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

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**FORM 10-Q**

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

**For the quarterly period ended March 31, 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) | (IRS Employer Identification Number)

**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 April 18, 2003, was 489,544,162.







**SIEBEL SYSTEMS, INC.
                                    FORM 10-Q
                 For the Quarterly Period Ended March 31, 2003
                               Table of Contents

Part I.  Financial Information

PageItem 1.   Financial StatementsConsolidated Balance Sheets as of
          
December 31, 2002 and March 31, 2003

3Consolidated Statements of Operations and Comprehensive Income
          
    for the three months ended March 31, 2002 and 2003

4Consolidated Statements of Cash Flows
          
    for the three months ended March 31, 2002 and 2003

5Notes to Consolidated Financial Statements

6Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations

14Item 3.   Quantitative and Qualitative Disclosures About Market Risk

31Item 4. Evaluation of Disclosure Controls and Procedures

32**Part II.  Other Information****



|Item 1.   Legal Proceedings                        | 33
|-------------------------------------------------- | --
|                                                   |   
|Item 2.  Changes in Securities and Use of Proceeds | 34
|                                                   |   
|Item 6.   Exhibits and Reports on Form 8-K         | 34
|                                                   |   
|**Signatures**                                     | 35
|                                                   |   
|**Certifications**                                 | 36

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**Part I.  Financial Information**

**Item 1.  Financial Statements.**

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

`December 31,   March 31,
                                                                               2002          2003
                                                                          ------------- -------------
Assets

Current assets:
   Cash and cash equivalents...........................................   $    667,511  $    672,388
   Short-term investments..............................................      1,494,093     1,548,457
                                                                          ------------- -------------
          Total cash, cash equivalents, and short-term investments.....      2,161,604     2,220,845

   Marketable equity securities........................................          4,613         3,786
   Accounts receivable, net............................................        275,764       234,720
   Deferred income taxes...............................................         96,518        96,752
   Prepaids and other..................................................         49,901        41,942
                                                                          ------------- -------------
          Total current assets.........................................      2,588,400     2,598,045

Property and equipment, net............................................        273,024       255,211
Goodwill...............................................................         80,949        81,968
Intangible assets, net.................................................         10,354         8,771
Other assets...........................................................         37,580        35,692
Deferred income taxes..................................................         42,711        42,711
                                                                          ------------- -------------
          Total assets.................................................   $  3,033,018  $  3,022,398
                                                                          ============= =============

Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable....................................................   $     15,239  $     11,124
   Accrued expenses....................................................        319,622       295,486
   Restructuring obligations...........................................         42,703        40,768
   Deferred revenue....................................................        270,575       284,498
                                                                          ------------- -------------
          Total current liabilities....................................        648,139       631,876

Restructuring obligations, less current portion........................        111,845        98,480
Other long-term liabilities, less current portion......................         15,574        16,332
Convertible subordinated debentures....................................        300,000       300,000
                                                                          ------------- -------------
          Total liabilities............................................      1,075,558     1,046,688
                                                                          ------------- -------------

Commitments and contingencies

Stockholders' equity:
  Common stock; $0.001 par value; 2,000,000 shares authorized;
     486,428 and 488,819 shares issued and outstanding, respectively...            486           489
  Additional paid-in capital...........................................      1,486,612     1,493,467
  Deferred compensation................................................         (3,438)       (2,855)
  Accumulated other comprehensive income...............................         28,681        34,872
  Retained earnings....................................................        445,119       449,737
                                                                          ------------- -------------
          Total stockholders' equity...................................      1,957,460     1,975,710
                                                                          ------------- -------------
          Total liabilities and stockholders' equity...................   $  3,033,018  $  3,022,398
                                                                          ============= =============`

See accompanying notes to consolidated financial statements.

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

`Three Months Ended
                                                                       March 31,
                                                                 ----------------------
                                                                    2002        2003
                                                                 ---------- -----------
Revenues:
   Software....................................................  $ 246,047  $  112,092
   Professional services, maintenance and other................    231,800     220,663
                                                                 ---------- -----------
       Total revenues..........................................    477,847     332,755
                                                                 ---------- -----------
Cost of revenues:
   Software....................................................      5,295       4,721
   Professional services, maintenance and other................    131,133     125,512
                                                                 ---------- -----------
       Total cost of revenues..................................    136,428     130,233
                                                                 ---------- -----------
            Gross margin.......................................    341,419     202,522
                                                                 ---------- -----------
Operating expenses:
   Product development.........................................     83,719      79,271
   Sales and marketing.........................................    137,255     100,172
   General and administrative..................................     30,067      26,366
                                                                 ---------- -----------
       Total operating expenses................................    251,041     205,809
                                                                 ---------- -----------
            Operating income (loss)............................     90,378      (3,287)
                                                                 ---------- -----------
Other income, net:
   Interest and other income, net..............................     15,540      15,397
   Interest expense............................................     (4,947)     (4,894)
                                                                 ---------- -----------
       Total other income, net.................................     10,593      10,503
                                                                 ---------- -----------
            Income before income taxes.........................    100,971       7,216
Income taxes...................................................     36,350       2,598
                                                                 ---------- -----------
            Net income.........................................  $  64,621  $    4,618
                                                                 ========== ===========

Diluted net income per share...................................  $    0.12  $     0.01
                                                                 ========== ===========
Basic net income per share.....................................  $    0.14  $     0.01
                                                                 ========== ===========

Shares used in diluted share computation.......................    542,990     511,391
                                                                 ========== ===========
Shares used in basic share computation.........................    470,489     487,254
                                                                 ========== ===========
Comprehensive income:
Net income.....................................................  $  64,621  $    4,618
Other comprehensive income (loss), net of taxes:
   Foreign currency translation adjustments....................     (2,263)      5,316
   Realized (gain) loss on marketable investments previously
      recognized in other comprehensive income.................     (2,252)     (1,547)
   Unrealized gain (loss) on investments.......................     (3,168)      2,422
                                                                 ---------- -----------
       Other comprehensive income (loss).......................     (7,683)      6,191
                                                                 ---------- -----------
            Total comprehensive income.........................  $  56,938  $   10,809
                                                                 ========== ===========`

See accompanying notes to consolidated financial statements.

