**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 September 30, 2003**

**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 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 Exchange Act Rule 12b-2). YES [X] NO [  ]

The number of shares outstanding of the Registrant's common stock, par value
      $.001 per share, as of October 17, 2003, was 495,879,010.







**SIEBEL SYSTEMS, INC.
                                    FORM 10-Q
                 For the Quarterly Period Ended September 30, 2003**

Table of Contents



|Part I.  Financial Information                                                                                                                       | Page
|---------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                                                     |     
|Item 1.   Financial Statements                                                                                                                       |     
|                                                                                                                                                     |     
|Consolidated Balance Sheets as of
          
December 31, 2002 and September 30, 2003                                                                | 3   
|                                                                                                                                                     |     
|Consolidated Statements of Operations and Comprehensive Income (Loss)
          
    for the three and nine months ended September 30, 2002 and 2003 | 4   
|                                                                                                                                                     |     
|Consolidated Statements of Cash Flows
          
    for the nine months ended September 30, 2002 and 2003                                           | 5   
|                                                                                                                                                     |     
|Notes to Consolidated Financial Statements                                                                                                           | 6   
|                                                                                                                                                     |     
|Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                                | 20  
|                                                                                                                                                     |     
|Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                                                                 | 45  
|                                                                                                                                                     |     
|Item 4. Evaluation of Disclosure Controls and Procedures                                                                                             | 46  
|                                                                                                                                                     |     

**Part II.  Other Information**



|Item 1.   Legal Proceedings                | 47
|------------------------------------------ | --
|                                           |   
|Item 6.   Exhibits and Reports on Form 8-K | 48
|                                           |   
|**Signatures**                             | 49

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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,  September 30,
                                                                               2002          2003
                                                                          ------------- -------------
Assets

Current assets:
   Cash and cash equivalents...........................................   $    667,511  $    545,001
   Short-term investments..............................................      1,494,093     1,481,959
                                                                          ------------- -------------
          Total cash, cash equivalents and short-term investments......      2,161,604     2,026,960

   Marketable equity securities........................................          4,613            93
   Accounts receivable, net............................................        275,764       188,694
   Deferred income taxes...............................................         96,518       123,006
   Prepaids and other..................................................         49,901        43,882
                                                                          ------------- -------------
          Total current assets.........................................      2,588,400     2,382,635

Property and equipment, net............................................        273,024       182,561
Goodwill...............................................................         80,949        82,129
Intangible assets, net.................................................         10,354         3,230
Other assets...........................................................         37,580        39,771
Deferred income taxes..................................................         42,711        42,711
                                                                          ------------- -------------
          Total assets.................................................   $  3,033,018  $  2,733,037
                                                                          ============= =============

Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable....................................................   $     15,239  $     21,492
   Accrued expenses....................................................        319,622       288,785
   Restructuring obligations...........................................         42,703        56,166
   Deferred revenue....................................................        270,575       260,023
                                                                          ------------- -------------
          Total current liabilities....................................        648,139       626,466

Restructuring obligations, less current portion........................        111,845       123,591
Other long-term liabilities............................................         15,574        10,316
Convertible subordinated debentures....................................        300,000            --
                                                                          ------------- -------------
          Total liabilities............................................      1,075,558       760,373
                                                                          ------------- -------------

Commitments and contingencies

Stockholders' equity:
  Common stock; $0.001 par value; 2,000,000 shares authorized;
     486,428 and 494,667 shares issued and outstanding, respectively...            486           495
  Additional paid-in capital...........................................      1,486,612     1,529,313
  Deferred compensation................................................         (3,438)       (1,840)
  Accumulated other comprehensive income...............................         28,681        44,521
  Retained earnings....................................................        445,119       400,175
                                                                          ------------- -------------
          Total stockholders' equity...................................      1,957,460     1,972,664
                                                                          ------------- -------------
          Total liabilities and stockholders' equity...................   $  3,033,018  $  2,733,037
                                                                          ============= =============`

See accompanying notes to consolidated financial statements.

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

`Three Months Ended     Nine Months Ended
                                                                     September 30,         September 30,
                                                                 --------------------- ----------------------
                                                                    2002       2003        2002       2003
                                                                 ---------- ---------- ----------- ----------
Revenues:
   Software....................................................  $ 126,834  $ 110,003  $  542,990  $ 331,989
   Professional services, maintenance and other................    230,328    211,429     697,581    655,497
                                                                 ---------- ---------- ----------- ----------
       Total revenues..........................................    357,162    321,432   1,240,571    987,486
                                                                 ---------- ---------- ----------- ----------
Cost of revenues:
   Software....................................................      6,011      5,974      16,588     14,963
   Professional services, maintenance and other................    143,603    120,489     399,797    372,142
                                                                 ---------- ---------- ----------- ----------
       Total cost of revenues..................................    149,614    126,463     416,385    387,105
                                                                 ---------- ---------- ----------- ----------
            Gross margin.......................................    207,548    194,969     824,186    600,381
                                                                 ---------- ---------- ----------- ----------
Operating expenses:
   Product development.........................................    104,254     71,432     273,173    226,177
   Sales and marketing.........................................    112,069     82,756     372,627    276,804
   General and administrative..................................     36,544     27,319      96,111     81,860
   Restructuring and related expenses..........................    109,383    104,767     109,383    105,041
                                                                 ---------- ---------- ----------- ----------
       Total operating expenses................................    362,250    286,274     851,294    689,882
                                                                 ---------- ---------- ----------- ----------
            Operating loss.....................................   (154,702)   (91,305)    (27,108)   (89,501)
                                                                 ---------- ---------- ----------- ----------
Other income, net:
   Interest and other income, net..............................     15,944     14,140      45,680     44,562
   Loss on early extinguishment of debt........................         --    (10,711)         --    (10,711)
   Interest expense............................................     (5,113)    (4,827)    (14,949)   (14,575)
                                                                 ---------- ---------- ----------- ----------
       Total other income, net.................................     10,831     (1,398)     30,731     19,276
                                                                 ---------- ---------- ----------- ----------
            Income (loss) before income taxes..................   (143,871)   (92,703)      3,623    (70,225)
Income taxes (benefit).........................................    (51,793)   (33,373)      1,305    (25,281)
                                                                 ---------- ---------- ----------- ----------
            Net income (loss)..................................  $ (92,078) $ (59,330) $    2,318  $ (44,944)
                                                                 ========== ========== =========== ==========

Diluted net income (loss) per share............................  $   (0.19) $   (0.12) $       --  $   (0.09)
                                                                 ========== ========== =========== ==========
Basic net income (loss) per share..............................  $   (0.19) $   (0.12) $       --  $   (0.09)
                                                                 ========== ========== =========== ==========

Shares used in diluted share computation.......................    477,660    493,933     523,580    490,049
                                                                 ========== ========== =========== ==========
Shares used in basic share computation.........................    477,660    493,933     473,565    490,049
                                                                 ========== ========== =========== ==========
Comprehensive income (loss):
Net income (loss)..............................................  $ (92,078) $ (59,330) $    2,318  $ (44,944)
Other comprehensive income (loss), net of taxes:
   Foreign currency translation adjustments....................     (2,401)    (2,586)     10,138     16,130
   Realized gain on marketable investments previously
      recognized in other comprehensive income.................     (5,020)    (1,055)     (9,750)    (4,760)
   Unrealized gain on investments, net.........................      8,846     (2,709)     12,422      4,472
                                                                 ---------- ---------- ----------- ----------
       Other comprehensive income (loss).......................      1,425     (6,350)     12,810     15,842
                                                                 ---------- ---------- ----------- ----------
            Total comprehensive income (loss)..................  $ (90,653) $ (65,680) $   15,128  $ (29,102)
                                                                 ========== ========== =========== ==========`

See accompanying notes to consolidated financial statements.

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

`Nine Months Ended
                                                                                   September 30,
                                                                            --------------------------
                                                                                 2002         2003
                                                                            ------------- ------------
Cash flows from operating activities:
   Net income (loss)....................................................... $      2,318  $   (44,944)
   Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
      Write-off of property and equipment abandoned in restructuring.......       18,962       17,506
      Write-off of acquired technology.....................................           --        2,449
      Loss on early extinguishment of debt.................................           --       10,711
      Compensation expense related to option repurchase shares.............       31,471           --
      Depreciation and amortization........................................      105,099      116,189
      Amortization of identifiable intangible assets.......................        6,687        5,051
      Compensation related to stock options, net...........................        3,620        1,326
      Provision for doubtful accounts and sales returns....................       17,531        7,434
      Tax benefit from exercise of stock options...........................       10,000           --
      Deferred income taxes................................................          516      (25,423)
      Write-down of cost-method investments to fair value..................        6,640          675
      Net realized gains on marketable investments.........................       (9,750)      (4,760)
      Changes in operating assets and liabilities:
         Accounts receivable...............................................       91,615       79,728
         Prepaids and other................................................        8,234       (1,062)
         Accounts payable and accrued expenses.............................      (39,458)     (26,353)
         Restructuring obligations.........................................       76,700       25,209
         Deferred revenue..................................................        9,640      (10,552)
                                                                            ------------- ------------
           Net cash provided by operating activities.......................      339,825      153,184
                                                                            ------------- ------------
Cash flows from investing activities:
   Purchases of property and equipment.....................................      (55,324)     (14,021)
   Purchases of short-term investments.....................................   (1,548,344)  (1,521,990)
   Sales and maturities of short-term investments..........................    1,120,432    1,522,069
   Purchases of marketable equity securities...............................       (1,000)          --
   Proceeds from sale of marketable equity securities......................          853        5,593
   Purchase consideration for acquired businesses, net of cash received....         (500)      (1,680)
   Other non-operating assets and non-marketable securities................        8,421         (324)
                                                                            ------------- ------------
           Net cash used in investing activities...........................     (475,462)     (10,353)
                                                                            ------------- ------------
Cash flows from financing activities:
   Proceeds from issuance of common stock..................................       80,268       41,127
   Proceeds from equipment financing.......................................       24,873           --
   Repurchase of convertible subordinated debentures.......................           --     (307,080)
   Payments of capital lease obligations...................................       (6,051)      (9,549)
   Proceeds from stockholder notes.........................................          422           --
                                                                            ------------- ------------
           Net cash provided by (used in) financing activities.............       99,512     (275,502)
                                                                            ------------- ------------
Effect of exchange rate fluctuations.......................................       10,161       10,161
                                                                            ------------- ------------
Change in cash and cash equivalents........................................      (25,964)    (122,510)
Cash and cash equivalents, beginning of period.............................      799,090      667,511
                                                                            ------------- ------------
Cash and cash equivalents, end of period................................... $    773,126  $   545,001
                                                                            ============= ============
Supplemental disclosures of non-cash activities:
   Fair value of common stock and stock options issued for acquisitions.... $      5,478  $     1,670
                                                                            ============= ============`

See accompanying notes to consolidated financial statements.

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

1. Summary of Significant Accounting
Policies
2. Restructuring
3. The Company reduced the discretionary portion of its
operating costs through various cost control initiatives, including: (i)
reducing advertising expenditures, (ii) maintaining the CEO's salary at one
dollar per year, (iii) deferring merit increases, (iv) eliminating bonuses (from
July 2001 to June 2002) or aligning bonuses more closely with achievement of
financial objectives (commencing in July 2002), (v) reducing depreciation,
primarily through reduced capital expenditures, and (vi) reducing other
discretionary expenditures, such as costs related to outside consultants, travel
and recruiting.
4. The Company restructured its operations during the third
and fourth quarters of 2002 (the "2002 Restructuring").  The 2002
Restructuring consisted primarily of the consolidation of excess facilities,
reductions in its workforce and the abandonment of certain assets in connection
with the consolidation of excess facilities.
5. Based on the Company's continued evaluation of economic
conditions in the information technology industry and its expectations regarding
revenue levels, the Company initiated a further restructuring of its operations
in the second quarter of 2003 (the "2003 Restructuring" and
collectively with the 2002 Restructuring, the "Restructuring").  The
Company completed the 2003 Restructuring in September 2003.
6. In connection with the 2002 Restructuring, the Company
reduced its workforce by approximately 1,150 employees, or 16% of its then
current workforce.  In connection with the 2003 Restructuring, the Company
reduced or expects to reduce its workforce by approximately 600 employees, or
11% of its current workforce.  As of September 30, 2003, the Company had
completed approximately 430 of these terminations and expects to complete the
reduction of the remaining employees within six to nine months.  The Company has
not completed the separation of employment with these remaining employees
primarily due to regulatory requirements in certain countries and the Company's
ongoing transition of certain product development positions overseas.  The
workforce reductions affected substantially all of the Company's organizations
and geographical regions.

