing environments.  Our
future financial performance will partly depend on the continued growth of
organizations successfully adopting Web-based computing environments.



To be successful, we must effectively compete in the business
applications market.



Our products target the market for business applications
software.  This market is highly competitive, rapidly changing, and
significantly affected by new product introductions and the market activities of
other industry participants.  Our products are specifically targeted at the
market for customer, partner and employee relationship information systems, as
well as the markets for analytics and application integration.  We face
competition primarily from our customers' internal information technology
departments and systems integrators, as well as other application software
providers that offer a variety of products and services designed to address
these markets.  We believe that most customer deployments have been the result
of large internal development projects, custom solutions from systems
integrators, or the application of personal and departmental productivity tools
to the global enterprise.  We may not be able to compete successfully against
such internal development efforts.



Our customers and prospective customers are increasingly
evaluating their software procurement needs with a focus on the long term total
cost of ownership, which includes the cost of the license and the related
professional services, such as implementation, training, and technical support.
With significantly lower license costs from competitive solutions, and no
license cost for internal projects, our success depends on our ability to
adequately communicate the relative capabilities of our products, the total cost
of ownership of the various alternative solutions (i.e., versus the cost of only
the license), and the total return on investment of each of the various
alternatives.



The following is a discussion of each of the individual
competitive environments in which we operate:



Internal Development



Many of our customers and potential customers have in the
past attempted to develop sales, marketing, customer service and employee
relationship information systems in-house, either alone or with the help of
systems integrators.  Internal information technology departments have staffed
projects to build their own systems utilizing a variety of tools.  In some
cases, such internal development projects have been successful in satisfying the
needs of an organization.  To compete successfully, our products must conform to
the customer's information technology standards, scale to meet the needs of
large enterprises, operate globally and cost less than the result of an internal
development effort.  We may not be able to compete effectively against these
internal development efforts.



Custom System Integration Projects



We also face competition from systems integrators engaged by
companies to build a custom development application.  The introduction of a
systems integrator typically increases the likelihood of success for the
customer.  To successfully compete in this area, we must demonstrate and provide
to the customer the cost savings and advantages of a configurable, upgradable
and commercially supported product developed by a dedicated professional
software organization.



We frequently rely on a number of systems consulting and
systems integration firms for a substantial portion of implementation and other
global services, as well as recommendations of our products during the
evaluation stage of the purchase process.  Although we seek to maintain close
relationships with these service providers, many of them have similar and often
more established relationships with our competitors.  If we are unable to
develop and retain effective, long-term relationships with these third parties,
our competitive position could be materially and adversely affected.  Further,
some of these third parties have significantly greater resources than we do and
may market software products that compete with us and may otherwise reduce or
discontinue their relationships with or support of us and our products.



Other Competitors



Our competitors include a number of companies that compete
with us primarily within a particular product line (e.g., analytics, interactive
selling, etc.) and/or the prospective customer's industry (e.g., life sciences,
financial services, etc.).  These companies include Amdocs Limited; CAS GmbH;
Chordiant Software, Inc.; Dendrite International, Inc.; E.piphany, Inc.;
FrontRange Solutions, Inc.; Interact Commerce Corporation; Kana Software, Inc.; Microsoft Corporation;
ONYX Software Corporation; Pivotal Corporation; Salesforce.com, Inc.; and
StayinFront, Inc., among many others.  In addition, our competitors include
several companies, such as Oracle Corporation, PeopleSoft, Inc. and SAP AG,
which compete in a majority of our product lines.



Some of these competitors have longer operating histories;
significantly greater financial, technical, marketing and other resources;
significantly greater name recognition; a broader product offering; and a larger
installed base of customers than we do.  In addition, many competitors have
well-established relationships with our current and potential customers.  As a
result, these competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or to devote greater resources
to the development, promotion and sale of their products than we can.



There are many factors that may increase competition in
the business systems market, including: (i) entry of new competitors; (ii)
alliances among existing competitors; (iii) alliances between our competitors
and systems integrators; (iv) consolidation in the software industry or among
systems integrators; and (v) technological changes or changes in the use of the
Internet.  Increased competition may result in price reductions, reduced gross
margins or loss of market share, any of which could materially and adversely
affect our business, financial condition, or results of operations.  We may not
be able to compete successfully against current and future competitors or
competitive pressures faced by us may materially and adversely affect our
business, financial condition or results of operations.