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

`Three Months Ended
                                                                                  March 31,
                                                                            -----------------------
                                                                               2002        2003
                                                                            ---------- ------------
Cash flows from operating activities:
   Net income.............................................................. $  64,621  $     4,618
   Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation and other amortization..................................    32,003       39,518
      Amortization of identifiable intangible assets.......................     2,228        1,959
      Compensation related to stock options, net...........................     1,607          505
      Provision for doubtful accounts and sales returns....................     4,757        3,779
      Tax benefit from exercise of stock options...........................    10,000           --
      Deferred income taxes................................................       504           55
      Write-down of cost-method investments to fair value..................        --          253
      Net realized gains on marketable investments.........................    (2,252)      (1,547)
      Changes in operating assets and liabilities:
         Accounts receivable...............................................    22,379       37,338
         Prepaids and other................................................    16,341        7,959
         Accounts payable and accrued expenses.............................     5,285      (30,249)
         Restructuring obligations.........................................        --      (15,300)
         Deferred revenue..................................................    32,029       13,923
                                                                            ---------- ------------
           Net cash provided by operating activities.......................   189,502       62,811
                                                                            ---------- ------------
Cash flows from investing activities:
   Purchases of property and equipment.....................................   (22,645)      (9,255)
   Purchases of short-term investments.....................................  (348,075)    (531,759)
   Sales and maturities of short-term investments..........................   273,439      475,808
   Purchases of marketable equity securities...............................    (1,000)          --
   Proceeds from sale of marketable equity securities......................        --          126
   Purchase consideration for acquired businesses, net of cash received....      (500)      (1,500)
   Other non-operating assets and non-marketable securities................       491        1,332
                                                                            ---------- ------------
           Net cash used in investing activities...........................   (98,290)     (65,248)
                                                                            ---------- ------------
Cash flows from financing activities:
   Proceeds from issuance of common stock, net of repurchases..............    43,440        5,266
   Proceeds from equipment financing.......................................    24,873           --
   Repayments of capital lease obligations.................................    (2,001)      (3,256)
                                                                            ---------- ------------
           Net cash provided by financing activities.......................    66,312        2,010
                                                                            ---------- ------------
Effect of exchange rate fluctuations.......................................    (2,240)       5,304
                                                                            ---------- ------------
Change in cash and cash equivalents........................................   155,284        4,877
Cash and cash equivalents, beginning of period.............................   799,090      667,511
                                                                            ---------- ------------
Cash and cash equivalents, end of period................................... $ 954,374  $   672,388
                                                                            ========== ============
Supplemental disclosures of non-cash activities:
   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. Commitments and Contingencies
4. Stockholder Rights Plan and Preferred Stock
5. Stock Option Cancellation
6. Net Income per Share
7. Segment and Geographic Information

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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 first
quarters of 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
21 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 a
perpetual license 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.

The Company plans to continue its efforts to develop
software applications that meet its customers' and potential customers' changing
business needs and to further reduce the total cost of ownership of its software
applications through its newest product, Universal Application Network, or UAN.
The Company regularly faces competition from new entrants to its product market.
The Company will continue to take various steps, including the introduction of
new products, reducing prices or other incentives, at such times as it deems
appropriate, in order to further increase the acceptance of its products.

Overview of the Results for the
Three Months Ended March 31, 2003

Beginning in 2001 and continuing through early 2003,
economic conditions in many of the countries in which the Company operates
either deteriorated or stabilized at depressed levels.  As the first quarter of
2003 progressed, global economic conditions appear to have become even more
challenging, due in part to increased economic uncertainty and international
tensions.  Specifically, several leading economic indicators declined during the
first quarter of 2003, including consumer confidence in the economy.  In
addition, capital spending by corporations, and more specifically information
technology spending, appears to have been impacted disproportionately.  Simply
stated, the Company's biggest challenge during the first quarter of 2003 was the
economy.

The Company believes that weak economic conditions have
caused many corporations to intensify their efforts to identify and realize
potential cost savings in these difficult economic circumstances.  In addition,
many corporations made capital expenditures in previous years in anticipation of
future growth that did not materialize, thereby impacting their capital
expenditures in 2002 and early 2003.  The geopolitical uncertainties, including
the recent hostilities involving the United States and Iraq, have exacerbated
corporations' general cautiousness in setting their capital spending budgets.

Accordingly, the Company's operations and financial
performance during the first quarter of 2003 were directly impacted by these
economic conditions and uncertainties and the resulting decrease in information
technology spending.  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 the result of increased competition.  In addition, during the latter
part of March 2003, the United States and other countries entered into
hostilities with Iraq, which the Company believes exacerbated the lack of
corporate confidence in and uncertainty regarding the economy.  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 the first quarter of 2003, with individual transactions generating
license revenues greater than or equal to $5 million affected to the greatest
extent.

Further, on a sequential basis, the Company's first
quarter revenues have typically been lower than the revenues in the immediately
preceding fourth quarter because the majority of the Company's customers begin a
new fiscal year on January 1 and capital expenditures tend to be lower in an
organization's first quarter than in its fourth quarter.  In addition, during
the first quarter of each year, the Company transitions to a new fiscal year,
including some re-assignment of sales territories and holding its annual sales
meeting.  This process of transitioning to a new fiscal year has historically
resulted in lower sequential software license revenues in the Company's first
quarter.

In response to these weak economic conditions, the
Company has continued many of the initiatives undertaken in 2002 and achieved
several milestones that will better enable the Company to grow its business when
information technology spending returns to normalized levels, including:

- Industry analysts continued to acknowledge the Company's
product leadership.  For example, the Gartner Group, a prominent information
technology market research firm, designated Siebel Systems as "leader"
in ten of its copyrighted Magic Quadrants in 2003, up from seven in 2002. In
nine of the ten 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 vendors' overall success in selling, deploying,
supporting, and extending their applications.

___________________________

*  The Magic Quadrant is copyrighted February and March
2003 by Gartner, Inc. and is reused with permission, which permission should not
be deemed to be an endorsement of any company or product depicted in the
quadrant.  The Magic Quadrant is Gartner, Inc.'s opinion and is an analytical
representation of a marketplace at and for a specific time period.  It measures
vendors against Gartner defined criteria for a marketplace.  The positioning of
vendors within a Magic Quadrant is based on the complex interplay of many
factors.  Gartner does not advise enterprises to select only those firms in the
"Leaders"** quadrant.  In some situations, firms in the Visionary, Challenger,
or Niche Player quadrants may be the right matches for an enterprise's
requirements.  Well-informed vendor selection decisions should rely on more than
a Magic Quadrant.  Gartner research is intended to be one of many information
sources including other published information and direct analyst interaction.
Gartner, Inc. expressly disclaims all warranties, express or implied, of fitness
of this research for a particular purpose.

**  Leaders are performing well today, have a clear vision
of market direction and are actively building competencies to sustain their
leadership position in the market.