The costs associated with the Company's workforce reductions
consist primarily of severance payments, COBRA benefits, payroll taxes and other
related employment termination costs.  The Company has historically provided
substantially the same termination benefits at the time of a non-performance
based workforce reduction and, as a result, SFAS 146 did not apply to employee
termination obligations incurred in connection with the Company's 2003
Restructuring.  The Company has accounted for these employee termination
obligations, with the exception of those created under labor law (e.g., the WARN
Act),  in accordance with SFAS No. 112 "Employers' Accounting for
Postemployment Benefits an amendment of FASB Statements No. 5 and 43."  The
Company has accounted for obligations incurred in the 2003 Restructuring due to
the WARN Act and local labor law in accordance with SFAS No. 88 "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits."
7. As a result of the workforce reductions and previous
employee attrition, certain of the Company's facilities were under-utilized.
Accordingly, the Company consolidated its remaining workforce into under-utilized
facilities and ceased to utilize the then vacated facilities.  The
facilities permanently removed from the Company's operations during both 2002
and 2003 were located primarily in Emeryville and San Mateo, California; Eastern
Europe; and several smaller offices in North America.  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.
8. As part of the consolidation of the Company's facilities,
certain leasehold improvements, furniture and fixtures were abandoned.  As a
result, the Company recorded a non-cash charge equal to the net book value of
these abandoned assets in Restructuring and related expenses.
9. In accordance with EITF 94-3 and EITF 88-10, the Company
recorded 2002 Restructuring and related expenses in an amount equal to the gross
value of the related obligations without consideration to the net present value
of such obligations.  In addition, in determining the 2002 Restructuring
obligations, the Company assessed the time period over which reasonable
estimates could be made.
10. The following is a summary of Restructuring and related
expenses, by quarter, for the nine months ended September 30, 2003 (in
thousands):
Second         Third        Total
                                                                Quarter       Quarter      for 2003
                                                             ------------ -------------- -----------
Restructuring and related expenses:
  Changes in estimate....................................... $    (9,972) $      26,101  $   16,129
  2003 Restructuring-related................................      10,246         78,545      88,791
  Accretion.................................................          --            121         121
                                                             ------------ -------------- -----------
     Total Restructuring and related expenses............... $       274  $     104,767  $  105,041
                                                             ============ ============== ===========
11. Primarily due to the real estate markets in which the
Company operates remaining at depressed levels longer than originally
anticipated, the Company extended the estimated sublease commencement dates
and/or reduced the estimated sublease rates on certain restructured properties.
Partially offsetting these reductions in estimated sublease income were
favorable changes in estimates that resulted from the Company: (i) terminating
certain leases at more favorable terms than originally anticipated and (ii)
entering into subleases sooner than previously expected and/or at higher
sublease rates than originally anticipated on certain other restructured
properties.  The Company believes that its estimates with respect to its
remaining Restructuring obligations are appropriate as of September 30,
2003.
12. In accordance with SFAS 146, the Company recorded the
facility-related expenses incurred in the 2003 Restructuring after giving effect
to the net present value of the related obligations.
13. 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.
14. Represents the Company's remaining lease commitments
related to properties included in the Restructuring.
15. Consists primarily of: (i) estimated operating costs
(i.e., common area maintenance and property taxes) associated with restructured
properties, (ii) estimated commissions associated with anticipated subleases of
the restructured properties, and (iii) the remaining obligations related to
employee termination cost.
16. The Company estimated sublease income and the related
timing thereof on the opinions of independent real estate consultants, current
market conditions, the status of negotiations with potential subtenants, and the
location of the respective facility, among other factors.  The Company's
estimates of sublease income may vary significantly depending, in part, on
factors which may be beyond the Company's control, such as the time periods
required to locate and contract suitable subleases and the market rates at the
time of such subleases.
17. The Company has reduced the facility-related obligations
associated with the 2003 Restructuring to their net present value.  Future
accretion represents the interest component of these obligations and will be
recognized in future periods by the Company as an additional Restructuring and
related expense and as an increase in the carrying amount of the 2003
Restructuring obligations.
18. Convertible Subordinated Debentures
19. Commitments and Contingencies
20. Employee Stock Purchase Plan
21. Stockholder Rights Plan and Preferred Stock
22. Stock Options
23. Acquisitions, Intangible Assets and Goodwill
24. Net Income (Loss) per Share
25. Segment and Geographic Information
26. Subsequent Events

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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 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 and the risk
factors under Item 7 in our Annual Report on Form 10-K for the year ended
December 31, 2002.

The Company's 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 the Company's business, its performance during the three
and nine months ended September 30, 2002 and 2003, key factors that impacted
this performance and risks that may impact the Company's on-going
operations.

Overview of the Company's Business

Siebel Systems is a leading provider of eBusiness
applications software.  Siebel eBusiness Applications are a family of
enterprise applications software that enable an organization to better manage
its most important relationships: its customer, partner and employee
relationships.  Siebel eBusiness Applications are designed to meet the
information system requirements needed to manage these relationships for
organizations of all sizes, from small businesses to the largest multinational
organizations and government agencies.  The Company's customer relationship
management applications enable an organization to sell to, market to, and serve
its customers across multiple channels and lines of business.  The Company's
partner relationship management applications unite the organization's partners,
resellers and customers in one global information system to facilitate greater
collaboration and increased revenues, productivity and customer satisfaction.
The Company's employee relationship management applications enable an
organization to drive employee and organizational performance and increase
employee satisfaction through the support of each stage of the employee life
cycle.  By deploying the comprehensive functionality of Siebel eBusiness
Applications to better manage their customer, partner and employee
relationships, the Company's customers achieve high levels of satisfaction from
these constituencies and improve their competitiveness in their markets.

Siebel Systems recognizes that each industry has
different business processes, competitive challenges and information systems
requirements, which cannot be addressed with a "one size fits all"
eBusiness approach.  Accordingly, Siebel eBusiness Applications are
available in more than twenty industry applications designed for specific
segments within multiple industries, including financial services,
communications, travel and transportation, energy, the consumer sector, life
sciences, the industrial sector and the public sector.  Siebel eBusiness
Applications enable organizations to create a single source of customer
information that sales, service and marketing professionals can use to tailor
product and service offerings to meet each of their customers' needs.  By using
Siebel eBusiness Applications, organizations can develop new customer
relationships, profitably serve existing customers, and integrate their systems
with those of their partners, suppliers and customers, regardless of
location.

The Company and its subsidiaries are principally engaged
in the design, development, marketing and support of Siebel eBusiness
Applications.  Substantially all of the Company's revenues are derived from the
sale of perpetual licenses of these software products and the related
professional services and customer support, otherwise known as maintenance.  The
Company licenses its software in multiple element arrangements in which the
customer purchases a combination of software, maintenance and/or professional
services, i.e., training, implementation services, etc.  First-year maintenance,
which includes technical support and product updates, is typically sold with the
related software license and is renewable at the option of the customer on an
annual basis after the first year.  The Company's Global Services Organization
provides professional services, which include a broad range of implementation
services, training and technical support, to the Company's customers and
implementation partners.  The Company's Global Services Organization has
significant product and implementation expertise and is committed to supporting
customers and partners through every phase of the eBusiness transformation
cycle.  Substantially all of the Company's professional service arrangements are
billed on a time and materials basis.  Payment terms for the above arrangements
are negotiated with the Company's customers and determined based on a variety of
factors, including the customer's credit standing and the Company's history with
the customer.

Overview of the Results for the Three and Nine Months
Ended September 30, 2003

To fully understand the Company's operating results for
the three and nine months ended September 30, 2003, the Company believes an
understanding of the environment in which the Company operated is required.
Specifically, the Company believes its operating results during 2003 were
impacted by several factors, including macro-economic conditions, economic
conditions in the information technology industry and uncertainties within the
application software industry.  In addition, the Company is committed to
improving its own performance, even in the current difficult macro- and micro-economic
environment.  As discussed further below, the Company completed a
further restructuring of its operations that it believes will: (i) strengthen
its competitive position; (ii) reduce its cost structure, thereby improving its
revenue per employee, operating margin and overall operating performance; and
(iii) better align its management and organizational structure in order to
return to sequential quarterly revenue growth.

The Company believes the primary factor impacting its
operating performance during 2003 was the weak global economy.  Throughout 2001
and continuing through much of 2003 (primarily the first half of 2003), economic
conditions in many of the countries in which the Company operates either
deteriorated or stabilized at depressed levels.  For instance, many of the
leading economic indicators showed signs of weakness during this period,
corporate and consumer confidence in the economy remained very cautious and
unemployment in the United States reached a nine-year high.  Further,
geopolitical uncertainties, including hostilities involving the United States,
exacerbated corporations' general cautiousness in setting their capital spending
budgets.

The Company believes that these weak economic conditions
have disproportionately impacted the information technology industry.  Many
corporations have intensified their efforts to identify and realize potential
cost savings in these difficult economic circumstances.  As a result, capital
spending by corporations-specifically information technology spending-continues
to be delayed.  In addition, many corporations made capital expenditures in
previous years in anticipation of future growth that did not materialize,
thereby impacting their current capital expenditures.

Further, the application software segment of the
information technology industry continues to be affected by the uncertainty
created by recently announced mergers and takeover attempts within this segment.
Specifically, several of the Company's direct and indirect competitors are in
the process of merger negotiations or taking steps to avoid takeover
attempts.

The Company's operations and financial performance were
directly and negatively impacted by the above factors.  Specifically, many of
the Company's customers and potential customers have: (i) delayed the initiation
of the purchasing process; (ii) increased the evaluation time to complete a
software purchase; (iii) reduced their capital expenditure budgets, thereby
restricting their software procurement to well-defined current needs; and/or
(iv) lengthened the purchasing cycle.  As a result of these and other factors,
both the number of software license revenue transactions and average transaction
size continued to be negatively impacted during much of 2003, with individual
transactions generating license revenues greater than or equal to $5 million
affected to the greatest extent.

The Company has taken numerous steps and is in the
process of taking additional steps to improve its operating performance and
execution, even in the current difficult economic climate.  These steps include
the following:

- The Company has continued to reduce the discretionary
portion of its operating costs through the implementation of various new cost
control initiatives, including: (i) tying bonuses more closely to the
achievement of financial objectives, (ii) reducing depreciation, primarily
through reduced capital expenditures, and (iii) further reducing other
discretionary expenditures, such as costs related to outside consultants, travel
and recruiting.

- The Company completed a restructuring of its operations
and an associated workforce reduction in the fourth quarter of 2002 (the
"2002 Restructuring"). Based on the Company's continued evaluation of
economic conditions in the information technology industry and its expectations
regarding revenue levels, the Company initiated a further restructuring of its
operations in the second quarter of 2003 (the "2003 Restructuring" and
collectively with the 2002 Restructuring, the "Restructuring").  The
Company completed the 2003 Restructuring in September 2003.

Primarily due to the Restructuring, the Company reduced total
quarterly costs and expenses by approximately $40.0 million on year-over-year
basis during the quarter ended September 30, 2003.  Please refer to
"Restructuring and Related Expenses" below for a further discussion of
the 2003 Restructuring.

In addition, the Company achieved several milestones that
it believes will better enable the Company to grow its business when information
technology spending returns to normalized levels, including:

- The Company introduced its newest product offering,
Siebel CRM OnDemand, a hosted customer relationship management ("CRM")
service designed to allow organizations to generate more sales leads, enhance
lead qualification and management, improve sales forecasting, shorten sales
cycles and provide improved customer service.  Siebel CRM OnDemand will provide
built-in analytics, enabling sales, marketing, and service professionals to act
on relevant business, customer and market events.

Siebel CRM OnDemand will be jointly sold, marketed,
delivered, developed and hosted by the Company and IBM Corporation.  In addition
to providing customer choice, Siebel CRM OnDemand can accommodate organizations
with limited IT resources-including divisions of large enterprises-as well as
those with more basic CRM requirements.  Designed for seamless integration and
information flow between hosted and on premise CRM installations, Siebel CRM
OnDemand offers flexibility for customers of all sizes to deploy CRM pervasively
throughout their organizations.

- At the Company's annual global user week conference, the
Company introduced a new product strategy-CRM for Everyone-that it believes will
enable organizations to meet their CRM requirements quickly, easily, and
affordably.  CRM for Everyone encompasses new industry-specific CRM products, a
new analytics platform and suite of analytics applications, new business
integration solutions, and a new hosted CRM offering:
- Siebel 7.7, the Company's next release of its enterprise
CRM suite, which features numerous new industry-specific capabilities, various
usability enhancements, additional significant total cost of ownership
("TCO") improvements, extended wireless support, and new capabilities
such as a new financial services customer relationship console for branch
banking and a new customer loyalty application.
- Siebel Analytics 7.7, a new and enhanced analytics
platform and suite of customer analytics applications.  The Company believes
that it has become a global leader in customer analytics, and with the new
Siebel Analytics 7.7 release, it is now addressing the needs of the broader
business intelligence market.
- Further development of Universal Application Network
("UAN"), a product designed to assist customers in reducing the cost
of application ownership and maintenance.  Universal Application Network now
supports both the leading .NET and J2EE platforms, and newly emerging Web
Services standards for business process integration.
- Siebel CRM OnDemand, a unique hosted CRM offering that
seamlessly integrates with Siebel on premise CRM applications, enabling
organizations to deploy CRM in any combination of hosted or on premise delivery
models.

- Industry analysts continued to acknowledge the Company's
product leadership.  For example, Gartner, Inc., a prominent information
technology market research firm, listed Siebel Systems in the
"leader"* quadrant in eleven of its copyrighted Magic Quadrants** on
the CRM market.   In ten of the eleven categories, Gartner cited Siebel
Systems as the only vendor that meets the leadership criteria for those CRM
categories.  There were a total of 18 Gartner Magic Quadrants covering CRM
Suites, Marketing, Sales and Service.

The Company believes that the Gartner Magic Quadrants provide
an objective and rigorous evaluation of technology suppliers' global
capabilities, breadth and depth of functionality, proven scalability, technology
innovation, company viability and vision, and successful installed customer
base. These quadrants assess a vendor's overall success in selling, deploying,
supporting, and extending its applications.

___________________________________

*

*
*

- The Company believes it was able to maintain its market
share in the majority of the product categories in which it operates and
continues as the technology leader in the CRM market.  In addition, information
technology surveys indicate CRM software is among the top spending priorities of
corporations.

- The Company's customer satisfaction levels continued at
high levels, with an overall customer loyalty rating of 98%, based on a survey
conducted in the third quarter of 2003.   Customer loyalty is defined as
customers who indicate they intend to continue using, upgrade to, and/or
purchase additional products from the Company.

In addition to these accomplishments, the Company
maintained or improved several key financial metrics. Specifically, despite the
difficult economic challenges faced through much of 2003, the Company was able
to achieve the following financial results:

- Excluding the impact of the Restructuring and the
repurchase of its convertible subordinated debentures, the Company was able to
operate a cash-positive, profitable business.

- Software license revenues remained comparable from the
second quarter to the third quarter of 2003, a quarter that typically shows
seasonal sequential declines in revenue.

- Cost savings principally from the Restructuring and the
Company's cost control initiatives resulted in a decrease in total costs and
expenses of approximately $40.0 million, or 12%, in the third quarter of 2003,
and a decrease of approximately $130.0 million, or 12%, in the nine months ended
September 30, 2003, compared to the respective periods in 2002.

- The Company repurchased its $300.0 million convertible
subordinated debentures (the "Debentures") on September 30, 2003, for
$307.1 million, eliminating substantially all of its long-term debt and
approximately $16.5 million of annual interest expense.

- The Company continues to maintain its cash and short-term
investments at over $2 billion with $2,161.6 million as of December 31, 2002,
and $2,027.0 million as of September 30, 2003, representing approximately 71%
and 74% of total assets, respectively.  Cash and short-term investments
decreased by $134.6 million from December 31, 2002, to September 30, 2003,
primarily due to the $307.1 million repurchase of the Debentures, partially
offset by an increase of $172.5 million primarily due to cash flows from
operations.