If we do not maintain our relationships with third-party
vendors, interruptions in the supply of our products may result.



We may not be able to replace the functionality provided
by the third-party software currently offered with our products if that software
becomes obsolete or incompatible with future versions of our products or is not
adequately maintained or updated.  Portions of our products incorporate software
that was developed and is maintained by third-party software developers.
Although we believe there are other sources for these products, any significant
interruption in the supply of these products could adversely impact our sales
unless and until we can secure another source.  We depend in part on these third
parties' abilities to enhance their current products, to develop new products on
a timely and cost-effective basis and to respond to emerging industry standards
and other technological changes.  The absence of or any significant delay in the
replacement of functionality provided by third-party software in our products
could materially and adversely affect our sales.



Software errors or defects in our products could reduce
revenues.



Software products frequently contain errors or failures,
especially when first introduced or when new versions are released, and could be
affected by viruses.  We have, in the past, been forced to delay the commercial
release of products until the software problems have been corrected.  We could
lose revenues as a result of software viruses, errors or defects, including
defects in third-party products with which our products work.  Our products are
intended for use in applications that may be critical to a customer's business.
As a result, we expect that our customers and potential customers will have a
greater sensitivity to product defects than the market for software products
generally.  Testing errors may also be found in new products or releases after
commencement of commercial shipments, resulting in loss of revenue or delay in
market acceptance, damage to our reputation, or increased service and warranty
costs, any of which could have a material adverse effect upon our business,
financial condition or results of operations.



If we cannot hire enough qualified employees or if we
lose key employees, it will adversely affect our ability to manage our business,
develop our products and increase our revenues.



Our performance depends on the continued service of our
key technical, sales and senior management personnel, particularly Thomas M.
Siebel, our Chairman and CEO.  Our key employees have not entered into
employment agreements with us.  The loss of one or more of our executive
officers could have a material adverse effect on our business, operating results
and financial condition.  In recent years, we have had members of our senior
management announce their retirement or departure from our company.  We replace
these individuals with internal candidates and, if deemed appropriate,
individuals from outside our organization.  While our internal candidates
understand our business model, they must learn a new position and take on
additional or new responsibilities, which could take time and result in the
disruption to our ongoing operations.  To integrate into our company, new senior
personnel must spend a significant amount of time learning our business model
and management systems, in addition to performing their regular duties.
Accordingly, until new senior personnel become familiar with our business model
and systems, their integration may result in some disruption to our ongoing
operations.  Additionally, we may need to hire additional personnel in general
or to replace internal candidates who have been promoted and as a result, we may
experience increased compensation costs that are not offset by either improved
productivity or higher prices.



We periodically have restructured our sales force, which can be
disruptive.

We continue to rely heavily on our direct sales force.
In recent years, we have restructured or made other adjustments to our sales
force in response to factors such as management changes, product changes and
other internal considerations.  Changes in the structure of the sales force and
sales force management have generally resulted in a temporary lack of focus and
reduced productivity that may have affected revenues in one or more quarters.
We cannot assure you that we will not continue to restructure our sales force or
that the transition issues associated with restructuring the sales force will
not recur.



We may not be able to protect our proprietary
information.



We rely primarily on a combination of patent, copyright,
trade secret and trademark laws; confidentiality procedures; and contractual
provisions to protect our proprietary rights.  We also believe that the
technological and creative skills of our personnel, new product developments,
frequent product enhancements, name recognition and reliable product maintenance
are essential to establishing and maintaining a technology leadership position.
We seek to protect our software, documentation and other written materials under
patent, trade secret and copyright laws, which afford only limited protection.
Any patents issued to us may be invalidated, circumvented or challenged.  Any of
our pending or future patent applications, whether or not being currently
challenged, may not be issued with the scope of the claims we seek, if at all.
Furthermore, others may develop technologies that are similar or superior to our
technology or design around our patents.



Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or to obtain
and use information that we regard as proprietary.  Policing unauthorized use of
our products is difficult.  In addition, the laws of some foreign countries do
not protect our proprietary rights as fully as do the laws of the United States.
Our means of protecting our proprietary rights in the United States or abroad
may not be adequate.  We have entered into agreements with substantially all of
our customers that require us to place Siebel eBusiness Applications
source code into escrow.  Such agreements generally provide that such parties
will have a limited, non-exclusive right to use such code if: (i) there is a
bankruptcy proceeding by or against us; (ii) we cease to do business; or (iii)
we fail to meet our support obligations.



Although we do not believe that we are infringing any
proprietary rights of others, third parties may claim that we have infringed
their intellectual property rights.  Furthermore, former employers of our
former, current or future employees may assert claims that such employees have
improperly disclosed to us the confidential or proprietary information of such
former employers.  Any such claims, with or without merit, could: (i) be
time-consuming to defend; (ii) result in costly litigation; (iii) divert management's
attention and resources; (iv) cause product shipment delays; and (v) require us
to pay monetary damages or enter into royalty or licensing agreements.  A
successful claim of product infringement against us and our failure or inability
to license or create a workaround for such infringed or similar technology may
materially and adversely affect our business, financial condition or results of
operations.



Our international operations involve unique risks.



Our revenues are primarily derived from large
multinational companies.  To service the needs of these companies, we must
provide worldwide product support services.  We have expanded and in the future
may expand our international operations and enter additional international
markets.  This will require significant management attention and financial
resources that could adversely affect our operating margins and earnings.  We
may not be able to maintain or increase international market demand for Siebel
eBusiness Applications.  If we do not, our international sales will be
limited and our business, financial condition or results of operations could be
materially and adversely affected.



Our international operations are subject to a variety of
risks, including: (i) foreign currency fluctuations; (ii) economic or political
instability; (iii) shipping delays; and (iv) various trade restrictions.  Any of
these risks could have a significant impact on our ability to deliver products
on a competitive and timely basis.  Significant increases in the level of
customs duties, export quotas or other trade restrictions could also have an
adverse effect on our business, financial condition or results of operations.
In situations where direct sales or purchases are denominated in foreign
currency, any fluctuation in the exchange rate may adversely affect our
business, financial condition or results of operations.  Generally, we manage
our foreign currency exchange rate risk by entering into contracts to sell or
purchase foreign currency at the time a foreign currency receivable or payable
is generated.  When the foreign currency asset or liability is extinguished, the
contract is liquidated, and the resulting gain or loss on the contract mitigates
the exchange rate risk of the associated asset or liability.  In certain
instances, we have not hedged foreign currency receivables and payables when the
forward contracts in the relevant currency were not readily available or were
not cost-effective.



Our current officers, directors and entities affiliated
with us may be able to exercise control over matters requiring stockholder
approval.



Our current officers, directors and entities affiliated
with us together beneficially owned a significant portion of the outstanding
shares of common stock.  While these stockholders do not hold a majority of our
outstanding common stock, they will be able to exercise significant influence
over matters requiring stockholder approval, including the election of directors
and the approval of mergers, consolidations and sales of our assets.  This may
prevent or discourage tender offers for our common stock.



Our stock price may continue to be volatile.



Our stock price has fluctuated substantially since our
initial public offering in June 1996.  The trading price of our common stock is
subject to significant fluctuations in response to variations in quarterly
operating results; the gain or loss of significant orders; changes in earning
estimates by analysts; changes in our revenue and/or earnings expectations as
announced in our earnings call; announcements of technological innovations or
new products by us or our competitors; changes in the domestic and international
economic, political and business conditions; general conditions in the software
and computer industries; the recent lack of confidence in corporate governance
and accounting practices; and other events or factors.  In addition, the stock
market in general has experienced extreme price and volume fluctuations that
have affected the market prices for many companies in industries similar or
related to ours and that have been unrelated to the operating performance of
these companies.  These market fluctuations have adversely affected and may
continue to adversely affect the market price of our common stock.



Provisions in our charter documents may prevent certain
corporate actions.



Our Board of Directors is authorized to issue up to
2,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further approval by our stockholders.  One of these shares
has been designated Series A1 Preferred Stock, which was issued in connection
with the acquisition of Janna Systems Inc. in 2000, and 100,000 shares have been
designated as Series A2 Junior Participating Preferred Stock, which was
authorized in connection with a stockholders' rights plan that we implemented in
2003.  Additional shares of preferred stock could be authorized or issued with
voting, liquidation, dividend and other rights superior to those of the common
stock.