- 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
already high levels, with an overall customer loyalty rating of 97%, based on a
December 31, 2002 survey.

- The Company continued its focus on customer satisfaction
through further development efforts of UAN, the Company's latest product
release.  The Company and leading systems integrators and software vendors
continue to work together to further develop UAN in order to address one of the
primary challenges currently facing the software applications industry: driving
down the cost of application ownership and maintenance.

- The Company continued to reduce expenditures through
stringent cost controls, including the following: (i) maintaining reduced
advertising expenditures; (ii) maintaining the CEO's salary at one dollar per
year; (iii) paying bonuses based on achievement of financial objectives (e.g.,
the Company's financial objectives were not met in the first quarter of 2003
and, as a result, bonuses were accrued at significantly reduced levels); and
(iv) further reducing discretionary expenditures, such as
costs related to outside consultants, travel and recruiting.

- The Company implemented new cost control and cost savings
initiatives, including: (i) new measures to reduce travel- and
telecommunications-related expenditures; (ii) continued facilities
consolidations; and (iii) reductions in depreciation, primarily through reduced
capital expenditures.

- The Company continued its requirement of obtaining
competitive bids for its purchases, where appropriate, and required CEO approval
for all significant purchases.

In addition to the above accomplishments, the Company was
able to achieve improvement in several of its key financial metrics.
Specifically, despite the difficult economic challenges faced during the first
quarter of 2003, the Company was able to operate a cash-positive, profitable
business and achieved the following financial results:

- Total expenses decreased by $51.4 million, or 13%, from
$387.5 million in the three months ended March 31, 2002, to $336.1 million in
the three months ended March 31, 2003.  This decrease was primarily due to cost
savings from the Company's 2002 Restructuring and continued close monitoring of
expenses.

- Cash and short-term investments increased by $59.2
million, or 3%, from $2,161.6 million as of December 31, 2002, to $2,220.8
million as of March 31, 2003, representing approximately 71% and 73% of total
assets, respectively.  During the periods of deteriorating global economic
conditions from 2001 to 2003, the Company increased cash and short-term
investments by $1,068.3 million, or 93%, primarily through cash flows from
operations.

- Days sales outstanding was 63 days as of both December
31, 2002 and March 31, 2003.

- Cash flows from operations were
$189.5 million and $62.8 million during the three months ended March 31, 2002
and 2003, respectively.

- Working capital increased from $1,940.3 million as of
December 31, 2002, to $1,966.2 million as of March 31, 2003.

- Deferred revenue, which consists primarily of deferred
maintenance revenue, increased by 5%, from $270.6 million as of December 31,
2002, to $284.5 million as March 31, 2003.

- Stockholders' equity increased from $1,957.5 million as
of December 31, 2002, to $1,975.7 million as of March 31, 2003.

The Company is committed to continuing to improve these
financial metrics and to returning 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:

- Increase software license revenue from the Company's core
customer relationship management products and verticals;
- Continue to increase market share and software license
revenues in the Company's newest product lines: UAN, Siebel ERM, and Siebel
Analytics;
- Increase the Company's customer base in key vertical
markets, such as Life Sciences, Public Sector, Retail, and Travel and
Transportation;
- Increase customer satisfaction levels;
- Increase the return on investment to the Company's
customers from its products;
- Reduce the total cost of ownership related to the
Company's products;
- Identify opportunities to expand product lines, both
organically and through acquisition;
- Improve the execution within the Company's sales
organization;
- Grow professional services, maintenance and other
revenues;
- Commence new cost control initiatives to further reduce
total cost per employee; and
- Expand operating margins.

The Company is committed to pursuing these objectives and
building on the initiatives undertaken during 2002, thereby allowing it to
return to positive revenue growth and to expand its operating margins.

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 Months Ended March 31, 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 months ended March 31, 2002 and 2003 (in thousands, except
percentages):

`Three Months Ended March 31,
                                                     ---------------------------------------
                                                            2002               2003
                                                     ------------------ --------------------
Revenues:
  Software..........................................  $246,047   51.5%   $112,092     33.7%
  Professional services, maintenance and other......   231,800   48.5     220,663     66.3
                                                      -------- ------    -------- --------
      Total revenues................................  $477,847  100.0%   $332,755    100.0%
                                                      ========  ======   ========  ========`

Software.  Software license revenues decreased by
54% from $246.0 million for the three months ended March 31, 2002, to $112.1
million for the three months ended March 31, 2003.  Software license revenues as
a percentage of total revenues decreased from 51% in the three months ended
March 31, 2002, to 34% in the three months ended March 31, 2003.  During 2002
and 2003, 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; and (iv)
operational execution.  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, due in part
to increased competition; and/or (iii) reduced their capital expenditure
budgets, thereby restricting their software procurement to well-defined current
needs.  In addition, during the latter part of March 2003, the United States and
other countries entered into hostilities with Iraq, which the Company believes
exacerbated the lack of corporate confidence in and uncertainty regarding the
economy.  Accordingly, several of the Company's customers delayed their
purchases of the Company's software at the end of the first quarter of 2003.

As a result of these and other factors, both the number
of software license revenue transactions and average transaction size were
negatively impacted in the first quarter of 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 approximately 600 in the first quarter of 2002 to
approximately 400 in the first quarter of 2003, and the average transaction size
decreased from $406,000 in the first quarter of 2002 to $282,000 in the first
quarter of 2003.  In addition, the number of transactions generating software
license revenues greater than or equal to $5 million decreased from 12
transactions in the first quarter of 2002 to only two transactions in the first
quarter of 2003.  Consequently, the Company's software license revenues
decreased by 54% from the first quarter of 2002 to the first quarter of 2003.
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 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 38% and 51% of software license revenues for the three months
ended March 31, 2002 and 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.

The Company and its management are committed to improving
the performance of its sales operations and returning the Company's software
license revenues to positive sequential quarterly growth.  Although the
Company's software license revenues decreased on a year-over-year basis, the
Company took several steps in the latter part of 2002 and early 2003 that it
believes will better position it for future growth.  Specifically, 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.  In addition, the Company
continued to increase its customer base with 55% of software license revenues
coming from new customer projects during the first quarter of 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 expected
continued growth of its customer base will provide a competitive advantage
through increased future sales opportunities when corporate capital expenditures
return to normalized levels.  In addition, many smaller software providers that
compete with the Company fell into financial difficulties during 2001, 2002 and
early 2003 as a result of the reluctance of customers to procure their software
needs from a vendor lacking either a mature solution or secure financial
outlook.  Accordingly, 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 anticipates that its software license
revenues will return to positive growth when the current geopolitical tensions
ease and the overall economic conditions strengthen and, more specifically, when
the overall demand for information technology increases.  While the Company does
not expect a significant improvement in information technology spending in the
immediate future, the Company expects that the actions taken by management,
along with a stabilizing economy in 2003, may result in a modest increase in
sequential quarterly software license revenues in the second quarter of 2003.
As a percentage of total revenues, the Company expects software license revenues
to remain comparable to or increase from the levels during the first quarter of
2003.