- During the periods of weak global economic conditions
from 2001 to 2003, the Company paid off substantially all of its long-term debt
and increased cash and short-term investments by $874.4 million, primarily
through operations.

- Days sales outstanding was 63 days as of December 31,
2002, as compared to 53 days as of September 30, 2003.

- Cash flows from operations were $339.8 million and $153.2
million during the nine months ended September 30, 2002 and 2003,
respectively.

- Working capital was $1,940.3 million as of December 31,
2002, and $1,756.2 million as of September 30, 2003.  The decrease was due to
the repurchase of the Debentures.

- Stockholders' equity was $1,957.5 million as of December
31, 2002, and $1,972.7 million as of September 30, 2003.

The Company intends to continue to improve these
financial metrics and return its software license and total revenues to
sequential quarterly growth.  The Company has set the following objectives that
will guide management's decisions throughout the remainder of 2003:

- Grow software license revenue;
- Continue to increase market share and license revenues in the Company's
newest product lines: Siebel CRM OnDemand, UAN, Siebel Employee Relationship
Management ("ERM"), and Siebel Analytics;
- Expand gross and operating margins through appropriate cost
savings;
- Run a cash-positive profitable business;
- Increase the Company's customer base in key vertical markets, such as Life
Sciences, Public Sector, Retail, and Travel and Transportation;
- Maintain the Company's high customer satisfaction levels;
- Identify opportunities to expand product lines, both organically and through
acquisition; and
- Deliver CRM for Everyone: any user, any company, any industry.

The Company will continue to follow high professional
standards in measuring and reporting its performance against the above
objectives.  Specifically, the Company believes that its accounting policies are
prudent and provide a clear view of its financial performance.  The Company
utilizes its internal audit function to help ensure that it follows these
accounting policies and maintains its internal controls.  The Company has formed
an Internal Controls Committee, comprised primarily of senior financial and
legal personnel, to help ensure its internal controls over financial reporting
are complete, accurate and appropriately documented.  The Company has formed a
Disclosure Committee, comprised primarily of senior financial and legal
personnel, to help ensure the completeness and accuracy of the Company's
financial results and disclosures.  In addition, prior to the release of the
Company's financial results, key members of the Company's management review the
Company's annual and quarterly results and key accounting policies and estimates
with its Audit Committee, which is comprised of independent members of the
Company's Board of Directors.

Discussion of the Results of Operations for the Three and
Nine Months Ended September 30, 2002 and 2003

Revenues

The following table sets forth the Company's revenues,
both in absolute dollars and expressed as a percentage of total revenues, for
the three and nine months ended September 30, 2002 and 2003 (in thousands,
except percentages):

`Three Months Ended September 30,        Nine Months Ended September 30,
                                                     --------------------------------------- --------------------------------------
                                                            2002                2003                2002                2003
                                                     ------------------- ------------------- ------------------  ------------------
Revenues:                                                                                                                          
  Software.......................................... $ 126,834   35.5 %  $ 110,003   34.2 %  $  542,990   43.8 % $ 331,989   33.6 %
  Professional services, maintenance and other......   230,328   64.5      211,429   65.8       697,581   56.2     655,497   66.4
                                                     ---------  ------   ---------  ------   ----------  ------  ---------  ------
      Total revenues................................ $ 357,162  100.0 %  $ 321,432  100.0 %  $1,240,571  100.0 % $ 987,486  100.0 %
                                                     =========  ======   =========  ======   ==========  ======  =========  ======`

Software.  Software license revenues decreased by
13% from $126.8 million for the three months ended September 30, 2002, to $110.0
million for the three months ended September 30, 2003, and decreased by 39% from
$543.0 million for the nine months ended September 30, 2002, to $332.0 million
for the nine months ended September 30, 2003.  Software license revenues as a
percentage of total revenues decreased from 36% and 44% during the three and
nine months ended September 30, 2002, respectively, to 34% during both the three
and nine months ended September 30, 2003.

The Company markets its products through its direct sales
force and to a limited extent through distributors, primarily in Europe, Asia
Pacific, Japan and Latin America.  International software license revenues
accounted for 48% and 39% of software license revenues for the three and nine
months ended September 30, 2002, respectively, as compared to 46% and 47% of
software license revenues for the three and nine months ended September 30,
2003, respectively.  The Company expects international software license revenues
will continue to account for a significant portion of its overall software
license revenues in the foreseeable future.

During the three and nine months ended September 30, 2002
and 2003, the purchasing decisions of the Company's customers were impacted by,
among many other factors: (i) the overall weakness of the global economy, (ii)
continued reductions in corporate capital expenditures, (iii) geopolitical
uncertainties, (iv) uncertainties in the application software industry as a
result of speculation of further consolidation within the industry, and (v)
increased competitive dynamics in the CRM application market.  Accordingly, many
of the Company's customers and potential customers have: (i) delayed the
initiation of the purchasing process, (ii) increased the evaluation time to
complete a software purchase, and/or (iii) reduced their capital expenditure
budgets, thereby restricting their software procurement to well-defined current
needs.

As a result of these and other factors, both the number
of software license revenue transactions and average transaction size were
negatively impacted during the three and nine months ended September 30, 2003,
with individual transactions generating software license revenues greater than
or equal to $5 million affected to the greatest extent.  Specifically, the
number of software license transactions decreased from 416 and 1,482 during the
three and nine months ended September 30, 2002, respectively, to 317 and 1,033
during the three and nine months ended September 30, 2003, respectively.  The
Company's average transaction size decreased from $366,000 during the nine
months ended September 30, 2002, to $321,000 during the nine months ended
September 30, 2003.  In addition, the number of transactions generating software
license revenues greater than or equal to $5 million decreased from 18
transactions during the nine months ended September 30, 2002, to seven
transactions during the nine months ended September 30, 2003.  Principally as a
result of these factors, the Company's software license revenues decreased from
the three and nine months ended September 30, 2002, to the three and nine months
ended September 30, 2003, by 13% and 39%, respectively.  The decline in software
license revenues as a percentage of total revenues was primarily due to the
factors described above impacting software license revenues to a greater extent
than professional services, maintenance and other revenues.

The Company and its management are committed to improving
the performance of the Company's sales operations and returning its software
license revenues to positive sequential quarterly growth.  Although the
Company's software license revenues decreased on a year-over-year basis, the
Company has taken several steps in the latter part of 2002 and throughout 2003
that it believes will better position it for future growth.  Specifically, the
Company has taken the following steps:

- The Company reorganized its sales management in the
fourth quarter of 2002, including the hiring of Richard P. Chiarello as Senior
Vice President, Worldwide Sales, in order to improve the sales organization's
performance.

- As discussed previously, the Company completed the 2003
Restructuring in September 2003 and the 2002 Restructuring in December 2002.
The Company believes these Restructuring efforts and the resulting new
organizational structure will improve cross-unit collaboration, better align its
organizational structure with the Company's go-to-market strategy, and empower
local managers with increased authority and accountability.  Further, the
Company believes that the new organizational structure will allow greater
responsiveness to customers, faster decision making and an improved focus of the
Company's resources on key growth areas.

- The Company continued to increase its customer base with
57% of software license revenues coming from new customer projects during both
the three and nine months ended September 30, 2003.  The Company measures
revenues from new customer projects based on software license transactions from
new customers, new divisions of existing customers and/or new projects at
existing customers.  The Company believes that the growth of its customer base
will provide a competitive advantage through increased future sales
opportunities when corporate capital expenditures return to normalized levels.

- Many smaller software providers that compete with the
Company fell into financial difficulties during 2002 and 2003 as a result of
what the Company believes to be the reluctance of customers to procure their
software needs from a vendor lacking either a mature solution or secure
financial outlook.  The Company believes that it is well positioned to offer the
customers and potential customers of these vendors the software solution they
need.

The Company believes it is beginning to see the benefits
of these actions, as several key operating metrics improved sequentially in the
third quarter of 2003 from the levels in the second quarter.  Specifically,
software license revenues stabilized from $109.9 million during the second
quarter of 2003, to $110.0 million for the third quarter of 2003.  The average
software license transaction size increased both sequentially and on a
year-over-year basis from $305,000 during the third quarter of 2002 and $344,000
during the second quarter of 2003, to $347,000 during the third quarter of 2003.
Further, the number of transactions generating software license revenues greater
than or equal to $5 million increased from two transactions during the three
months ended June 30, 2003, to three transactions during the three months ended
September 30, 2003, and were consistent with the three transactions in the
corresponding period in 2002.  In addition, the Company is beginning to see a
greater proportion of its greater than $1 million transactions in the $2 million
to $4 million range versus recent quarters where there was a greater proportion
in the $1 million to $2 million range.  These operating metrics increased
despite the typical seasonal decline in software license revenues that occurs in
the third quarter from the second quarter of each year.

The Company anticipates that its software license
revenues will return to positive growth when the overall economic conditions
strengthen and, more specifically, when the overall demand for information
technology increases.  While it is still too early to determine if the recent
improvement in information technology spending will continue, the Company
believes demand levels may be stabilizing and may indeed be showing signs of
returning to positive growth.  Due in part to the slight improvement in overall
demand for information technology, including the anticipated seasonal increases
in the fourth quarter of each year, the Company expects software license
revenues, both in terms of absolute dollars and as a percentage of total
revenues, to increase during the fourth quarter of 2003 from levels in the third
quarter of 2003.

The Company's future software license revenues and
operating performance may be negatively impacted by: (i) the uncertainty in the
application software industry and resulting reductions in capital expenditures,
(ii) geopolitical uncertainties, including continued hostilities involving the
United States, (iii) additional terrorist attacks, (iv) a lack of confidence in
corporate governance and accounting practices, (v) the diversity in global
economic conditions, (vi) continued intense competition, (vii) corporate and
consumer confidence in the economy, (viii) operational execution related to and
the resulting uncertainty created by the 2003 Restructuring, and (ix) other
factors described under "Risk Factors" below.

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).  Professional
services are typically provided over a period of three to six months subsequent
to the signing of a software license arrangement and depend in large part on the
Company's software license revenues.  The Company's maintenance revenues depend
on both the Company's software license revenues and renewals of maintenance
agreements by the Company's existing customer base.

Professional services, maintenance and other revenues
decreased by 8% from $230.3 million for the three months ended September 30,
2002, to $211.4 million for the three months ended September 30, 2003, and
decreased by 6% from $697.6 million for the nine months ended September 30,
2002, to $655.5 million for the nine months ended September 30, 2003.  As a
percentage of total revenues, professional services, maintenance and other
revenues were 64% and 56% during the three and nine months ended September 30,
2002, respectively, as compared to 66% during both the three and nine months
ended September 30, 2003.

The decrease in the absolute dollar amount of
professional services, maintenance and other revenues was due to a decline in
revenues derived from the Company's implementation and training services,
partially offset by an increase in the installed base of customers receiving
maintenance.   The Company's maintenance revenues have increased on a year-over-year
basis, primarily due to the renewal of customer maintenance agreements and
the signing of new maintenance agreements at the time of a new software license.
However, primarily due to weak economic conditions, the Company's efforts to
renew existing customers' maintenance agreements have become more challenging.
Specifically, several of the Company's customers have reduced the size of their
employee base, thereby impacting the number of users of the Company's software
and the maintenance revenues derived therefrom.

While maintenance revenues have increased on a year-over-year
basis, professional services revenues decreased in both the three and nine
months ended September 30, 2003, compared to the three and nine months ended
September 30, 2002.  As discussed above, the Company's professional services
revenues generally lag software license revenues by three to six months and,
therefore, the Company's implementation and training services are largely
dependent on the amount of software license revenues generated in the preceding
period.  The deteriorating economic conditions and resulting decline in software
license revenues throughout 2002 and 2003 have negatively impacted professional
services revenues.  In addition, the Company has seen progressive pricing
pressure on its professional services hourly rates as customers continue to
focus on reducing costs in difficult economic conditions.

Professional services, maintenance and other revenues
increased as a percentage of total revenues during the three and nine months
ended September 30, 2003, primarily due to growth in the number of customers
receiving maintenance, coupled with a comparatively sharper decrease in the
Company's software license revenues.

The Company expects that professional services,
maintenance and other revenues will return to positive growth soon after the
Company's software license revenues return to positive growth.  The Company
currently anticipates that quarterly professional services, maintenance and
other revenues for the fourth quarter of 2003, both in terms of absolute dollars
and as a percentage of total revenues, will remain comparable to the levels in
the third quarter of 2003.

On November 3, 2003, Herb Hunt was named Senior Vice President, Global
Services.  Mr. Hunt previously served as our Group Vice President and Chief Technology
Officer.  Our former head of Global Services, Karen Riley, is retiring in the first quarter of 2004,
and will continue with the Company in a transition role through her retirement date.

Cost of Revenues

The following table sets forth the Company's cost of
revenues, both in absolute dollars and expressed as a percentage of total
revenues, for the three and nine months ended September 30, 2002 and 2003 (in
thousands, except percentages):

`Three Months Ended September 30,        Nine Months Ended September 30,
                                                     --------------------------------------- --------------------------------------
                                                            2002                2003                2002                2003
                                                     ------------------- ------------------- ------------------  ------------------
Cost of revenues:                                                                                                                  
  Software.......................................... $   6,011    1.7 %  $   5,974    1.8 %  $   16,588    1.4 % $  14,963    1.5 %
  Professional services, maintenance and other......   143,603   40.2      120,489   37.5       399,797   32.2     372,142   37.7
                                                     ---------  ------   ---------  ------   ----------  ------  ---------  ------
      Total cost of revenues........................ $ 149,614   41.9 %  $ 126,463   39.3 %  $  416,385   33.6 % $ 387,105   39.2 %
                                                     =========  ======   =========  ======   ==========  ======  =========  ======`

Total cost of revenues was $149.6 million and $416.4
million during the three and nine months ended September 30, 2002, respectively,
as compared to $126.5 million and $387.1 million during the three and nine
months ended September 30, 2003, respectively.  As a percentage of total
revenues, total cost of revenues was 42% and 34% during the three and nine
months ended September 30, 2002, respectively, as compared to 39% during both
the three and nine months ended September 30, 2003.