The rights of the holders of common stock will be subject
to and may be adversely affected by the rights of the holders of any preferred
stock that may be issued in the future.  The issuance of the Series A2 Junior
Participating Preferred Stock or the authorization of additional classes of
preferred stock by our Board of Directors in the future, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could make it more difficult for a third party to acquire a
majority of our outstanding voting common stock.  In addition, the following
factors could also delay or make more difficult a merger, tender offer or proxy
contest: (i) our classified Board of Directors; (ii) certain provisions of our
certificate of incorporation; (iii) certain provisions of our bylaws; and (iv)
certain provisions of Delaware law.

Item 3. Quantitative and Qualitative Disclosures
about Market Risk

The tables below provide information about our
derivative financial instruments and financial instruments that are subject to
market risk.  The first table includes our foreign currency contracts used to
minimize the impact of changes in currency rates on existing foreign currency
receivables, payables and intercompany balances, which are subject to exchange
rate risk.  The second table includes our available-for-sale short-term
investments, which are subject to interest rate risk.



We manage our foreign currency exchange rate risk by
entering into contracts to sell or buy foreign currency at the time a foreign
currency receivable or payable is generated.  When the foreign currency asset or
liability is extinguished, the contract is liquidated, and the resulting gain or
loss on the contract mitigates the exchange rate risk of the associated asset or
liability.



The following table summarizes as of March 31, 2004, our
foreign currency forward contracts, by currency.  All of our foreign currency
forward contracts mature within a year.  Contract amounts are representative of
the expected payments to be made under these instruments (in thousands):

`Contract Amount   Contract        Fair
                                           (Local Currency)   Amount     Value (US$)
                                           ---------------  ----------  -------------
Australian dollars ("AUD") (contracts
  to pay AUD/receive US$).................    (AUD) 24,100   US$18,359  $        700

Brazilian real ("BRL") (contracts to
  pay BRL/receive US$)....................    (BRL) 23,172    US$7,589  $        (22)

British pounds ("GBP") (contracts to
  pay GBP/receive EUR)....................     (GBP) 2,400   EUR 3,573  $         12

Canadian dollars ("CAD") (contracts
  to pay CAD/receive US$).................     (CAD) 2,601    US$1,955  $         (6)

Japanese yen ("YEN") (contracts to
  pay YEN/receive US$).................... (YEN) 2,951,000   US$27,832  $        (22)

Korea won ("KRW") (contracts to pay
  KRW/receive US$)........................   (KRW) 709,200      US$591  $         --

Mexican peso ("MXN") (contracts
  to pay MXN/receive US$).................    (MXN) 29,500    US$2,624  $        (10)

Singapore dollars ("SGD") (contracts
  to pay SGD/receive US$).................     (SGD) 2,125    US$1,285  $        (26)

Czech Republic koruna ("CZK") (contracts
  to receive CZK/pay EUR).................    (CZK) 48,000   EUR 1,450  $         21

Euro ("EUR") (contracts to receive
  EUR/pay US$)............................   (EUR) 195,729  US$249,114  $     (8,873)

Swedish krona ("SEK") (contracts to
  receive SEK/pay EUR)....................    (SEK) 12,836   EUR 1,405  $        (29)

Swiss franc ("CHF") (contracts to
  receive CHF/pay EUR)....................     (CHF) 4,140   EUR 2,650  $         34`

The following table summarizes our short-term investments
and the weighted average yields, as of March 31, 2004 (in thousands, except
percentages):

`Expected Maturity Date
                                     ------------------------------------------------------------------------
                                       2004      2005      2006      2007      2008   Thereafter     Total
                                     --------- --------- --------- --------- -------- ----------- -----------
US Treasury and Agency securities...  $67,584  $127,821  $166,837   $26,382   $6,685          --    $395,309
  Weighted average yield............     1.11%     1.44%     2.09%     2.45%    2.98%

Corporate bonds.....................  $51,999  $171,024  $276,903  $120,775  $26,598      13,267    $660,566
  Weighted average yield............     1.34%     1.57%     1.87%     2.46%    2.91%       3.50%