The Company's future software license revenues and
operating performance may be negatively impacted by: (i) the uncertainty in the
information technology industry and associated reductions in capital
expenditures; (ii) geopolitical uncertainties, including continued hostilities
involving the United States and Iraq or other countries; (iii) additional
terrorist attacks; (iv) a lack of confidence in corporate governance and
accounting practices; (v) the diversity in global economic conditions; (vi)
continued competition; (vii) corporate and consumer confidence in the economy,
evidenced, in part, by stock market levels; and (viii) 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 5% from $231.8 million for the three
months ended March 31, 2002, to $220.7 million for the three months ended March
31, 2003.  As a percentage of total revenues, professional services, maintenance
and other revenues were 49% and 66% during the three months ended March 31, 2002
and 2003, respectively.

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 continued to increase on
a year-over-year basis, primarily due to the renewal of customer maintenance
agreements and the signing of maintenance agreements at the time of a new
software license.  However, due primarily to weak economic conditions, the
Company's efforts to renew existing customers' maintenance agreements have
become more challenging.  Specifically, maintenance revenues declined
sequentially in the first quarter of 2003 from the fourth quarter of 2002,
primarily due to the Company's customers down-sizing the number of their
employees, thereby impacting the number of users of the Company's software.

While maintenance revenues have increased on a year-over-year
basis, professional services revenues decreased in the three months ended
March 31, 2003, compared to the three months ended March 31, 2002.  Because the
Company's professional services revenues generally lag software license revenues
by three to six months, 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 early 2003 have negatively
impacted professional services revenues in the first quarter of 2003.  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 2003 due primarily 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 second quarter of 2003 will
remain comparable to or increase from the levels in the first quarter of 2003.
As a percentage of total revenues, the Company expects professional services,
maintenance and other revenues to remain comparable to the levels achieved in
the first quarter of 2003.

Cost of Revenues and Gross Margin

The following table sets forth the Company's cost of
revenues and gross margin, both in absolute dollars and expressed as a
percentage of total revenues, for the three months ended March 31, 2002 and 2003
(in thousands, except percentages):

`Three Months Ended March 31,
                                                     ---------------------------------------
                                                            2002               2003
                                                     ------------------ --------------------
Cost of revenues:
  Software..........................................  $  5,295    1.1%   $  4,721      1.4%
  Professional services, maintenance and other......   131,133   27.5     125,512     37.7
                                                      -------- ------    -------- --------
      Total cost of revenues........................  $136,428   28.6%   $130,233     39.1%
                                                      ========  ======   ========  ========
Gross margin........................................  $341,419   71.4%   $202,522     60.9%
                                                      ========  ======   ========  ========`

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 and enhancements to existing
products have been expensed as incurred.  Cost of software license revenues was
$5.3 million for the three months ended March 31, 2002, compared to $4.7 million
for the three months ended March 31, 2003.  As a percentage of software license
revenues, cost of software license revenues was 2% in 2002, compared to 4% in
2003.  Cost of software license revenues decreased in terms of absolute dollars
primarily due to the decrease in software license revenues.  As a percentage of
software license revenues, these costs increased in 2003 compared to 2002,
primarily due to a significant portion of these costs relating to amortization
of acquired technology, which is relatively fixed in nature, and 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 second
quarter of 2003, cost of software license revenues as a percentage of software
license revenues is expected to remain comparable to or decrease from the
percentage incurred during the first quarter of 2003.

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 decreased from $131.1 million for the three
months ended March 31, 2002, to $125.5 million for the three months ended March
31, 2003.  These costs were approximately 57% of professional services,
maintenance and other revenues during each of these periods.  Cost of
professional services, maintenance and other revenues decreased in terms of the
absolute dollar amount from 2002 to 2003 primarily due to: (i) the partial
realization of cost savings from the Company's 2002 restructuring (the
"Restructuring"), as described more fully in Note 2 to the
accompanying unaudited consolidated financial statements, including savings from
the reduction of personnel; and (ii) the further realization of cost savings
from the Company's cost control initiatives, including reductions in the use of
third party contractors and reductions of travel and entertainment related
expenditures.  Partially offsetting these cost savings were increases in
compensation costs from the renewal of merit increases and other incentive
compensation in the second half of 2002.

The Company expects to continue to reduce the cost of
professional services, maintenance and other revenues through continuing its
cost controls, further aligning its incentive compensation plans with gross
margin attainment, and monitoring headcount within its professional services
organization.  The Company expects that professional services, maintenance and
other costs, in terms of a percentage of professional services, maintenance and
other revenues, will remain comparable to or decrease from the levels incurred
during the first quarter of 2003.

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 months ended March 31, 2002 and 2003 (in thousands,
except percentages):

`Three Months Ended March 31,
                                                     ---------------------------------------
                                                            2002               2003
                                                     ------------------ --------------------
Operating expenses:
  Product development...............................  $ 83,719   17.5%   $ 79,271     23.8%
  Sales and marketing...............................   137,255   28.7     100,172     30.1
  General and administrative........................    30,067    6.3      26,366      8.0
                                                      --------  ------   --------  --------
      Total operating expenses......................  $251,041   52.5%   $205,809     61.9%
                                                      ========  ======   ========  ========`

Product Development.  Product development expense
includes costs associated with the development of new products, enhancements of
existing products, quality assurance activities and vertical engineering.  These
costs consist primarily of employee salaries, 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 $83.7 million for the three months ended March 31, 2002, to $79.3
million for the three months ended March 31, 2003.  As a percentage of total
revenues, product development expense was 18% for the three months ended March
31, 2002, as compared to 24% for the three months ended March 31, 2003.

The decrease in product development expense in terms of
absolute dollars from March 31, 2002, to March 31, 2003 was primarily
attributable 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, including reductions
of travel- and entertainment-related expenditures.  Partially offsetting these
cost savings were: (i) increased compensation costs from the renewal of merit
increases and other incentive compensation in the second half of 2002; and (ii)
increased costs from outside consultants in connection with the further
development of the Company's newest product, UAN.  Product development expense
as a percentage of total revenues increased due to the Company's continued
investment in the research and development during a period in which the
Company's software license revenues decreased.