As discussed further in Note 7 to the accompanying
unaudited consolidated financial statements, the Company completed a tender
offer for certain of its stock options during the third quarter of 2002 (the
"Option Repurchase").  Included in total cost of revenues for the
three and nine months ended September 30, 2002, is a compensation charge of
$14.1 million related to the repurchase of stock options held by the Company's
professional service and technical support personnel.  Further, included in
total cost of revenues for the three and nine months ended September 30, 2003,
is a charge of $2.4 million related to the abandonment of certain acquired
technology obtained in the Sales.com acquisition.  Please refer to Note 8 to the
accompanying unaudited consolidated financial statements for a further
discussion of this abandonment.  The Company views these charges as significant
special charges that make year-over-year comparisons of the cost incurred
difficult.

Excluding these significant special charges, the
remaining costs of revenues decreased by $11.5 million and $17.6 million during
the three and nine months ended September 30, 2003, respectively, from the
comparable periods in 2002.  These decreases were primarily due to cost savings
from the Restructuring and the Company's cost control initiatives, along with a
decline in total revenues.

These significant special charges represented
approximately 4%  and 1% of total revenues for the three and nine months ended
September 30, 2002, respectively, and approximately 1%  and 0.2% of total
revenues for the three and nine months ended September 30, 2003, respectively.
Accordingly, if the Company had not incurred these significant special charges
(i) rather than the decrease as a percentage of total revenues discussed above,
these costs as a percentage of total revenues would have increased during the
three months ended September 30, 2003, as compared to the corresponding period
in 2002, and (ii) the increase in total cost of revenues as a percentage of
total revenues from the nine months ended September 30, 2002, to the nine months
ended September 30, 2003, would be more pronounced than indicated above.  The
increase in the year-over-year comparison of the remaining total cost of
revenues as a percentage of total revenues from the 2002 periods to the 2003
periods was primarily due to the Company deriving a higher percentage of its
total revenues from professional services, maintenance and other revenues, which
are at lower margins than software license revenues.

The following is a discussion of the year-over-year
changes within the individual components of cost of revenues:

Software.  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 have been expensed as incurred.
Cost of software license revenues was $6.0 million and $16.6 million for the
three and nine months ended September 30, 2002, respectively, compared to $6.0
million and $15.0 million for the three and nine months ended September 30,
2003, respectively.  As a percentage of software license revenues, cost of
software license revenues was 5% and 3% during the three and nine months ended
September 30, 2002, respectively, compared to 5% during both the three and nine
months ended September 30, 2003.

As discussed above, during the three and nine months
ended September 30, 2003, cost of software license revenues includes a charge of
$2.4 million related to the abandonment in July 2003 of certain acquired
technology obtained in the Sales.com acquisition.  Excluding this significant
special charge, the remaining costs included in cost of software license
revenues decreased during the three and nine months ended September 30, 2003,
from the comparable periods in 2002, by $2.5 million and $4.1 million,
respectively.  The decreases in remaining costs of software license revenues
were primarily due to: (i) the decrease in software license revenues, and (ii) a
reduction of $0.9 million of amortization expense, which occurred as a result of
the abandonment of the Sales.com acquired technology.

The significant special charge included in cost of
software license revenues during the three and nine months ended September 30,
2003, represented approximately 2% and 1% of software license revenues,
respectively.  Accordingly, as a percentage of software license revenues, the
remaining costs included in costs of software license revenues decreased in the
three months ended September 30, 2003, compared to the three months ended
September 30, 2002.  This decrease was primarily due to the reduction of
amortization expense discussed above and a shift from products requiring third-party
royalties to products with either no royalty obligation or lower royalty
rates.  These remaining costs as a percentage software license revenues
increased during the nine months ended September 30, 2003, compared to the nine
months ended September 30, 2002, primarily due to certain royalty arrangements
which are fixed in nature (i.e., royalty rates that are time based and therefore
do not vary with software license revenues).

During the fourth quarter of 2003, the Company expects
cost of software license revenues as a percentage of software license revenues
to decrease from the 5% incurred during the third quarter of 2003, primarily due
to the absence of charges related to the abandonment of acquired technology.
Specifically, the Company expects cost of software license revenues as a
percentage of software license revenues to remain comparable to the percentage
incurred during the third quarter of 2003 prior to the abandonment of the
acquired technology (i.e., approximately 3%).  These expectations are prior to
the impact of the Company's recently announced acquisitions of UpShot
Corporation and certain assets of Motiva, Inc., for which the Company is
currently determining the appropriate allocation of their cost structure.

Professional Services, Maintenance and Other.Cost of professional services, maintenance and other revenues consists
primarily of personnel, facilities and systems costs incurred to provide
training, consulting and other global services.  Cost of professional services,
maintenance and other revenues was $143.6 million and $399.8 million for the
three and nine months ended September 30, 2002, respectively, compared to $120.5
million and $372.1 million for the three and nine months ended September 30,
2003, respectively.  These costs were approximately 62% and 57% of professional
services, maintenance and other revenues during the three and nine months ended
September 30, 2002, respectively, compared to 57% during both the three and nine
months ended September 30, 2003.

Included in cost of professional services, maintenance
and other revenues for the three and nine months ended September 30, 2002, is a
compensation charge of $14.1 million related to the Option Repurchase.  The
Company views this compensation charge as a significant special charge that
makes year-over-year comparisons to the cost incurred in 2003 difficult.
Excluding this significant special charge, the remaining costs included in cost
of professional services, maintenance and other revenues decreased during the
three and nine months ended September 30, 2003, from the comparable periods in
2002, by $9.0 million and $13.5 million, respectively.  The decreases in
remaining costs of professional services, maintenance and other revenues were
primarily due to: (i) the partial realization of cost savings from the
Restructuring, including savings from the reduction of personnel, and (ii) the
further realization of savings from the Company's cost control initiatives.
Partially offsetting these cost savings were increases in compensation costs
from the renewal of merit increases and certain other incentive
compensation.

The charge included in cost of professional services,
maintenance and other revenues related to the Option Repurchase represented
approximately 6% and 2% of professional services, maintenance and other revenues
for the three and nine months ended September 30, 2002, respectively.
Accordingly, if the Company had not incurred this charge, cost of professional
services, maintenance and other revenues as a percentage of the corresponding
revenue amounts would have increased during the 2003 periods from the 2002
periods rather than decreased as indicated above.  The remaining costs as a
percentage of total revenues increased primarily due to: (i) the increase in
compensation expense as a result of a renewal of merit increases and certain
other incentive compensation, (ii) a decrease in revenue from licenses of the
Company's Multi-Channel Services' products, which is included in "other
revenues" and is at higher margins than maintenance and professional
services, and (iii) a reduction in the rates that the Company is able to charge
for its implementation services.

In connection with the 2003 Restructuring, the Company
reduced personnel in its Global Services Organization, including consolidating
the management structure and reducing staff in order to improve utilization and
better align its cost structure with expected revenues.  Because these
reductions occurred throughout the third quarter (primarily in late July), the
Company did not realize the full benefit of the associated cost savings in the
third quarter.  In addition, the Company expects to continue to reduce the cost
of professional services, maintenance and other revenues through the
continuation of its cost control initiatives and further aligning its incentive
compensation plans with gross margin attainment.  Accordingly, the Company
expects that professional services, maintenance and other costs, in terms of
both the absolute dollar amount and as a percentage of professional services,
maintenance and other revenues, will remain comparable to or decrease in the
fourth quarter of 2003 from the levels incurred during the third quarter of
2003.  These expectations are prior to the impact of the Company's recently
announced acquisitions of UpShot Corporation and of certain assets of Motiva,
Inc., for which the Company is currently determining the appropriate allocation
of their cost structure.

Operating Expenses

The following table sets forth the Company's operating
expenses, both in absolute dollars and expressed as a percentage of total
revenues, for the three and nine months ended September 30, 2002 and 2003 (in
thousands, except percentages):

`Three Months Ended September 30,        Nine Months Ended September 30,
                                                     --------------------------------------- --------------------------------------
                                                            2002                2003                2002                2003
                                                     ------------------- ------------------- ------------------  ------------------
Operating expenses:                                                                                                                
  Product development............................... $ 104,254   29.2 %  $  71,432   22.2 %  $  273,173   22.0 % $ 226,177   22.9 %
  Sales and marketing...............................   112,069   31.4       82,756   25.8       372,627   30.0     276,804   28.0
  General and administrative........................    36,544   10.2       27,319    8.5        96,111    7.8      81,860    8.3
  Restructuring-related expenses....................   109,383   30.6      104,767   32.6       109,383    8.8     105,041   10.7
                                                     ---------  ------   ---------  ------   ----------  ------  ---------  ------
      Total operating expenses...................... $ 362,250  101.4 %  $ 286,274   89.1 %  $  851,294   68.6 % $ 689,882   69.9 %
                                                     =========  ======   =========  ======   ==========  ======  =========  ======`

Product Development.  Product development expense
includes costs associated with the development of new products, enhancements of
existing products, quality assurance activities and product marketing.  These
costs consist primarily of employee salaries, benefits, consulting costs and the
cost of software development tools and equipment.  The Company considers
technological feasibility of its software products to have been reached upon
completion of a working model that has met certain performance criteria.  The
period between achievement of technological feasibility and general release of a
software product is typically very short, and development costs incurred during
that period have not been material.  Accordingly, the Company has not
capitalized any software development costs to date.

Product development expense decreased from $104.3 million
for the three months ended September 30, 2002, to $71.4 million for the three
months ended September 30, 2003, and decreased from $273.2 million for the nine
months ended September 30, 2002, to $226.2 million for the nine months ended
September 30, 2003.  As a percentage of total revenues, product development
expense was 29% and 22% for the three and nine months ended September 30, 2002,
as compared to 22% and 23% for the three and nine months ended September 30,
2003, respectively.

Included in product development expense for the three and
nine months ended September 30, 2002, is a compensation charge of $18.7 million
related to the repurchase of stock options held by the Company's product
development personnel.  The Company views this compensation charge as a
significant special charge that makes year-over-year comparisons to the cost
incurred in 2003 difficult.  Excluding this significant special charge, the
remaining expenses included in product development expense decreased during the
three and nine months ended September 30, 2003, from the comparable periods in
2002, by $14.1 and $28.3 million, respectively.

The decreases in remaining product development expenses
during the 2003 periods from the comparable periods in 2002 were primarily due
to: (i) cost savings from the reduction of product development personnel and
consolidation of the remaining personnel into more highly utilized facilities in
connection with the Restructuring, and (ii) further realization of cost savings
from the Company's cost control initiatives.  Partially offsetting these cost
savings were: (i) increased compensation costs from the renewal of merit
increases and certain other incentive compensation, and (ii) increased costs
from outside consultants in connection with the further development of the
Company's latest products, Siebel CRM OnDemand and UAN.

The charge included in product development expense
related to the Option Repurchase represented approximately 5% and 2% of total
revenues for the three and nine months ended September 30, 2002, respectively.
Accordingly, if the Company had not incurred this significant special charge (i)
the decrease as a percentage of total revenues during the third quarter of 2003
from the third quarter of 2002 would be less pronounced than indicated above and
(ii) the increase as a percentage of total revenues during the nine months ended
September 30, 2003, from the comparable period in 2002 would be more pronounced
than indicated above.  Excluding the impact of the Option Repurchase, the
remaining expenses in product development expense as a percentage of total
revenues decreased during the three months ended September 30, 2003, compared to
the three months ended September 30, 2002, primarily due to the reasons
discussed in the preceding paragraph.  Excluding the impact of the Option
Repurchase, product development expense as a percentage of total revenues
increased during the nine months ended September 30, 2003, from the nine months
ended September 30, 2002, due to the Company's continued investment in research
and development during a period in which the Company's software license revenues
decreased.

In connection with the 2003 Restructuring, the Company:
(i) discontinued unprofitable products and/or development projects, (ii)
initiated a transition of a portion of its quality assurance and testing
activities overseas to labor markets with lower cost structures, and (iii)
consolidated its product development management structure and eliminated
nonessential development positions in order to better align its cost structure
with expected revenues.  For the Company's core product lines, the Company
anticipates that it will continue to devote substantial resources to develop new
versions of its existing products, new products and additional modules for its
products.  As a result of these actions, the Company expects product development
expenses, in terms of both absolute dollars and as a percentage of total
revenues, during the fourth quarter of 2003 to remain comparable to or decrease
from the levels incurred during the third quarter of 2003.  These expectations
are prior to the impact of the Company's recently announced acquisitions of
UpShot Corporation and of certain assets of Motiva, Inc., for which the Company
is currently determining the appropriate allocation of their cost structure.

Sales and Marketing.  The Company continues to place
significant emphasis, both domestically and internationally, on direct sales
through its own sales force.  Sales and marketing expense is comprised primarily
of costs associated with the Company's 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 $112.0 million for the
three months ended September 30, 2002, to $82.8 million for the three months
ended September 30, 2003, and decreased from $372.6 million for the nine months
ended September 30, 2002, to $276.8 million for the nine months ended September
30, 2003.  As a percentage of total revenues, sales and marketing expense was
31% and 30% for the three and nine months ended September 30, 2002,
respectively, as compared to 26% and 28% for the three and nine months ended
September 30, 2003, respectively.

Included in sales and marketing expense for the three and
nine months ended September 30, 2002, is a compensation charge of $12.2 million
related to the repurchase of stock options held by the Company's sales and
marketing personnel.  The charge included in sales and marketing expense related
to the Option Repurchase represented approximately 3% and 1% of total revenues
for the three and nine months ended September 30, 2002, respectively.  The
Company views this compensation charge as a significant special charge that
makes year-over-year comparisons to the cost incurred in 2003 difficult.

Excluding the 2002 compensation charge related to the
Option Repurchase, the remaining expenses included in sales and marketing
expense decreased, in terms of both absolute dollars and as a percentage of
total revenues, during the 2003 periods from the comparable periods in 2002
primarily due to: (i) the continued close monitoring of the Company's expenses
and further implementation of the Company's cost control initiatives, including
reductions in travel and entertainment expenditures and advertising
expenditures; (ii) the decrease in sales commissions and other incentive
compensation that resulted from a decrease in the Company's software license
revenues; and (iii) the further reduction of expenses as a result of the
Restructuring, including the reduction of sales and marketing personnel and
consolidation of the remaining personnel into more highly utilized facilities.
Partially offsetting these costs savings were increases in compensation expense
associated with the renewal of merit compensation increases and certain
incentive compensation plans.