Asset-backed securities.............  $56,442  $147,140  $172,411   $30,572   $3,188      $7,614    $417,367
  Weighted average yield............     1.60%     1.78%     2.40%     2.38%    2.47%       2.25%
                                     --------- --------- --------- --------- -------- ----------- -----------
Total short-term investments........ $176,025  $445,985  $616,151  $177,729  $36,471     $20,881  $1,473,242
                                     ========= ========= ========= ========= ======== =========== ===========`

As of March 31, 2004, we had an investment portfolio of
fixed income securities, excluding those classified as cash and cash
equivalents, of $1,473.2 million.  These securities, like all fixed income
instruments, are subject to interest rate risk and, accordingly, if market
interest rates increase, these investments will decline in value.  If market
interest rates were to increase immediately and uniformly by 100 basis points
from levels as of March 31, 2004, the fair value of the portfolio would decline
by approximately $22.9 million.



We manage our interest rate risk by maintaining an
investment portfolio with debt instruments of high credit quality and relatively
short average maturities.  We also manage interest rate risk by maintaining
sufficient cash and cash equivalent balances such that we are typically able to
hold our investments to maturity.

Item 4.	 Controls and
Procedures

We have historically made our
internal controls over financial reporting a high priority and continue to do
so.  Our Internal Controls Committee, comprised primarily of senior financial
and legal personnel, assists us in ensuring that our internal controls over
financial reporting are complete, accurate and appropriately documented.  In
addition, our internal audit department reviews and tests our internal controls
in order to ensure that the internal controls are designed appropriately and are
operating as designed.  The Sarbanes-Oxley Act of 2002 ("SOX") and
resulting rules adopted by the Securities and Exchange Commission
("SEC") served as a catalyst for us to formalize many of our
processes, controls and procedures that we have instituted to ensure proper
financial reporting.  The following is a summary of the procedures that we have
undertaken with respect to Section 302 of SOX ("Section 302") and
Section 404 of SOX ("Section 404").



Section 302



Attached as Exhibits 31 and 32 to this quarterly report
are two separate forms of certifications of our CEO and CFO.  The certifications
attached as Exhibits 31.1 and 31.2 are required in accordance with Section 302
of the Sarbanes-Oxley Act of 2002 (the "Section 302 Certifications").
The information contained below relates to the Controls Evaluation referred to
in the Section 302 Certifications, and should be read with the Section 302
Certifications for a more complete understanding of the topics presented.



As of March 31, 2004 (the "Evaluation Date"),
we evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (the "Disclosure Controls"), as such terms are
defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act
of 1934 (the "Exchange Act"), and our internal controls and procedures
for financial reporting (the "Internal Controls").  This evaluation
(the "Controls Evaluation") was done under the supervision and with
the participation of management, including our CEO and CFO.  Rules adopted by
the SEC require that we present the conclusions of the CEO and the CFO about the
effectiveness of our Disclosure Controls and Internal Controls based on and as
of the date of the Controls Evaluation.



Based upon the Controls Evaluation, our CEO and
CFO have concluded that, subject to the limitations noted below under Section
404, our Disclosure Controls are effective in alerting them on a timely basis to
material information related to us (including our consolidated subsidiaries)
that is required to be included in our reports filed or submitted under the
Exchange Act.



Our CEO and CFO note that during the three months ended
March 31, 2004, there have been no changes in Internal Controls or in other
factors that materially affected or are reasonably likely to materially affect
such controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.



Section 404



Under Section 404, we are required to document all of our
internal controls over business and financial processes and procedures that may
affect our reported financial results.  In addition, we will issue a report on
the effectiveness of our internal control over financial reporting, including a
statement as to whether or not our internal controls over financial reporting
are effective.  In addition, our independent auditors will perform an audit of
our internal controls and provide an assessment of those controls over financial
reporting for the year ended December 31, 2004.



Responsibility for Disclosure and Internal Controls



Our management, including the CEO and CFO, has the
responsibility of establishing and maintaining adequate disclosure and internal
controls over our financial reporting.  Disclosure Controls are procedures that
are designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Exchange Act, such as this quarterly
report, is recorded, processed, summarized and reported within the time periods
specified in the SEC rules and forms.  Disclosure Controls are also designed
with the objective of ensuring that such information is accumulated and
communicated to our management, including the CEO and CFO, as appropriate to
allow timely decisions regarding required disclosure.