The Company anticipates that it will continue to devote
substantial resources to develop new products, new versions of its existing
products and additional modules for its products in the future.  However, during
the second quarter of 2003, the Company expects product development expenses, in
terms of both absolute dollars and as a percentage of total revenues, to remain
comparable to or increase from the levels incurred during the first quarter of
2003.

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 $137.3 million for the
three months ended March 31, 2002, to $100.2 million for the three months ended
March 31, 2003.  As a percentage of total revenues, sales and marketing expense
was 29% for the three months ended March 31, 2002, as compared to 30% for the
three months ended March 31, 2003.

Sales and marketing expense decreased in terms of
absolute dollars from 2002 to 2003 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 in
the second half of 2002.  Partially offsetting these costs savings were
increases in compensation expense associated with the renewal of merit
compensation increases and incentive compensation plans.

During the second quarter of 2003, the Company expects
sales and marketing expense, in terms of a percentage of total revenues, to
remain comparable to the levels incurred during the first quarter of 2003.

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 $30.1 million for the three
months ended March 31, 2002, to $26.4 million for the three months ended March
31, 2003.  As a percentage of total revenues, general and administrative expense
was 6% for the 2002 period compared to 8% for the 2003 period.  General and
administrative expenses decreased from 2002 to 2003 primarily due to: (i)
further reduction of expenses in the second half of 2002 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 (ii) a decrease in the Company's provision for doubtful accounts associated
with reduced receivable levels.  Partially offsetting these costs savings were
increases in compensation expense associated with the renewal of merit
compensation increases and incentive compensation plans.

During the three months ended March 31, 2003, the
majority of general and administrative expenses were relatively fixed in nature.
Accordingly, general and administrative expense increased as a percentage of
total revenues during the three months ended March 31, 2003, from the respective
period in 2002, due primarily to a decrease in total revenues.

The Company expects to continue to closely monitor
discretionary expenditures and continue many of the cost control initiatives
discussed above throughout the remainder of 2003.  Accordingly, during the
second quarter of 2003, the Company anticipates general and administrative
expense, in terms of a percentage of total revenues, will remain comparable to
the levels incurred during the first quarter of 2003.

Operating Income (Loss) and Operating Margin

Operating income decreased from $90.4 million during the
three months ended March 31, 2002, to an operating loss of $3.3 million during
the three months ended March 31, 2003.  Operating margin was 19% during the
three months ended March 31, 2002, as compared to a negative operating margin of
1% during the three months ended March 31, 2003.  The Company incurred negative
operating income and margins during the three months ended March 31, 2003,
primarily as the result of the decrease in the Company's software license
revenues for the reasons described above.  The decline in operating income and
operating margin was partially offset by the cost savings from the Restructuring
and management's cost control initiatives.

As a result of the Company's Restructuring efforts and
the continued cost control efforts, the Company anticipates that its cost
structure will be better aligned with its anticipated future revenue levels.
While the Company does not expect a significant improvement in information
technology spending in the immediate future, the Company expects that the
actions taken by management during 2002 and early 2003, along with a stabilizing
economy in 2003, may result in a modest increase in total revenues during the
second quarter of 2003.  As a result of the better alignment of the Company's
cost structure with anticipated revenue levels, coupled with the anticipated
modest increase in revenues, the Company currently expects operating margins to
increase in the second quarter of 2003 from the levels achieved in the first
quarter of 2003.

Other Income, Net

For the three months ended March 31,
2002 and 2003, other income, net was comprised of the following (in
thousands):

`Three Months Ended
                                                      March 31,
                                                ---------------------
                                                   2002       2003
                                                ---------- ----------
Interest income................................ $  14,072  $  14,236
Interest expense...............................    (4,947)    (4,894)
Net gains on marketable investments............     2,252      1,547
Write-down of cost-method investments..........        --       (253)
Other, net.....................................      (784)      (133)
                                                ---------- ----------
                                                $  10,593  $  10,503
                                                ========== ==========`

Interest income represents earnings on the Company's cash
and short-term investments.  Interest income remained relatively flat in 2003
compared to 2002, primarily due to a decline in interest rates, which offset the
Company's increased balances of cash and short-term investments.  Interest
expense primarily represents interest on the Company's $300.0 million
convertible subordinated debentures (see Note 4 to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002, for a further description of the convertible
subordinated debentures).

During the three months ended March 31, 2002 and 2003,
net gains on marketable investments were primarily the result of gains from
sales of certain of the Company's short-term interest-bearing investments.  The
Company holds several minority interests, included in other assets, in companies
having operations or technology in areas within its strategic focus.  During the
three months ended March 31, 2003, the write-down of cost-method investments
represents adjustments to certain of these investments to the estimated fair
value as the decline in these investments was deemed to be other-than-temporary.
Other, net for all periods presented is primarily comprised of banking fees and
foreign currency transaction gains or losses.

Provision for Income Taxes

The Company's provision for income taxes
totaled $36.4 million and $2.6 million for the three months ended March 31, 2002
and 2003, respectively.  Income taxes as a percentage of pretax income (i.e.,
the "Effective Rate") were 36% in both the three months ended March
31, 2002 and 2003.  The Company currently expects its Effective Rate for the
second 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.

Net Income

The Company earned net income of $64.6
million and $4.6 million during the three months ended March 31, 2002 and 2003,
respectively.  Diluted net income per share was $0.12 and $0.01 per share for
the three months ended March 31, 2002 and 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 increased from $1,940.3 million as of
December 31, 2002, to $1,966.2 million as of March 31, 2003.   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 and deferred revenue.  The Company continues to
operate a cash-positive business and, accordingly, the Company has continued to
increase its cash and short-term investment balances.  Specifically, the
Company's cash, cash equivalents and short-term investments increased from
$2,161.6 million as of December 31, 2002, to $2,220.8 million as of March 31,
2003, representing approximately 71% and 73% of total assets, respectively.  The
Company's days sales outstanding in accounts receivable was 63 days as of both
December 31, 2002 and March 31, 2003.  In addition, the Company has continued to
lower the average payment terms on license revenue transactions from 28 days as
of December 31, 2002, to 26 days as of March 31, 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 March 31, 2003,
the Company's future fixed commitments for cash payments primarily related to
obligations under non-cancelable operating and capital leases and the Company's
$300.0 million convertible subordinated debentures.  Please refer to
"Liquidity and Capital Resources" in Item 7 of the Company's Annual
Report on Form 10-K for the year ended December 31, 2002, for a further
discussion of the Company's future fixed commitments, including a five-year
schedule of future cash payments under these obligations.