In connection with the 2003 Restructuring, the Company:
(i) reduced the number of sales personnel serving an individual customer, which
the Company believes will allow greater responsiveness to customers, faster
decision making, and an improved focus of the Company's resources on key growth
areas; and (ii) consolidated the Company's sales and marketing management
structure and reduced the number of sales personnel in order to better align its
cost structure with expected revenues.  As a result of these actions, the
Company expects sales and marketing expense, in terms of both absolute dollars
and as a percentage of total revenues, to remain comparable to or decrease
during the fourth quarter of 2003 from the levels incurred during the third
quarter of 2003.  These expectations are prior to the impact of the Company's
recently announced acquisitions of UpShot Corporation and of certain assets of
Motiva, Inc., for which the Company is currently determining the appropriate
allocation of their cost structure.

General and Administrative.  General and
administrative expense consists primarily of salaries and occupancy costs for
administrative, executive and finance personnel, along with bad debt expense.
General and administrative expenses decreased from $36.5 million for the three
months ended September 30, 2002, to $27.3 million for the three months ended
September 30, 2003, and decreased from $96.1 million for the nine months ended
September 30, 2002, to $81.9 million for the nine months ended September 30,
2003.  As a percentage of total revenues, general and administrative expense was
10% and 8% for the three and nine months ended September 30, 2002, respectively,
as compared to 9% and 8% for the three and nine months ended September 30, 2003,
respectively.

Included in general and administrative expense for the
three and nine months ended September 30, 2002, is a compensation charge of $9.8
million related to the Option Repurchase.  The Company views this compensation
charge as a significant special charge that makes year-over-year comparisons to
the cost incurred in 2003 difficult.  Excluding this significant special charge,
the remaining expenses included in general and administrative expense increased
by $0.6 million from the three months ended September 30, 2002, to the three
months ended September 30, 2003, and decreased by $4.5 million from the nine
months ended September 30, 2002, to the nine months end September 30, 2003.

The $4.5 million decrease in remaining general and
administrative expenses during the nine months ended September 30, 2003, from
the comparable period in 2002, was primarily due to: (i) further reduction of
expenses through the Company's cost control initiatives, (ii) reductions in
expenses as a result of the Restructuring, including the reduction of general
and administrative personnel and consolidation of the remaining personnel into
higher-utilized facilities, and (iii) a decrease in the Company's provision for
doubtful accounts associated with reduced receivable levels.  Partially
offsetting these cost savings were increases in legal expenses (please refer to
Note 4 to the unaudited consolidated financial statements for further discussion
of legal proceedings) and compensation expense associated with the renewal of
merit compensation increases and certain incentive compensation plans.

The $0.6 million increase in remaining general and
administrative expenses during the three months ended September 30, 2003, from
the comparable period in 2002, was primarily due to: (i) the increase in legal
fees noted above, and (ii) compensation expense associated with the renewal of
merit compensation increases and certain incentive compensation plans.
Partially offsetting these increases were cost savings from the Company's cost
control initiatives, the Restructuring and a decrease in the Company's provision
for doubtful accounts associated with reduced receivable levels.

The $9.8 million charge included in general and
administrative expense related to the Option Repurchase represented
approximately 3% and 1% of total revenues for the three and nine months ended
September 30, 2002, respectively.  Accordingly, if the Company had not incurred
this charge, total general and administrative expenses would have increased as a
percentage of total revenues for the three and nine months ended September 30,
2003, as compared to the comparable periods in 2002.  This increase was
primarily due to a decrease in total revenues and the increase in legal fees
discussed above.

In connection with the 2003 Restructuring, the Company
consolidated its general and administrative management structure and reduced the
size of it general and administrative staff in order to better align its cost
structure with expected revenues.  In addition, the Company expects to continue
to closely monitor discretionary expenditures and continue many of its cost
control initiatives.  Accordingly, the Company anticipates general and
administrative expense, in terms of both absolute dollars and as a percentage of
total revenues, to remain comparable to or decrease during the fourth quarter of
2003 from the levels incurred during the third quarter of 2003.  These
expectations are prior to the impact of the Company's recently announced
acquisitions of UpShot Corporation and of certain assets of Motiva, Inc., for
which the Company is currently determining the appropriate allocation of their
cost structure.

Restructuring and Related Expenses.  	As
previously discussed, certain of the Company's key operating metrics have
declined from their historical levels.  In response to this decline, the Company
initiated a series of steps that it believes will: (i) strengthen the Company's
competitive position; (ii) reduce its cost structure thereby improving its
revenue per employee, operating margin and overall operating performance; and
(iii) better align its management structure in order to return to sequential
quarterly revenue growth.  Specifically, the Company has taken the following
actions:

- The Company reduced the discretionary portion of its
operating costs through various cost control initiatives discussed
above.

- In order to further align the Company's operating
structure with anticipated revenue levels, the Company initiated the 2002
Restructuring, which it completed in December 2002.  The 2002 Restructuring
consisted primarily of the consolidation of excess facilities, reductions in its
workforce and the abandonment of certain assets in connection with the
consolidation of excess facilities.

- Based on the Company's continued evaluation of economic
conditions in the information technology industry and its expectations regarding
revenue levels, the Company initiated the 2003 Restructuring in the second
quarter of 2003, which it completed in September 2003.

The 2003 Restructuring included the following key
measures: (i) the reduction of its workforce across all functional areas,
including reductions related to the consolidation of its management organization
and its 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.

In addition to reducing the Company's cost structure, the
Company believes the 2003 Restructuring will result in: (i) a flatter, more
responsive and efficient management reporting structure; (ii) a more focused
sales organization providing greater responsiveness to customers and faster
decision making; and (iii) a continued focus of its resources on key growth
areas, such as the Company's newest product offering, Siebel CRM OnDemand, a
hosted customer relationship management ("CRM") service jointly
developed with IBM Corporation and designed to meet the growing market demand
for fast, easy, and affordable CRM software.

The following table summarizes the Restructuring and
related expenses incurred during 2002 and the nine months ended September 30,
2003, and the related Restructuring obligations as of December 31, 2002, and
September 30, 2003 (in thousands):

`Employee      Facility-      Asset
                                                              Termination     Related    Abandonment
                                                               Costs (1)     Costs (2)    Costs (3)      Total
                                                             ------------ -------------- -----------  -----------
Restructuring obligations, July 1, 2002..................... $        --  $          --  $       --   $       --

Restructuring and related expenses:
  Recognized in the quarter ended September 30, 2002 (4)....      22,301         68,120      18,962      109,383
  Recognized in the quarter ended December 31, 2002 (4).....       1,348         87,581       6,993       95,922
                                                             ------------ -------------- -----------  -----------
     Total recognized in 2002...............................      23,649        155,701      25,955      205,305
                                                             ------------ -------------- -----------  -----------
Cash payments...............................................     (19,714)        (5,088)         --      (24,802)
Non-cash charges............................................          --             --     (25,955)     (25,955)
                                                             ------------ -------------- -----------  -----------
Restructuring obligations, December 31, 2002................ $     3,935  $     150,613  $       --   $  154,548
                                                             ------------ -------------- -----------  -----------
Restructuring and related expenses: (5)
  Recognized related to changes in estimate (6).............        (598)        16,161         566       16,129
  Recognized related to the 2003 Restructuring (7)..........      15,585         56,266      16,940       88,791
  Accretion related to the 2003 Restructuring (8)...........          --            121          --          121
                                                             ------------ -------------- -----------  -----------
     Total recognized in 2003...............................      14,987         72,548      17,506      105,041
Cash payments...............................................     (12,054)       (50,272)         --      (62,326)
Non-cash charges............................................          --             --     (17,506)     (17,506)
                                                             ------------ -------------- -----------  -----------
Restructuring obligations, September 30, 2003............... $     6,868  $     172,889  $       --   $  179,757
                                                             ============ ============== ===========
     Less: Restructuring obligations, short-term............                                              56,166
                                                                                                      -----------
     Restructuring obligations, long-term...................                                          $  123,591
                                                                                                      ===========`

1. In connection with the 2002 Restructuring, the Company
reduced its workforce by approximately 1,150 employees, or 16% of its then
current workforce.  In connection with the 2003 Restructuring, the Company
reduced or expects to reduce its workforce by approximately 600 employees, or
11% of its current workforce.  As of September 30, 2003, the Company had
completed approximately 430 of these terminations and expects to complete the
reduction of the remaining employees within six to nine months.  The Company has
not completed the separation of employment with these remaining employees
primarily due to regulatory requirements in certain countries and the Company's
ongoing transition of certain product development positions overseas.  The
workforce reductions affected substantially all of the Company's organizations
and geographical regions.  The costs associated with the Company's workforce
reductions consist primarily of severance payments, COBRA benefits, payroll
taxes and other associated employment termination costs.  Please refer to Note 2
to the accompanying unaudited consolidated financial statements for a further
discussion of the Company's accounting for these obligations.
2. As a result of the workforce reductions and previous
employee attrition, certain of the Company's facilities were under-utilized.
Accordingly, the Company consolidated its remaining workforce into under-utilized
facilities and ceased to utilize the then vacated facilities.  The
facilities permanently removed from the Company's operations during both 2002
and 2003 were located primarily in Emeryville and San Mateo, California; Eastern
Europe; and several smaller offices in North America.  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. As part of the consolidation of the Company's facilities,
certain leasehold improvements, furniture and fixtures were abandoned.  As a
result, the Company recorded a non-cash charge equal to the net book value of
these abandoned assets in Restructuring and related expenses.
4. The Company recorded 2002 Restructuring and related
expenses in an amount equal to the gross value of the related obligations
without consideration to the net present value of such obligations.  In
addition, in determining the 2002 Restructuring obligations the Company assessed
the time period over which reasonable estimates could be made.
5. The following is summary of Restructuring and related
expenses, by quarter, for the nine months ended September 30, 2003 (in
thousands):
Second         Third        Total
                                                                Quarter       Quarter      for 2003
                                                             ------------ -------------- -----------
Restructuring and related expenses:
  Changes in estimate....................................... $    (9,972) $      26,101  $   16,129
  2003 Restructuring-related................................      10,246         78,545      88,791
  Accretion.................................................          --            121         121
                                                             ------------ -------------- -----------
     Total Restructuring and related expenses............... $       274  $     104,767  $  105,041
                                                             ============ ============== ===========
6. Primarily due to the real estate markets in which the
Company operates remaining at depressed levels longer than originally
anticipated, the Company extended the estimated sublease commencement dates
and/or reduced the estimated sublease rates on certain restructured properties.
Partially offsetting these reductions in estimated sublease income were
favorable changes in estimate that resulted from the Company: (i) terminating
certain leases at more favorable terms than originally anticipated and (ii)
entering into subleases sooner than previously expected and/or at higher
sublease rates than originally anticipated on certain other restructured
properties.  The Company believes that its estimates with respect to its
remaining Restructuring obligations are appropriate as of September 30,
2003.
7. In accordance with SFAS 146, the Company recorded the
facility-related expenses incurred in the 2003 Restructuring after giving effect
to the net present value of the related obligations.
8. 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.

Subject to the timely and successful implementation of
the 2003 Restructuring, the Company believes that the 2003 Restructuring will
further reduce the Company's expense levels and a portion of the related cash
requirements, resulting in a cost structure that is better aligned with
anticipated revenues.  Specifically, the Company expects the implementation of
the 2003 Restructuring, along with its cost control initiatives, will reduce the
Company's quarterly operating expenses by up to $40 million from where operating
expenses would have been absent the 2003 Restructuring.  The Company expects to
achieve up to $30 million of these expense savings in the fourth quarter of 2003
and the remaining expense savings by the end of the fourth quarter of 2004.

The majority of the quarterly expense savings from the
2003 Restructuring are expected to be derived from: (i) the Company's workforce
reduction, including expense reductions related to employee compensation,
employee benefits and other direct costs of up to $21 million; (ii) the
Company's consolidation of its facilities, including reductions of rent and
other operating costs of up to $6 million; (iii) a decrease in depreciation
expense of up to $10 million, primarily due to reductions in capital
expenditures, the abandonment of certain leasehold improvements, furniture and
fixtures, and certain property and equipment becoming fully depreciated; and
(iv) a decrease in other operating costs of up to $3 million, including savings
from relocating a portion of the Company's technical support, quality assurance
and other product development operations overseas.

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 in estimates related to its Restructuring obligations in current
operations.

Because the benefits related to the 2003 Restructuring
are derived from management's estimates, which are based on currently available
information, the 2003 Restructuring may not achieve the benefits currently
anticipated or on the timetable or at the level currently contemplated.  Please
refer to "We may not be able to successfully implement our Restructuring
efforts, and such efforts may adversely impact our ability to retain and attract
future employees" under Risk Factors included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002, for further discussion
of risks associated with the Restructuring.

Operating Loss and Operating Margin

Operating loss decreased from $154.7 million during the
three months ended September 30, 2002, to $91.3 million during the three months
ended September 30, 2003, and increased from $27.1 million during the nine
months ended September 30, 2002, to $89.5 million during the nine months ended
September 30, 2003.  The Company incurred negative operating income and margins
during the 2002 periods primarily due to the expenses associated with the 2002
Restructuring and Option Repurchase and incurred negative operating income and
margins during the 2003 periods primarily due to expenses associated with the
2003 Restructuring.

Other Income, Net

`Three Months Ended     Nine Months Ended
                                                 September 30,         September 30,
                                             --------------------- ---------------------
                                                2002       2003       2002       2003
                                             ---------- ---------- ---------- ----------
Interest income............................. $  15,096  $  12,909  $  44,053  $  40,620
Loss on early extinguishment of debt........        --    (10,711)        --    (10,711)
Interest expense............................    (5,113)    (4,827)   (14,949)   (14,575)
Net gains on marketable investments.........     5,020      1,055      9,750      4,760
Write-down of cost-method investments.......    (4,132)      (269)    (6,640)      (675)
Other, net..................................       (40)       445     (1,483)      (143)
                                             ---------- ---------- ---------- ----------
                                             $  10,831  $  (1,398) $  30,731  $  19,276
                                             ========== ========== ========== ==========`

Interest income represents earnings on the Company's cash
and short-term investments.  Interest income decreased in each of the 2003
periods compared to 2002 periods, primarily due to the decline in interest
rates, partially offset by the increased balances of cash and short-term
investments.