Internal controls are a set of processes designed by, or
under the supervision of, our principal executive and principal financial
officers, or persons performing similar functions, and effected by our Board of
Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles ("GAAP") and includes those policies and
procedures that:

1. pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect our transactions and dispositions of our
assets;
2. provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and
3. provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on the financial statements.

Limitations on the Effectiveness of Controls



Our management, including the CEO and CFO, does not
expect that our Disclosure Controls or our Internal Controls will prevent all
error and all fraud.  A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met.  Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs.  Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within a company have been detected.  These inherent limitations include
the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake.  Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control.  The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.  In
addition, over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate.  Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.



Scope of Our Controls Evaluation Under Section 404



As of December 31, 2003, we have substantially completed
the documentation and testing of our significant business and financial process
and procedures, representing approximately 50 individual processes, which may
materially impact our reported financial and operating results.  In addition,
our management and internal audit department have completed their review of
these policies and procedures and our internal audit department has completed
their testing of our compliance with and the adequacy of these policies and
procedures as of December 31, 2003.  In accordance with SOX, we will test our
internal controls each year and, accordingly, we have begun our testing for 2004
and expect to complete this testing by the third or fourth quarter.



Our evaluation of our Disclosure Controls and our
Internal Controls included a formal documentation and review of the controls'
objectives and design, along with our controls' implementation and the effect of
the controls on the information generated for use in this quarterly report.  In
the course of the Controls Evaluation, we sought to identify data errors,
controls problems or acts of fraud and to confirm that appropriate corrective
action, including process improvements, were being undertaken.  We also sought
to deal with other controls matters in the controls evaluation, and in each case
if a problem was identified, we considered what revision, improvement or
correction to make in accordance with our on-going procedures.



Among other matters, we sought in our evaluation to
determine whether there were any control deficiencies (particularly
"significant deficiencies" or "material weaknesses") in our
Internal Controls, or whether we have identified any acts of fraud involving
personnel who have a significant role in our Internal Controls.  This
information was important both for our controls evaluation generally and because
"Item 5" in the Section 302 Certifications require that the CEO and
CFO disclose such information to our Audit Committee of the Board of Directors
and to our independent auditors and to report on related matters in this section
of the quarterly report.  In professional auditing literature, a control
deficiency exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned
functions, to prevent or detect misstatements on a timely basis.  A
"significant deficiency" in the control structure exists when there is
a control deficiency, or combination of control deficiencies, that adversely
affects a company's ability to initiate, record, process, or report external
financial data reliably in accordance with GAAP such that there is more than a
remote likelihood that a misstatement of the annual or interim financial
statements that is more than inconsequential in amount will not be prevented or
detected.  A "material weakness" is defined in auditing literature as
a particularly serious significant deficiency, or combination of significant
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.



We will perform this type of evaluation on a quarterly
basis so that the conclusions concerning controls effectiveness can be reported
in our quarterly reports and annual report.  Our Internal Controls are also
evaluated on an on-going basis by our internal audit department and by other
personnel in our finance organization.  The overall goals of these various
evaluation activities are to monitor our Disclosure Controls and our Internal
Controls and to make modifications as necessary.  Our intent in this regard is
that the Disclosure Controls and the Internal Controls will be maintained as
dynamic systems that change (including with improvements and corrections) as
conditions warrant.



Evaluation of Our Disclosure Controls and Internal
Controls Under Section 404



Based upon our management's review and our internal audit
department's testing of our internal controls, we believe that our internal
controls provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with GAAP.  We believe we are well positioned to be in compliance
with Section 404 when all provisions of Section 404 are effective, including our
ability to issue a report on our internal controls and obtain an attestation
report on our internal controls from our auditors.

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Part II.  Other Information



Item 1.	  Legal Proceedings



On May 6, 2003, the Enforcement Division staff
("Staff") of the SEC contacted us and indicated that a May 1, 2003
article on CBS MarketWatch had raised questions regarding our compliance with
Regulation FD.  In August 2003, the SEC Staff notified us and two of our
officers of the SEC Staff's preliminary decision to recommend that the SEC take
enforcement action against us and these officers in regard to statements
allegedly made prior to and during an April 30, 2003 dinner.  No such
enforcement action has been initiated, and no findings have been issued.  We,
along with our officers, have filed submissions with the SEC in response to the
SEC notices and we believe that these submissions contain numerous meritorious
defenses to these allegations.  As we disclosed during our earnings call on
January 21, 2004, it appears that this matter may soon go before the SEC for a
decision.  If the SEC decides to pursue this matter, we expect that it will
continue though its normal course of civil action.