Cash Flows

Cash provided by operating activities was $189.5 million
and $62.8 million for the three months ended March 31, 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 three months ended
March 31, 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
non-cash expenses such as depreciation, amortization, and bad debt; (ii) the tax
benefit related to the exercise of employee stock options, which reduces the
Company's cash outlay for income tax expense; and (iii) changes in the Company's
working capital, which is primarily comprised of collections of accounts
receivable and increases in deferred revenue, partially offset by payments of
accounts payable, accrued expenses (inclusive of bonuses and accrued
compensation) and Restructuring obligations.

The majority of the Restructuring-related expenses will
be paid over time and, accordingly, as the Company settles its remaining
Restructuring obligations ($139.2 million as of March 31, 2003), the Company's
future cash flows from operations will be reduced in the period of settlement.
The remaining Restructuring-related obligations will generally be paid over the
remaining lease terms, which end at various dates through March 2022, with the
majority of these obligations expected to be settled over the next three to five
years.  The Company currently estimates that it will settle $40.8 million of
these obligations in the next 12 months.

Cash used in investing activities was $98.3 million and
$65.2 million for the three months ended March 31, 2002 and 2003, respectively.
During each of these periods, the Company's investment activities primarily
related to the purchase of additional property and equipment and the
reinvestment of the Company's cash into short-term investments.  For the three
months ended March 31, 2002 and 2003, the Company reinvested its cash flows from
operations into short-term investments in net amounts of $74.6 million and $56.0
million, respectively, and purchased property and equipment totaling $22.6
million and $9.2 million, respectively.  Other investing activities resulted in
net expenditures of $1.0 million during the three months ended March 31,
2002.

Capital expenditures 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 quarterly
capital expenditures will remain comparable to the levels incurred during the
three months ended March 31, 2003.

Cash provided by financing activities was $66.3 million
and $2.0 million for the three months ended March 31, 2002 and 2003,
respectively.  For the three months ended March 31, 2002 and 2003, the Company's
financing activities consisted primarily of net proceeds of $43.4 million and
$5.3 million, respectively, from the issuance of common stock pursuant to the
exercise of stock options and the Company's employee stock purchase plan.
During the three months ended March 31, 2002, the Company also received proceeds
of $24.9 million from equipment financing.  The Company's cash inflows from
financing activities were partially offset during the three months ended March
31, 2002 and 2003, by the Company's repayment of capital lease obligations.

Adoption of Accounting Standards

During the first quarter of 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 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 properly
estimate the timing and amount of future revenues could significantly impact the
Company's future operations.  While the Company's software allows it to monitor
potential revenues and aids in its ability to manage the size of its operations,
management must make assumptions and estimates as to the timing and amount of
future revenue.  Specifically, 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, along with hostilities involving the United States, 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-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 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."

Employee Stock Options

Section I.  Description of Plans

The Company, since inception, 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 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, further information concerning the policies and
procedures 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 outstanding stock options
of acquired businesses and rewarded existing employees for high levels of
performance with additional grants of stock options.

Associated with the market downturn, the Company has
taken several steps to reduce the number of stock options outstanding.
Specifically, the Company took the following additional actions, each of which
is described further below: (i) it cancelled approximately 26 million of the
Company's CEO's stock options in January 2003; and (ii) it significantly reduced
the levels of stock option grants, coupled with forfeitures of stock options
held by terminated employees.  These actions resulted in stock options
outstanding decreasing by 34.5 million, or 19%, from the levels outstanding as
of December 31, 2002, and stock options outstanding relative to shares
outstanding decreasing from 38% as of December 31, 2002, to 31% as of March 31,
2003.  The Company believes that these actions will continue to better align the
interests of its employees and management with the interests of its
stockholders.

CEO Option Cancellation

As described more fully in Note 5 to the accompanying
unaudited consolidated financial statements, at the request of its CEO, the
Company cancelled approximately 26 million of the 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.

As a result of the forfeitures by employees upon
termination and the Company's limitation of stock option grants, the Company's
outstanding stock options decreased by 3% from the levels as of December 31,
2002, representing a decrease in net potential dilution to existing stockholders
of 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.  The decrease in the net Dilution Percentage in the first
quarter of 2003 of 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.

2003 Anticipated Stock Option Grants

The Company intends to continue to manage the number of
stock options granted in the future, while still providing competitive
compensation packages to its employees.  The Company currently expects that the
incremental Dilution Percentage resulting from new stock option grants for the
remainder of 2003 will be less than the Dilution Percentage for 2001, but will
be higher than the percentage for the first quarter of 2003 (primarily due to
the Company's discretionary annual grant of stock options to employees, which is
scheduled to occur in the second quarter of each year).  This estimate could
differ from the actual percentage, depending on various factors, including
changes in estimated stock option grants for planned hiring, potential
acquisitions, merit and retention-based programs.

Section III.  General Option Information

Combined plan activity for the three months ended March
31, 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..................     (815,450)       815,450    $        8.22
     Options granted to officers and directors.....     (150,000)       150,000    $        8.06
     Options exercised.............................           --     (2,188,101)   $        2.41
     Options forfeited/canceled upon termination...    7,316,435     (7,323,378)   $       22.66
     Options cancelled by the Company's CEO........   25,950,000    (25,950,000)   $       34.63
                                                     ------------ --------------  ---------------
   Balances, March 31, 2003........................  193,608,078    150,976,752    $       14.36
                                                     ============ ==============`

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 its 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 three
months ended March 31, 2003:

`Year Ended December 31,    Three Months
                                                                           -----------------------       Ended
                                                                               2001       2002       March 31, 2003
Grants during the period as a percentage of total options granted:         ----------- ----------   --------------- 
  Named Executive Officers...............................................        12.4%       3.4%             15.5%
  All other officers and directors as a group............................         2.4        0.3                --
                                                                           ----------- ----------   ---------------
    Total for all officers and directors.................................        14.8        3.7              15.5
  All other employees as a group.........................................        85.2       96.3              84.5
                                                                           ----------- ----------   ---------------
    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 March 31, 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      58,505,365            4.4    $   3.67   49,821,255    $   3.56
Out-of-the-money  92,471,387            7.7    $  21.13   38,200,244    $  20.99
                 ------------  -------------  ----------  -----------  ----------
                 150,976,752            6.4    $  14.36   88,021,499    $  11.13
                 ============                             ===========`