On September 30, 2003, the Company redeemed the $300.0
million convertible subordinated debentures ('Debentures") in accordance
with their terms for $307.1 million.   In connection with this redemption, the
Company incurred a pre-tax charge to operations of $10.7 million, consisting of
the $7.1 million premium and the write-off of the remaining unamortized issuance
costs of $3.6 million.  This pre-tax charge is reflected in the above table
under the heading "loss on early extinguishment of debt" for the three
and nine months ended September 30, 2003.  Interest expense for all periods
presented primarily represents interest on the Debentures.

During the three and nine months ended September 30, 2002
and 2003, net gains on marketable investments were primarily the result of gains
from sales of certain of the Company's short-term investments.  The Company
holds several minority interests, included in other assets and accounted for
under the cost method, in companies having operations or technology in areas
within its strategic focus.  During the three and nine months ended September
30, 2002 and 2003, the write-down of cost-method investments represents
adjustments to certain of these investments to the estimated fair value, as the
decline in the value of 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 and Income Tax Benefit

The Company's provision for income taxes (benefit) totaled
$(51.8) million and $1.3 million for the three and nine months ended September
30, 2002, respectively, compared to $(33.4) million and $(25.3) million for the
three and nine months ended September 30, 2003, respectively.  Income taxes
(benefit) as a percentage of pretax income (i.e., the "Effective
Rate") were 36% for all periods presented.  The Company currently expects
its Effective Rate for the fourth quarter of 2003 to be approximately 36%;
however, the Company may have to increase its tax rate in future periods should
the Company's actual geographical mix or absolute levels of annual pretax income
differ from amounts currently expected.

Specifically, as part of the process of preparing the
Company's consolidated financial statements, the Company is required to estimate
its full-year income and the related income tax expense in each jurisdiction in
which the Company operates.  Changes in the geographical mix or estimated level
of annual pretax income can impact the Company's overall effective tax rate.
This process involves estimating the Company's current tax liabilities in each
jurisdiction in which the Company operates, 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 the Company's 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 the Company has considered future taxable income and the
existence of prudent and feasible tax planning strategies in assessing its
valuation allowance, in the event the Company were to determine that it would
not be able to realize all or part of its net deferred tax assets in the future,
an adjustment to the valuation allowance would be charged to income in the
period such determination was made.

As discussed in Note 4 to the accompanying unaudited
consolidated financial statements, the Company's U.S. Federal income tax returns
for 1998, 1999 and 2000 are currently under examination by the Internal Revenue
Service ("IRS").  The Company believes it has made adequate provision
in the accompanying unaudited consolidated financial statements for any
adjustments the IRS has or may propose with respect to the U.S. Federal income
tax returns.  Although the Company believes that it has made adequate provision
for any adjustments the IRS has or may propose, the final determination of the
Company's tax obligations may exceed amounts provided for by the Company in the
accompanying unaudited consolidated financial statements.  The Company will
continually review its estimates related to its income tax obligations,
including potential assessments from the IRS of additional taxes, penalties
and/or interest, and revise its estimates, if deemed necessary.  Any revision in
the Company's estimates of its tax obligations will be reflected as an
adjustment to its income tax provision at the time of the change in
estimate.

Net Income (Loss)

During the three and nine months ended September 30,
2002, the Company reported net income (loss) of $(92.1) million and $2.3
million, respectively, compared to $(59.3) million and $(44.9) during the three
and nine months ended September 30, 2003, respectively.  Diluted net income
(loss) per share was $(0.19) and nil per share for the three and nine months
ended September 30, 2002, respectively, compared to a net loss per share of
$(0.12) and $(0.09) per share during the three and nine months ended September
30, 2003, respectively.

Liquidity and Capital Resources

Overview

The Company derives its liquidity and capital resources
primarily from its cash flows from operations and from working capital.  The
Company's working capital decreased from $1,940.3 million as of December 31,
2002, to $1,756.2 million as of September 30, 2003, primarily due to the
repurchase of the $300.0 million Debentures, partially offset by increases that
resulted from operations (including proceeds from the exercise of stock
options).  The significant components of the Company's 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.  The Company's cash, cash equivalents and
short-term investments were $2,161.6 million and $2,027.0 million as of December
31, 2002 and September 30, 2003, respectively, representing approximately 71%
and 74% of total assets, respectively.  The Company's days sales outstanding in
accounts receivable was 63 days as of December 31, 2002, compared to 53 days as
of September 30, 2003.  In addition, the Company's average payment terms on
license revenue transactions were 28 days as of December 31, 2002, compared to
23 days as of September 30, 2003.

The Company does not use off-balance-sheet arrangements
with unconsolidated entities or related parties, nor does it use other forms of
off-balance-sheet arrangements such as research and development arrangements.
Accordingly, the Company's liquidity and capital resources are not subject to
off-balance-sheet risks from unconsolidated entities.  The Company's liquidity
could be negatively impacted by a decrease in demand for the Company's products,
which are subject to rapid technological changes, or a reduction of capital
expenditures by the Company's customers as a result of a downturn in the global
economy, among other factors.

While the Company believes that its current working
capital and anticipated cash flows from operations will be adequate to meet its
cash needs for daily operations and capital expenditures for at least the next
12 months, the Company may elect to raise additional capital through a public
offering of securities or other means in the future, depending upon market
conditions.

Commitments

As of September 30, 2003, the Company's future fixed
commitments for cash payments are as follows (in thousands):

`Commitment Year
                                                      ----------------------------------------------
                                                       Remainder     2004 to     2006 to   2008 and
Contractual Obligations                                  2003         2005        2007      Beyond      Total
---------------------------------------------------   ----------  -----------  ---------- ---------- -----------
Restructuring obligations..........................   $  17,436   $  112,871   $  72,079  $ 198,700  $  401,086
Capital lease obligations..........................       3,522       19,063          --         --      22,585
Operating lease obligations........................      17,382      135,447     130,572    451,284     734,685
                                                      ----------  -----------   --------- ---------- -----------
      Total fixed commitments......................   $  38,340   $  267,381   $ 202,651  $ 649,984  $1,158,356
                                                      ==========  ===========  ========== ========== ===========`

The Restructuring obligations in the above table
represent the Company's gross expected cash outlays related to the settlement of
these obligations, primarily obligations related to noncancellable operating
leases.  Accordingly, the Restructuring obligations in the above table have not
been reduced by estimated sublease income of $208.6 million or to their net
present value.  Please refer to Note 2 to the accompanying unaudited
consolidated financial statements for a detailed summary of the Company's future
commitments related to the Restructuring, including a detail of contractual
obligations, estimated operating costs and estimated sublease income.  Capital
lease obligations in the above table represent the gross expected cash outlays
and, therefore, do not represent their net present value as recorded in the
accompanying unaudited consolidated balance sheet.  Please refer to Note 4 to
the accompanying unaudited consolidated financial statements for a detailed
summary of anticipated cash outlays related to operating and capital leases.

Cash Flows

Cash provided by operating activities was $339.8 million
and $153.2 million for the nine months ended September 30, 2002 and 2003,
respectively.  Despite the weak economic conditions, the Company has continued
to operate its business to produce positive cash flows from operations.  Cash
provided by operating activities decreased from 2002 to 2003 primarily as the
result of the decreases in revenues and earnings that occurred, in part, as a
result of the weak global economic conditions.  During the nine months ended
September 30, 2002 and 2003, the Company's cash flows from operations were
primarily derived from: (i) the Company's earnings from on-going operations
prior to Restructuring and related expenses and non-cash expenses such as
depreciation, amortization, and bad debt, and (ii) changes in the Company's
working capital, which is primarily comprised of collections of accounts
receivable, partially offset by payments of accounts payable and accrued
expenses (inclusive of bonuses and accrued compensation) .

The majority of the Restructuring and related expenses
will be paid over time and, accordingly, as the Company settles its remaining
Restructuring obligations ($179.8 million as of September 30, 2003), the
Company's future cash flows from operations will be reduced in the period of
settlement.  Please refer to Note 2 to the accompanying unaudited consolidated
financial statements for detailed summary of anticipated cash outlays related to
the Restructuring.

Cash used in investing activities was $475.5 million and
$10.4 million for the nine months ended September 30, 2002 and 2003,
respectively.  The Company's investment activities during 2002 primarily related
to the purchase of additional property and equipment and the reinvestment of the
Company's cash into short-term investments.  The Company's investment activities
during 2003 primarily related to the purchase of additional property and
equipment.  For the nine months ended September 30, 2002, the Company reinvested
its cash flows from operations into short-term investments in net amounts of
$427.9 million, and purchased property and equipment totaling $55.3 million.
For the nine months ended September 30, 2003, the Company purchased property and
equipment totaling $14.0 million.  Other investing activities resulted in
increases of $7.7 million and $3.6 million during the nine months ended
September 30, 2002 and 2003, respectively.

As discussed further below, the Company repurchased its
Debentures for $307.1 million during the nine months ended September 30, 2003,
in part from the proceeds from sales of short-term investments.  Primarily due
to the repurchase of the Debentures, the Company received net proceeds on sales
of short-term investments of $0.1 million during the nine months ended September
30, 2003, compared to a net reinvestment in short-term investments of $427.9
million during the comparable period in 2002.  Capital expenditures during 2003
have continued to decrease on a year-over-year basis primarily due to the
reduction in the size of the Company's workforce and consolidation of its
facilities.  The Company will continue to closely monitor its capital
expenditures and currently expects that total capital expenditures for the year
ending December 31, 2003, will be $25 million or less.

Cash provided by financing activities was $99.5 million
for the nine months ended September 30, 2002, as compared to cash used in
financing activities of $275.5 million for the nine months ended September 30,
2003.  For the nine months ended September 30, 2002, the Company's financing
activities consisted primarily of: (i) net proceeds of $80.3 million from the
issuance of common stock pursuant to the exercise of stock options and the
Company's employee stock purchase plan, (ii) proceeds of $24.9 million from
equipment financing, and (iii) repayments of capital lease obligations.  For the
nine months ended September 30, 2003, the Company's financing activities
consisted primarily of: (i) the repurchase of the Debentures for $307.1 million,
(ii) net proceeds of $41.1 million from the issuance of common stock pursuant to
the exercise of stock options and the Company's employee stock purchase plan,
and (iii) repayments of capital lease obligations.

Adoption of Accounting Standards

During the nine months ended September 30, 2003, the Company
adopted new accounting standards related to the accounting for and disclosure of
restructuring obligations (i.e., costs associated with exit and disposal
activities), asset retirement obligations, and guarantees.  The adoption of
these accounting standards did not have a material impact on the Company's
consolidated financial position, results of operations or cash flows.  Please
refer to Note 1 to the accompanying unaudited consolidated financial statements
for further discussion of the accounting standards adopted during 2003.

Application of Critical Accounting Policies and Use of
Estimates

Use of Estimates

The Company's consolidated financial statements are
prepared in accordance with accounting principles generally accepted in the
United States (herein after referred to as "GAAP") and the application
of GAAP requires management to make estimates that affect the Company's reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities.  In many instances, the Company 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, the Company's future financial
statement presentation of its financial condition or results of operations could
be adversely affected.

On an on-going 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 and deferred 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.  The Company refers to accounting
estimates of this type as "critical accounting estimates," which are
discussed further below.

In addition to the estimates and assumptions that are
utilized in the preparation of financial statements, the inability to estimate
the timing and amount of future revenues could significantly impact the
Company's future operations.  The Company's sales personnel monitor the status
of all proposals, including the estimated closing date and potential dollar
amount of each transaction.  The Company aggregates these estimates periodically
to generate a sales pipeline and then evaluates the pipeline to identify trends
in the Company's 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.  Specifically, the slowdown in the global economy and information
technology spending, among other factors, 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 rate
of the pipeline into contracts could cause the Company to plan or budget
inaccurately and thereby could adversely affect the Company's business,
financial condition or results of operations.  In addition, because a
substantial portion of the Company's software license contracts close in the
latter part of a quarter, management may not be able to adjust the Company's
cost structure to respond to a variation in the conversion of the pipeline in a
timely manner, which may adversely and materially affect the Company's business,
financial condition or results of operations.

Critical Accounting Policies

In addition to making critical accounting estimates, the
Company must ensure that its 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.).  The
Company believes that the following accounting policies are critical to
understanding the Company's 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;
- Stock-based compensation;
- Option Repurchase;
- Provision for doubtful accounts;
- Acquired intangible assets;
- Impairment of long-lived assets;
- Other-than-temporary declines in the market value of investments;
and
- Income tax provision and deferred income taxes.

The Company's management has reviewed its critical
accounting policies, critical accounting estimates, and the related disclosures
with the Disclosure and Audit Committees.  Additional information about these
critical accounting policies may by found in the Company's Annual Report on
Form 10-K for the year ended December 31, 2002, 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."

As discussed above and in Note 1 to the accompanying
unaudited consolidated financial statements, the Company adopted SFAS No. 146
"Accounting for Exit or Disposal Activities" ("SFAS 146") on
January 1, 2003.  SFAS 146 provides new accounting requirements for and
disclosures of Restructuring obligations (i.e., costs associated with exit and
disposal activities).  SFAS 146 is effective for exit or disposal activities
initiated after December 31, 2002 and, accordingly, facility-related expenses
incurred in connection with the 2003 Restructuring were accounted for in
accordance with SFAS 146.  The adoption of SFAS 146 did not impact the Company's
Restructuring obligations recognized in 2002 as these obligations must continue
to be accounted for in accordance with pre-existing guidance.

Employee Stock Options

Section I.  Description of Plans

Since inception, the Company has been an advocate of
broad-based employee stock ownership.  Accordingly, the Company's stock option
program has been instrumental in attracting and retaining talented employees and
aligning their interests with the interests of existing stockholders.  The
Company's stock option program consists primarily of two plans:  the Siebel
Systems, Inc. 1996 Stock Option Plan, which amended and restated the Company's
1994 Stock Option Plan and the 1996 Supplemental Stock Option Plan
(collectively, 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.  The Company's Board of Directors and
stockholders have approved the 1996 Plan, and the Company's Board of Directors
has approved the 1998 Plan.

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 the Compensation Committee are independent directors, as defined in
the applicable rules for issuers traded on The Nasdaq Stock Market.
Substantially all of the Company's employees participate in one of the above
plans, thereby providing the Company the ability to meet its goal of long-term
retention of its employees.  Stock options granted under these plans expire no
later than ten years from the grant date (2003 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 the Company's Annual Report on Form 10-K for the year
ended December 31, 2002, for further information concerning the policies of the
Company and the Compensation Committee regarding the use of stock options.