On March 10, 2004, William Wollrab, on behalf of himself
and purportedly on behalf of a class of our shareholders, filed an action in the
United States District Court for the Northern District of California against us
and certain of our officers.  This action alleges claims in connection with
various public statements made by us and seeks damages together with interest
and reimbursement of costs and expenses of litigation.  A number of follow-on
actions have been filed alleging substantially similar claims.  We believe the
allegations in this action are without merit and we intend to defend vigorously
against these claims.



In addition, we are subject to legal proceedings and
claims, either asserted or unasserted, that arise in the ordinary course of
business.  While the outcome of these proceedings and claims cannot be predicted
with certainty, management does not believe that the outcome of any pending
legal matters will have a material adverse effect on our consolidated financial
position, although results of operations or cash flows could be affected in a
particular period.

Item 6.	  Exhibits and Reports on Form 8-K

(a) Exhibits.

|Exhibit Number | Description of Document                                                                                                                                       
|-------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            | Amended and Restated Certificate of Incorporation of Siebel Systems, Inc., as amended to date. (1)                                                            
|3.2            | Amended and Restated Bylaws of Siebel Systems, Inc. (2)                                                                                                       
|4.1            | Reference is made to Exhibit 3.1 and Exhibit 3.2.                                                                                                             
|4.2            | Specimen Stock Certificate. (3)                                                                                                                               
|4.4            | Certificate of Designation of Series A1 Preferred Stock of Siebel Systems, Inc. (4)                                                                           
|4.5            | Indenture between Siebel Systems, Inc., as Issuer, and Chase Manhattan Bank and Trust Company,
National Association, as Trustee, dated September 15, 1999. (5)
|4.6            | Certificate of Designation of Series A2 Junior Participating Preferred Stock. (6)                                                                             
|4.7            | Rights Agreement dated as of January 29, 2003, between Siebel Systems, Inc. and Mellon
Investors Services LLC, as Rights Agent. (6)                           
|4.8            | Form of Rights Certificate. (6)                                                                                                                               
|31.1           | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (7)                                                                                  
|31.2           | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (7)                                                                                  
|32.1           | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (7)                                                                                  

__________________

1. Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2001.
2. Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 2002.
3. Incorporated by reference to the Company's Registration Statement on Form S-1
(No. 333-03751), as amended.
4. Incorporated by reference to the Company's Current Report on Form 8-K filed
on November 27, 2000.
5. Incorporated by reference to the Company's Registration Statement on Form S-3
(No. 333-91777) filed on November 30, 1999.
6. Incorporated by reference to the Company's Current Report on Form 8-K filed
on January 29, 2003.
7. Filed herewith.

(b)	Reports on Form 8-K.

On January 5, 2004, the Registrant furnished a current
report on Form 8-K reporting under Item 12 announcing preliminary results for
the quarter ended December 31, 2003.

On January 16, 2004, the Registrant filed a current
report on Form 8-K/A, amending a previous current report on Form 8-K, to report
under Item 7 financial statements and financial information in connection with
the acquisition of UpShot Corporation on November 3, 2003.

On January 21, 2004, the Registrant furnished a current
report on Form 8-K reporting under Item 12 announcing final results for the
quarter ended December 31, 2003.

Availability of this Report



We intend to make this quarterly report on Form 10-Q
publicly available on our website (www.siebel.com) without charge immediately
following our filing with the Securities and Exchange Commission.  We assume no
obligation to update or revise any forward-looking statements in this quarterly
report on Form 10-Q, whether as a result of new information, future events or
otherwise, unless we are required to do so by law.

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**SIGNATURES**

Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

SIEBEL SYSTEMS, INC.(Registrant)Dated: April 30, 2004By:
    /s/ Kenneth A. GoldmanKenneth A. GoldmanSenior Vice President, Finance and
                                    Administration and
                                    Chief Financial Officer(Prinicipal Financial Officer)

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