In-the-money stock options in the above table have
exercise prices below the closing price of the Company's common stock as of
March 31, 2003, of $8.01 per share and out-of-the money stock options have
exercise prices equal to or greater than $8.01 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
months ended March 31, 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 at grant date using an option valuation model,
such as Black-Scholes.  The Company believes there are limitations to the
appropriateness of 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, the
Black-Scholes option valuation model requires the use of subjective assumptions,
including expected stock price volatility and the expected remaining life.
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 discloses the pro
forma effect on its earnings and earnings per share data, as if the Company had
adopted SFAS 123, in the notes to the accompanying unaudited consolidated
financial statements.  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 the Company's net income, 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):

`Three Months Ended
                                                                                         March 31,
                                                                                  ----------------------
                                                                                      2002       2003
                                                                                  ----------- ----------
 Net income (loss):
   As reported................................................................... $   64,621  $   4,618
                                                                                  ----------- ----------
   Compensation expense related to:
     Stock options accounted for in accordance with APB 25.......................      1,607        505
     In-the-money stock options..................................................     (7,350)    (4,102)
     Stock purchase rights under the Purchase Plan...............................     (8,234)      (863)
                                                                                  ----------- ----------
        Total pro forma expense, in the money stock options and Purchase Plan....    (13,977)    (4,460)
     Out-of-the-money stock options..............................................    (81,299)   (51,314)
     Stock options cancelled for no consideration................................    (36,596)  (251,821)
     Stock options forfeited/cancelled in connection with terminations...........    (26,368)       (17)
     Stock options subsequently repurchased on September 30, 2002................    (51,681)        --
                                                                                  ----------- ----------
        Total pro forma expense giving effect to SFAS 123........................   (209,921)  (307,612)
                                                                                  ----------- ----------
   Pro forma giving effect to SFAS 123........................................... $ (145,300) $(302,994)
                                                                                  =========== ==========`

As the table above illustrates, $303.2 million, or
99%, of the total pro forma expense for stock options during the three months
ended March 31, 2003, 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 $21.13 per share compared to a closing price of $8.01 per share as of March
31, 2003).

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 Stock-Based Compensation

The following table sets forth certain information
regarding stock options granted to the Named Executive Officers during the three
months ended March 31, 2003:

`Potential Realizable Value
                                 Number of       Percent of                                    at Assumed Annual Rates of
                                 Securities     Total Options                                 Stock Price Appreciation for
                                 Underlying      Granted to      Exercise or                       the Option Term (4)
                                  Options         Employees      Base Price     Expiration   ------------------------------
       Officer Name             Granted (1)      in 2003 (2)    ($/Share) (3)      Date           5%             10%
-----------------------------   ------------   --------------   -------------  ------------  -------------  ---------------
Thomas M. Siebel                         --              -- %   $          --            --  $          --  $            --
Paul Wahl (5)                            --              -- %   $          --            --  $          --  $            --
R. David Schmaier                        --              -- %   $          --            --  $          --  $            --
Kenneth A. Goldman                       --              -- %   $          --            --  $          --  $            --
Richard P. Chiarello                150,000            15.5 %   $        8.06    02/13/2009  $     411,176  $       932,817`

1. Options vest at a rate of 5% each quarter after
February 14, 2004, and have a term of six years.
2. Based on an aggregate of 1.0 million shares subject to
options granted to employees pursuant to the Company's 1996 and 1998 Plans
during the three months ended March 31, 2003, including grants to the Named
Executive Officers.
3. Under all stock option plans, the stock option exercise
price is equal to the fair market value at the date of grant.
4. 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.
5. 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 March 31, 2003:

`Year Ended December 31,    Three Months
                                                                          ----------------------        Ended
                                                                              2001       2002       March 31, 2003
                                                                          ----------- ----------   ---------------
Stock options held by Named Executive Officers as a percentage of: 
  Total options outstanding.............................................        23.8%      29.3%             17.5%
                                                                          =========== ==========   ===============
  Outstanding shares of common stock....................................        12.6%      11.2%              5.4%
                                                                          =========== ==========   ===============`

The following table sets forth for each of the Named
Executive Officers the shares acquired and the value realized on each exercise
of stock options during the three months ended March 31, 2003, and the number
and value of securities underlying unexercised options held by the Named
Executive Officers as of March 31, 2003:

`Number of
                                                                 Securities Underlying        Value of Unexercised
                                                                 Unexercised Options at      In-the-Money Options at
                                 Shares                            March 31, 2003 (2)           March 31, 2003 (3)
                              Acquired on       Value         ---------------------------  ---------------------------
       Officer Name             Exercise      Realized (1)    Exercisable   Unexercisable  Exercisable   Unexercisable
---------------------------   ------------  ---------------   ------------  -------------  ------------  -------------
Thomas M. Siebel                        --  $            --     17,886,140        799,994   $92,944,605   $  4,082,969
Paul Wahl (4)                           --  $            --      1,814,500             --   $        --   $         --
R. David Schmaier                       --  $            --      1,263,933      1,616,070   $ 2,157,123   $  2,270,591
Kenneth A. Goldman                      --  $            --        922,500      1,697,500   $        --   $         --
Richard P. Chiarello                    --  $            --             --        350,000   $        --   $    362,000`

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
March 31, 2003.
3. Based on the fair market value of the Company's Common
Stock as of March 31, 2003 ($8.01 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.

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 March 31, 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).....    55,898,010    $     7.06           72,675,626
   Not approved by shareholders (2).    93,713,420    $    18.81          120,932,452
   Acquired companies' plans (3)....     1,365,322    $     7.73                   --
                                      -------------    ----------  -------------------
                                       150,976,752    $    14.36          193,608,078
                                      =============                ===================`

1. Represents shares available under the 1996 Plan,
which is used for grants to officers and directors.
2. Represents shares available under the 1998 Plan, which is
used for grants to 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 below and elsewhere in this quarterly
report and in the other documents we file with the SEC are risks and
uncertainties that could cause actual results to differ materially from the
results contemplated by the forward-looking statements contained in this
quarterly report.  Prospective and existing investors are strongly urged to
carefully consider the various cautionary statements and risks set forth in this
quarterly report and our other public filings.  Some of these factors 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.

Due to these and other factors, we may not meet expectations
of securities analysts or investors with respect to our revenues or other
operating results, which could adversely affect our stock price.  Please refer
to "Risk Factors" under Item 7 in our Annual Report on Form 10-K for
the year ended December 31, 2002, for a further discussion of these risk
factors.