Section II.  Significant Actions Taken During 2003
Related to Stock Options

Historically, stock options have been an important
component of total compensation for the Company's employees.  Accordingly,
substantially all employees are granted stock options upon commencement of
employment.  The Company has on occasion also 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
scheduled to occur by the end of the second quarter of each year).

During the year ended December 31, 2002 and the first
nine months of 2003, the Company took several steps to reduce the number of
stock options outstanding from the levels outstanding as of December 31, 2001.
These actions, each of which is described further below or in Note 7 to the
accompanying unaudited consolidated financial statements, included: (i) the
repurchase of certain employee stock options in September 2002, (ii) the
cancellation of certain of its CEO's stock options in January 2003, and (iii)
the implementation of significantly reduced levels of stock option grants during
both 2002 and 2003, coupled with forfeitures of stock options by terminated
employees.  The Company believes that its actions will continue to align the
interests of its employees and management with the interests of its
stockholders.

As a result of these actions, stock options outstanding
decreased by 61.7 million, or 25%, during 2002 and 33.5 million, or 18%, during
the first nine months of 2003 (an aggregate of 95.2 million since December 31,
2001).  Further, these actions resulted in a decrease in stock options
outstanding relative to shares outstanding ("Stock Option Overhang")
as follows (in thousands, except percentages):

`Shares of
                                                   Common          Stock       Stock
                                                    Stock         Options      Option
                                                 Outstanding    Outstanding   Overhang
                                                 -----------    -----------  ---------
December 31, 2001...............................     466,950       247,204        53 %
                                                 ===========    ===========  ==========
December 31, 2002...............................     486,428       185,473        38 %
                                                 ===========    ===========  ==========
September 30, 2003..............................     494,667       151,958        31 %
                                                 ===========    ===========  ==========`

Please refer to "Employee Stock Options" under
Item 7 of the Company's Annual Report on Form 10-K for additional discussion of
the actions taken by the Company to reduce stock options during the year ended
December 31, 2002.  The following is a detailed discussion of the actions taken
by the Company during the nine months ended September 30, 2003.

CEO Option Cancellation

As described more fully in Note 7 to the accompanying
unaudited consolidated financial statements, at the request of its CEO, the
Company cancelled approximately 26 million of its CEO's stock options in January
2003.  The stock options cancelled had exercise prices ranging from $4.91 to
$59.81 per share and a Black-Scholes calculated fair value of $56.1 million at
the time of cancellation (stock options that were "in-the-money" at
the time of cancellation represented $30.2 million, or 54%, of the total fair
value at cancellation).  This cancellation represented all stock options granted
to the Company's CEO since October 1998.  The Company's CEO requested the
cancellation of these stock options primarily to reduce the number of
outstanding stock options relative to the number of shares outstanding.  As a
result of this cancellation, outstanding stock options decreased by 14% from the
levels as of December 31, 2002, representing net potential dilution to existing
stockholders of 5%.  The potential dilution to stockholders is calculated as the
stock options canceled, divided by the number of shares of common stock
outstanding as of December 31, 2002.  The Company has provided no compensation
in exchange for the cancellation of the CEO's stock options, nor will it provide
any compensation in the future in exchange for such cancellation.

2003 Grants and Forfeitures

In order to maintain the proper balance between the need
to attract and retain employees and minimize the dilution to existing
stockholders, the Company adjusted its compensation structure in 2002 to
significantly reduce the number of stock options issued to new and existing
employees.   The Company has maintained these new equity based compensation
guidelines in 2003.  In addition, commencing in February 2003, the Company began
granting stock options with a contractual life of six years, as opposed to ten
years for stock options granted prior to such time.

In accordance with these revised guidelines, the Company
evaluates whether to grant a merit award of stock options to existing employees
and officers by the end of the second quarter of each year.  Accordingly, during
the second quarter of 2003, the Company granted an aggregate of 17.8 million
stock options to its employees and officers in recognition of their performance
and future potential with the Company.  The Company's Chairman and CEO did not
receive any new stock options during the nine months ended September 30, 2003.
The remaining grants for the nine months ended September 30, 2003, primarily
relate to grants to employees upon commencement of employment.

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 90 days from the termination
date are also forfeited.  During the nine months ended September 30, 2003,
employees leaving the Company forfeited a total of 21.2 million stock
options.

Stock option grants, net of forfeitures by employees upon
termination, resulted in a net decrease in the Company's outstanding stock
options of 0.4% from the levels as of December 31, 2002, representing a decrease
in net potential dilution to existing stockholders of 0.1%.  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 leaving the Company, divided by the
total outstanding shares of common stock at the beginning of the year.  As
described above, the Dilution Percentage for the nine months ended September 30,
2003, only reflects forfeitures by employees upon termination and, accordingly,
does not reflect the voluntary cancellation of stock options by the Company's
CEO discussed above.  The decrease in the net Dilution Percentage in the first
nine months of 2003 of 0.1% compares to a decrease of 5% during the year ended
December 31, 2002, and an increase of 21% during the year ended December 31,
2001.

Section III.  General Option Information

Combined plan activity for the nine months ended
September 30, 2003, is summarized as follows:

`Shares                        Wtd. Avg.
                                                      Available     Number of        Exercise
                                                      for Grant      Options      Price per Share
                                                     ------------ --------------  ---------------  
   Balances, December 31, 2002.....................  161,307,093    185,472,781    $       17.42
     Additional shares authorized..................           --             --
     Options granted to employees..................  (18,655,550)    18,655,550    $        8.69
     Options granted to officers and directors.....   (1,800,000)     1,800,000    $        8.63
     Options exercised.............................           --     (6,851,466)   $        4.94
     Options forfeited/canceled upon termination...   21,082,401    (21,168,597)   $       20.70
     Options cancelled by the Company's CEO........   25,950,000    (25,950,000)   $       34.63
                                                     ------------ --------------  ---------------
   Balances, September 30, 2003....................  187,883,944    151,958,268    $       13.41
                                                     ============ ==============`

The Company continues to believe in broad-based employee
stock ownership.  As the table below indicates, the Company has continued to
allocate the vast majority of its stock options to employees who are not
officers and directors.  "Named Executive Officers" in the below table
and in the remainder of this quarterly report on Form 10-Q represent the
Company's CEO and four most highly compensated executive officers for the year
ended December 31, 2002, as disclosed in Item 11. "Executive
Compensation" of the Company's Annual Report on Form 10-K for the year
ended December 31, 2002.  Summarized below is the distribution of the Company's
stock options for the years ended December 31, 2001 and 2002, and the nine
months ended September 30, 2003:

`Nine Months
                                                                    Year Ended December 31,      Ended
                                                                    ----------------------   September 30,
                                                                       2001       2002           2003
                                                                    ----------- ----------   -------------
Grants during the period as a percentage of total
  stock options granted:
      Named Executive Officers....................................       12.4 %      3.4 %          3.9 %
      All other officers and directors as a group.................        2.4        0.3            4.9
                                                                    ----------- ----------   -------------
         Total for all officers and directors.....................       14.8        3.7            8.8
      All other employees as a group..............................       85.2       96.3           91.2
                                                                    ----------- ----------   -------------
         Total all grants.........................................      100.0 %    100.0 %        100.0 %
                                                                    =========== ==========   =============`

The following table details the "in-the-money"
and "out-of-the-money" status of the Company's stock options
outstanding as of September 30, 2003:

`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      78,930,731            4.4    $   5.16   53,941,751    $   3.93
Out-of-the-money  73,027,537            7.2    $  22.32   37,313,890    $  22.77
                 ------------  -------------  ----------  -----------  ----------
                 151,958,268            5.7    $  13.41   91,255,641    $  11.63
                 ============                             ===========`

In-the-money stock options in the above table have
exercise prices below the closing price of the Company's common stock as of
September 30, 2003, of $9.76 per share and out-of-the money stock options have
exercise prices equal to or greater than $9.76 per share.

Section IV.  Accounting for 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 "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.  The Company records
and measures 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.  There were no grants of stock options at exercise prices below the fair
market value of the Company's common stock on the date of grant during the three
and nine months ended September 30, 2002 and 2003.

An alternative to the intrinsic value method of
accounting for stock options is the fair value approach allowed by SFAS No. 123
"Accounting for Stock-Based Compensation," as amended by SFAS No. 148
"Accounting for Stock-Based Compensation - Transition and Disclosure"
(hereinafter collectively referred to as "SFAS 123").  The Company has
continued to follow the intrinsic value method of APB 25, as the Company
believes the accounting for stock options under SFAS 123 is highly subjective
and does not necessarily reflect the economic substance of an employee stock
option.  Specifically, the compensation cost under SFAS 123 is recognized
ratably over the vesting period, regardless of whether the stock options'
exercise prices are below the fair value of the Company's common stock.  In
addition, compensation expense related to vested stock options that are
subsequently forfeited or canceled is reflected in operations, despite the fact
that the stock options did not provide any value to the employee or dilute
existing stockholders.  Subsequent to cancellation of a stock option, no
additional compensation expense for that cancelled stock option is reported in
the pro forma disclosure of stock-based compensation.

Further, under the fair value approach, employee stock
options are required to be valued using an option valuation model, such as
Black-Scholes.  The Company believes there are limitations to the Black-Scholes
option valuation model, including the fact that the Black-Scholes option
valuation model was 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, the
Company must use subjective assumptions, including expected stock price
volatility and the expected remaining life, as inputs to the Black-Scholes
option valuation model.  Because the Company's 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 the Company's 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 its employees.

As required by SFAS 123, the Company has prepared a
reconciliation of its net income as reported on the statement of operations to
the net income 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 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 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      Nine Months Ended
                                                                             September 30,          September 30,
                                                                        ---------------------- -----------------------
                                                                            2002       2003        2002        2003
                                                                        ----------- ---------- -----------  ----------
Net income (loss):                                                                                                     
  As reported.......................................................... $  (92,078) $ (59,330) $    2,318   $ (44,944)
                                                                        ----------- ---------- -----------  ----------
  Compensation expense related to:
    Stock options accounted for in accordance with APB 25..............        682        346       3,620       1,326
    In-the-money stock options.........................................     (9,330)    (7,209)    (29,231)    (21,078)
    Stock purchase rights under the Purchase Plan......................     (3,309)    (1,904)    (19,777)     (3,973)
                                                                        ----------- ---------- -----------  ----------
       Total pro forma expense related to "in the money" stock
         options and Purchase Plan.....................................    (11,957)    (8,767)    (45,388)    (23,725)
    Out-of-the-money stock options.....................................    (42,786)   (42,027)   (160,777)   (135,071)
    Stock options cancelled for no consideration.......................    (24,473)        --     (86,081)   (251,821)
    Stock options forfeited/cancelled in connection with terminations..    (10,246)        (1)    (65,234)     (2,361)
    Stock options repurchased on September 30, 2002....................   (493,682)        --    (595,297)         --
                                                                        ----------- ---------- -----------  ----------
       Total pro forma expense giving effect to SFAS 123...............   (583,144)   (50,795)   (952,777)   (412,978)
                                                                        ----------- ---------- -----------  ----------
  Pro forma giving effect to SFAS 123.................................. $ (675,222) $(110,125) $ (950,459)  $(457,922)
                                                                        =========== ========== ===========  ==========`

In-the-money stock options in the above table have
exercise prices below the closing price of the Company's common stock on
September 30, 2003, of $9.76, and out-of-the-money stock options have exercise
prices equal to or greater than $9.76.

As the table above illustrates, during the three and nine
months ended September 30, 2003, $42.0 million and $389.3 million, respectively,
of the total pro forma expense for stock options relates to: (i) stock options
that were cancelled for no consideration, (ii) stock options forfeited by
employees upon termination for no consideration, or (iii) stock options that are
significantly out of the money (i.e., the weighted-average exercise price of the
out-of-the-money stock options is $22.32 per share as of September 30, 2003,
compared to a closing price of $9.76 per share as of September 30, 2003).  This
represented 83% and 94% of the pro forma expense for stock options during the
three and nine months ended September 30, 2003, 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 the Company in determining those assumptions.

Section V.  Executive and Director Stock-Based
Compensation

Executive Stock-Based Compensation

The following table sets forth certain information
regarding stock options granted to the Named Executive Officers during the nine
months ended September 30, 2003:

`Potential Realizable Value
                                  Number of       Percent of                                   at Assumed Annual Rates of
                                  Securities     Total Options                                 Stock Price Appreciation
                                  Underlying      Granted to     Exercise or                    for the Option Term (5)
                                   Options         Employees      Base Price    Expiration    ----------------------------
       Officer Name                Granted        in 2003 (3)    ($/Share) (4)     Date             5%            10%
-----------------------------    ------------   --------------  -------------  -------------  -------------  -------------
Thomas M. Siebel                        --                -- %  $         --             --   $         --   $         --
Paul Wahl (6)                           --                -- %  $         --             --   $         --   $         --
R. David Schmaier                  300,000 (1)           1.5 %  $       8.66     04/30/2009   $    883,568   $  2,004,515
Kenneth A. Goldman                 250,000 (1)           1.3 %  $       8.66     04/30/2009   $    736,307   $  1,670,430
Richard P. Chiarello               100,000 (1)           0.5 %  $       8.66     04/30/2009   $    294,523   $    668,172
Richard P. Chiarello               150,000 (2)           0.8 %  $       8.06     02/13/2009   $    411,176   $    932,817`

1. Options vest 20% on May 1, 2004, and at a rate of 5% for each quarter of
service thereafter, and have a term of six years.
2. Options vest 20% on February 14, 2004, and at a rate of 5% each quarter of
service thereafter, and have a term of six years.
3. Based on an aggregate of 20.5 million shares subject to options granted to
employees pursuant to the Company's 1996 and 1998 Plans during the nine months
ended September 30, 2003, including grants to the Named Executive
Officers.
4. Under all stock option plans, the stock option exercise price is equal to
the fair market value at the date of grant.
5. The potential realizable value is calculated based on the term of the option
at the time of grant. Stock price appreciation of 5% and 10% is assumed pursuant
to rules promulgated by the SEC and does not represent the Company's prediction
of its stock price performance or the actual value of the stock
options.
6. Mr. Wahl resigned as President and Chief Operating Officer effective March
31, 2003.

The following summarizes the distribution and dilutive
impact of the stock options held by the Company's Named Executive Officers as of
December 31, 2001 and 2002, and September 30, 2003:

`Nine Months
                                                                    Year Ended December 31,     Ended
                                                                    ----------------------   September 30,
                                                                       2001       2002           2003
                                                                    ----------- ----------   -------------
Stock options held by Named Executive Officers
   as a percentage of:                                                                                      
      Total options outstanding...................................       23.8 %     29.3 %         16.6 %
                                                                    =========== ==========   =============
      Outstanding shares of common stock..........................       12.6 %     11.2 %          5.1 %
                                                                    =========== ==========   =============`

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 nine months ended September 30, 2003, and the number
and value of securities underlying unexercised options held by the Named
Executive Officers as of September 30, 2003:

`Number of
                                                                    Securities Underlying         Value of Unexercised
                                                                   Unexercised Options at        In-the-Money Options at
                                   Shares                          September 30, 2003 (2)        September 30, 2003 (3)
                                 Acquired on        Value        ---------------------------  ----------------------------
       Officer Name               Exercise       Realized (1)    Exercisable   Unexercisable   Exercisable   Unexercisable
-----------------------------   ------------   ---------------   ------------  -------------  -------------  -------------
Thomas M. Siebel                         --     $          --     18,286,137        399,997   $126,986,830   $  2,741,479
Paul Wahl (4)                     1,360,000     $   1,883,950             --             --   $         --   $         --
R. David Schmaier                        --     $          --      1,654,646      1,525,357   $  4,645,092   $  2,125,127
Kenneth A. Goldman                       --     $          --      1,212,500      1,657,500   $         --   $    275,000
Richard P. Chiarello                     --     $          --         55,000        395,000   $    167,900   $    909,100`

1. Based on the fair market value of the Company's 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 the Company's common stock subject
to stock options held by the Named Executive Officers as of September 30,
2003.
3. Based on the fair market value of the Company's common stock as of September
30, 2003 ($9.76 per share), minus the exercise price, multiplied by the number
of shares underlying the stock options.
4. Mr. Wahl resigned as President and Chief Operating Officer effective March
31, 2003.

Director Stock-Based Compensation

In May 2003, after considering the criteria relating to
awarding stock options and general market conditions, the Company's Board of
Directors approved the following formal guidelines relating to the grant of
stock options to its non-employee directors:

- Initial Grants -- Each new non-employee director will be
granted an option to purchase 80,000 shares of the Company's 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 the Company's common stock in January of
each year.

The Company does not intend for stock options granted to
non-employee directors to qualify as incentive stock options under the Internal
Revenue Code.  The Company believes that these option grant guidelines will
motivate and reward its 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 of the Company 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 nine months ended September 30, 2003, the Company
granted 80,000 stock options to C. Scott Hartz upon his appointment to its Board
of Directors and 20,000 stock options to Marc F. Racicot in recognition of his
performance as a member of its Board of Directors.  For 2004, the Company
expects that annual stock option grants to non-employee directors will be made
on January 1, 2004.

Directors who are also employees of the Company are not
eligible for grants of stock options under the above described guidelines.
However, they are eligible to receive discretionary grants of stock options
under the 1996 Plan and to participate in the Company's 2003 Employee Stock
Purchase Plan, which was adopted by the Board of Directors in May 2003 and
approved by the Company's stockholders in June 2003.

Section VI.  Equity Compensation Plan
Information

The number of shares issuable upon exercise of
outstanding stock options, the weighted-average exercise price of the
outstanding options, and the number of stock options remaining for future
issuance for each of the Company's plans as of September 30, 2003, 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).....    53,485,193    $     7.08           86,526,112
   Not approved by shareholders (2).    97,272,997    $    16.94          116,357,832
   Acquired companies' plans (3)....     1,200,078    $     8.47                   --
                                      -------------    ----------  -------------------
                                       151,958,268    $    13.41          202,883,944
                                      =============                ===================`

1. Represents shares available under the 1996 Plan, which is used for grants to
the Company's officers and directors.  The shares remaining available for future
issuance amount also includes 15.0 million shares available under the Company's
2003 Employee Stock Purchase Plan.
2. Represents shares available under the 1998 Plan, which is used for grants to
the Company's employees other than officers and directors.
3. The Company has 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 the Company 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 the Company's stockholders.

Risk Factors

Set forth 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.  The headings of the "Risk Factors" described under
Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2002
(the "2002 Annual Report") are as follows:

- Our total revenue and operating results may fluctuate.
- Our quarterly operating results may fluctuate.
- Economic conditions could adversely affect our revenue growth and ability to
forecast revenue.
- Hostilities involving the United States and/or terrorist attacks could harm
our business.
- A variation in the conversion of our revenue pipeline to contracts could
adversely affect our revenues and ability to forecast operations.
- We may not be able to successfully implement our Restructuring efforts, and
such efforts may adversely impact our ability to retain and attract future
employees.
- If we do not successfully manage the size of our operations, our business
may be negatively impacted.
- Rapid change will require us to manage the size of our employee base,
particularly our direct sales force and global support staff.
- We rely on strategic relationships with systems integrators, distributors,
resellers and technology vendors.
- Our customers may not successfully implement our products.
- A limited number of products provide a substantial part of our license
revenues.
- The length of time required to engage a client and to implement our products
may be lengthy and unpredictable.
- Our software license revenue is dependent on our ability to enter into
significant software license transactions with new and existing
customers.
- Our distribution channels may create additional risks.
- Our continued success will require us to keep pace with technological
developments, evolving industry standards and changing customer needs.
- We may not be able to compete effectively in the Internet-related products
and services market.
- We operate in a competitive and rapidly changing market.
- To be successful, we must effectively compete in the eBusiness systems
market.
- If we do not maintain our relationships with third-party vendors,
interruptions in the supply of our products may result.
- Software errors or defects in our products could reduce revenues.
- We need to successfully integrate acquisitions.
- Integration of personnel and operations relating to our previous or future
acquisitions may disrupt our business and management.
- If we acquire additional companies, products or technologies, we may face
risks similar to those faced in our other acquisitions.
- The loss of key personnel could negatively affect our performance.
- Leverage and debt service obligations may adversely affect our cash
flow.
- We may not be able to protect our proprietary information.
- Our international operations involve unique risks.
- Our current officers, directors and entities affiliated with us may be able
to exercise control over matters requiring stockholder approval.
- Our stock price may continue to be volatile.
- Provisions in our charter documents may prevent certain corporate
actions.

As discussed above and in Note 2 to the accompanying
unaudited consolidated financial statements, the Company completed the 2003
Restructuring in September 2003, including the reduction of approximately 11% of
its workforce.  The risks described in the above-mentioned risk factor "We
may not be able to successfully implement our Restructuring efforts, and such
efforts may adversely impact our ability to retain and attract future
employees" related to the 2002 Restructuring are also applicable to the
2003 Restructuring.

If any of these risks occur, the value of our common stock
could decline.  Please refer to "Risk Factors" under Item 7 in the
2002 Annual Report for a discussion of these risk factors.

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 September 30, 2003,
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) 17,497  US$11,295   $       (476)

Brazilian real ("BRL") (contracts to
  pay BRL/receive US$)....................    (BRL) 19,964   US$6,255   $       (151)

British pounds ("GBP") (contracts to
  pay GBP/receive EUR)....................     (GBP) 9,548  EUR 13,579  $       (224)

Canadian dollars ("CAD") (contracts
  to pay CAD/receive US$).................     (CAD) 2,798   US$2,045   $        (25)

Japanese yen ("YEN") (contracts to
  pay YEN/receive US$).................... (YEN) 2,858,900  US$25,373   $       (169)

Korea won ("KRW") (contracts to pay
  KRW/receive US$)........................   (KRW) 283,539     US$240   $         (5)

Mexican peso ("MXN") (contracts
  to pay MXN/receive US$).................    (MXN) 29,475   US$2,717   $         40

Singapore dollars ("SGD") (contracts
  to pay SGD/receive US$).................     (SGD) 1,530     US$870   $        (12)

Czech Republic koruna ("CZK") (contracts
  to receive CZK/pay EUR).................    (CZK) 40,292  EUR 1,256   $         18

Euro ("EUR") (contracts to receive
  EUR/pay US$)............................   (EUR) 140,563  US$158,735  $      2,031

Swedish krona ("SEK") (contracts to
  receive SEK/pay EUR)....................    (SEK) 11,718  EUR 1,271   $         51

Swiss franc ("CHF") (contracts to
  receive CHF/pay EUR)....................     (CHF) 3,960  EUR 2,596   $        (16)`

The following table summarizes our short-term investments
and the weighted average yields, as of September 30, 2003 (in thousands):

`Expected Maturity Date
                            ----------------------------------------------------------------------
                              2003      2004      2005      2006      2007   Thereafter    Total
                            --------- --------- --------- --------- -------- ----------- ---------
US Treasury and Agency
  securities...............  $22,061  $139,063  $255,201   $95,489   $6,306      $6,619   $524,739
Weighted average yield.....     1.21%     1.23%     1.44%     2.03%    2.42%       3.07%

Corporate bonds............  $57,569  $110,245  $182,352  $207,742  $78,680     $21,125   $657,713
Weighted average yield.....     1.43%     1.42%     1.74%     2.01%    2.73%       3.26%

Asset-backed securities....  $19,855   $99,378   $90,452   $89,822       --          --   $299,507
Weighted average yield.....     0.99%     1.49%     1.91%     2.84%`

As of September 30, 2003, we had an investment portfolio of
fixed income securities, excluding those classified as cash and cash
equivalents, of $1,482.0 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 September 30, 2003, the fair value of the portfolio would
decline by $23.4 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.	  Evaluation of Disclosure Controls and
Procedures.

Evaluation of Our Disclosure Controls and Internal
Controls

As of September 30, 2003 (the "Evaluation
Date"), we evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (the "Disclosure Controls"), as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and
Exchange Act of 1934, 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.

CEO and CFO Certifications

Attached as Exhibits 31 and 32 are two separate forms of
certifications of the CEO and the 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 in this Item 4 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.

Disclosure Controls and Internal Controls over
Financial Reporting

Our management, including the CEO and CFO, has a
responsibility for 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 Securities Exchange Act of 1934, such
as this Quarterly Report on Form 10-Q, 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 procedures that are designed with the objective of
providing reasonable assurance regarding the reliability of financial reporting
and include those policies and procedures that provide reasonable assurance that
our transactions are properly authorized, our assets are safeguarded against
unauthorized or improper use, and our transactions and dispositions of assets
are properly recorded and reported, all to permit the preparation of our
financial statements in conformity with GAAP.

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 the Controls Evaluation

The CEO and CFO evaluation of our Disclosure Controls and
our Internal Controls included a review of the controls' objectives and design,
our controls' implementation and the effect of the controls on the information
generated for use in this Quarterly Report on Form 10-Q.  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 will perform this type of
evaluation on a quarterly basis so that the conclusions concerning controls
effectiveness can be reported in our Quarterly Reports on Form 10-Q and Annual
Report on Form 10-K.  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.

Among other matters, we sought in our evaluation to
determine whether there were any "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 the 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 on Form 10-Q.  In the
professional auditing literature, "significant deficiencies" are
referred to as "reportable conditions," which are control issues that
could have a significant adverse effect on the ability to record, process,
summarize and report financial data in the financial statements.  A
"material weakness" is defined in the auditing literature as a
particularly serious reportable condition where the internal control does not
reduce to a relatively low level the risk that misstatements caused by error or
fraud may occur in amounts that would be material in relation to the financial
statements and not be detected within a timely period by employees in the normal
course of performing their assigned functions.  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.

Conclusions

Based upon the Controls Evaluation, our CEO and CFO have
concluded that, subject to the limitations noted above, our Disclosure Controls
and procedures 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 Securities
and Exchange Act of 1934, as amended.

Changes in Internal Controls over Financial
Reporting

Our CEO and CFO note that during the period covered by
this Quarterly Report on Form 10-Q, there have been no changes in Internal
Controls or in other factors that could materially affect or are reasonably
likely to affect such controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.

---

Part II.	Other Information

Item 1.	  Legal Proceedings.

On August 22, 2003, we and our Board of Directors
settled a derivative suit filed by Teachers' Retirement System of Louisiana
("TRSL"), a Louisiana public trust fund.  We believed that TRSL's
claims were without merit, but settled the case to avoid the costs and
management time involved in litigation.  The settlement was approved by the
court on October 14, 2003.  The derivative suit alleged, among other
things, that members of our Board of Directors breached their fiduciary duties
by authorizing excessive executive compensation.  The derivative plaintiffs
sought compensatory and other damages, rescission of certain stock options and
other relief.  As part of the settlement, we agreed: (i) to implement
certain enhancements to our corporate governance policies and (ii) not to oppose
the application to the court by TRSL's attorneys for reimbursement of their
legal fees in connection with the lawsuit, not to exceed $0.9 million.  We have
made adequate provision in the accompanying unaudited consolidated financial
statements for the potential reimbursement of such legal fees.

On May 6, 2003, the Enforcement Division staff
("Staff") of the Securities & Exchange Commission ("SEC")
contacted us and indicated that a May 1, 2003 article on CBS MarketWatch had
raised questions regarding our compliance with Regulation FD at an April 30,
2003 dinner.  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 the
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 potential actions and we believe that these submissions
contain numerous meritorious defenses to these allegations.

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 July 3, 2003, the Company filed a current report on
Form 8-K reporting under Item 12 announcing preliminary results for the quarter
ended June 30, 2003.

On July 22, 2003, the Company filed a current report on
Form 8-K reporting under Item 12 announcing final results for the quarter ended
June 30, 2003.

Availability of this Report

The Company intends to make this Quarterly Report on Form
10-Q publicly available on its Web site (www.siebel.com) without charge
immediately following its filing with the Securities and Exchange Commission.
The Company assumes 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 it is required to do so by
law.

---

**SIGNATURES**

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

SIEBEL SYSTEMS, INC.(Registrant)Dated: November 10, 2003By:
    /s/ Kenneth A. GoldmanKenneth A. GoldmanSenior Vice President, Finance and
                                    Administration and
                                    Chief Financial OfficerPrinicipal Financial Officer(Principal Financial Officer)

---