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

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

The following table summarizes as of March 31, 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) 14,422    US$8,525  $        (48)

Brazilian real ("BRL") (contracts to
  pay BRL/receive US$)....................    (BRL) 15,145    US$4,063  $       (234)

British pounds ("GBP") (contracts to
  pay GBP/receive EUR)....................    (GBP) 15,538  EUR 23,216  $        387

Japanese yen ("YEN") (contracts to
  pay YEN/receive US$).................... (YEN) 4,167,341   US$34,569  $       (263)

Mexican peso ("MXN") (contracts
  to pay MXN/receive US$).................    (MXN) 31,500    US$2,822  $        (49)

Singapore dollars ("SGD") (contracts
  to pay SGD/receive US$).................     (SGD) 3,871    US$2,196  $          9

Canadian dollars ("CAD") (contracts
  to receive CAD/pay US$).................     (CAD) 8,909    US$5,763  $        277

Czech Republic koruna ("CZK") (contracts
  to receive CZK/pay EUR).................    (CZK) 44,334   EUR 1,392  $          1

Euro ("EUR") (contracts to receive
  EUR/pay US$)............................   (EUR) 200,449  US$214,621  $       (893)

Korea won ("KRW") (contracts to receive
  KRW/pay US$)............................ (KRW) 1,121,103      US$943  $        (49)

Swedish krona ("SEK") (contracts to
  receive SEK/pay EUR)....................    (SEK) 13,013   EUR 1,422  $        (19)

Swiss franc ("CHF") (contracts to
  receive CHF/pay EUR)....................     (CHF) 3,205   EUR 2,197  $        (12)`

The following table summarizes our short-term investments
and the weighted average yields, as of March 31, 2003 (in thousands):

`Expected Maturity Date
                            ---------------------------------------------------------------------
                              2003      2004      2005      2006      2007   Thereafter   Total
                            --------- --------- --------- --------- -------- ---------- ---------
US Treasury and Agency
  securities............... $175,937  $238,488  $240,723  $ 33,174  $ 8,434     $3,036  $699,792
Weighted average yield.....     1.62%     1.46%     1.82%     2.08%    2.58%      2.74%

Corporate bonds............ $164,941  $130,282  $165,531  $122,135  $69,385     $2,504  $654,778
Weighted average yield.....     1.46%     1.65%     2.26%     2.61%    3.03%      3.48%

Asset-backed securities.... $ 36,232  $105,787  $ 43,266  $  8,602  $    --     $   --  $193,887
Weighted average yield.....     1.68%     1.88%     1.90%     2.51%`

As of March 31, 2003, we had an investment portfolio of fixed
income securities, excluding those classified as cash and cash equivalents, of
$1,548.5 million.  These securities, like all fixed income instruments, are
subject to interest rate risk and, accordingly, if market interest rates
increase, these investments will decline in value.  If market interest rates
were to increase immediately and uniformly by 100 basis points from levels as of
March 31, 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.

We are exposed to equity price risks on marketable equity
securities.  These investments are in publicly traded companies in the high
technology industry sector.  We typically do not attempt to reduce or eliminate
our market exposure on these securities.  A 10% adverse change in the equity
price would result in an approximate $0.4 million decrease in the fair value of
our marketable equity securities as of March 31, 2003.

The fair value of our convertible subordinated debentures
fluctuates based upon changes in the price of our common stock, changes in
interest rates and changes in our credit-worthiness.  Based on the quoted market
price of the convertible subordinated debentures, the fair value of the
convertible subordinated debentures as of March 31, 2003, was $297.0 million.

Evaluation of Our Disclosure Controls and Internal
Controls

Within the 90 days prior to the date of this Quarterly
Report on Form 10-Q ("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-14(c) and 15d-14(c) 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

Appearing immediately following the Signatures section of
this Quarterly Report on Form 10-Q and attached as Exhibit 99 are two separate
forms of certifications of the CEO and the CFO.  The first certification is
required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the
"Section 302 Certification").  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

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 that our transactions are properly authorized, our assets are
safeguarded against unauthorized or improper use, and our transactions 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 items 5 and 6 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

Our CEO and CFO note that, from the Evaluation Date to
the filing date of this Quarterly Report on Form 10-Q, there have been no
significant changes in Internal Controls or in other factors that could
significantly affect such controls, including any corrective actions with regard
to significant deficiencies and material weaknesses.

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Part II.	Other Information

Item 1.	Legal Proceedings.

On September 23, 2002, Teachers' Retirement System of
Louisiana, a Louisiana public trust fund, filed a derivative suit against our
Board of Directors, as well as against us as a nominal defendant, in the
Superior Court of the State of California for the County of San Mateo.  The
derivative suit alleges, among other things, that members of our Board of
Directors breached their fiduciary duties by authorizing excessive compensation
for our Chairman and CEO, Thomas M. Siebel.  The derivative plaintiffs seek
compensatory and other damages, rescission of certain stock options and other
relief.  The suit alleges that we incorrectly accounted for stock options that
were alleged to be granted below fair market value.  We believe we have
meritorious defenses to this suit, as the stock options in question were granted
at fair market value.  In addition, the stock options in question were cancelled
in January 2003 as a result of actions initiated by our CEO in June 2002, prior
to the filing of this suit by the Teachers' Retirement System of Louisiana.  We
cannot currently determine the ultimate outcome of this litigation and its
possible impact on us.

On May 9, 2003, we announced that, in response to an
inquiry from the SEC, we are conducting an internal review of the circumstances
involving recent statements that were reported by CBS MarketWatch to have been
made our executives.  On May 6, 2003, the SEC contacted us and indicated that a
May 1, 2003 article on CBS MarketWatch had raised questions regarding our
compliance with Regulation FD. The Audit Committee of our Board of Directors is
directing the review of our compliance with applicable laws and company
policies, and has engaged counsel in connection with such review.  We have not
concluded that any violation has occurred.  Upon completion of the review, we
intend to take required and appropriate actions, if any.  We are cooperating in
full with the SEC inquiry.

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 2.  Changes in Securities and Use of
Proceeds.

On January 23, 2003, our Board of
Directors approved the adoption of a Stockholder Rights Plan (the "Rights
Plan") and the authorization of 100,000 shares of Series A2 junior
participating preferred stock, par value $0.001 per share (the "Junior
Preferred Stock").  The Rights Plan is intended as a means to guard against
abusive takeover tactics and to provide for fair and equal treatment for all
stockholders in the event that an unsolicited attempt is made to acquire us.
Accordingly, the Rights Plan will have certain anti-takeover effects.  Please
refer to Note 4 of the accompanying unaudited consolidated financial statements
for a further discussion of the Rights Plan.

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)                                                                                                                                                      
|4.3            | Restated Investor Rights Agreement, dated December 1, 1995, between Siebel Systems, Inc. and certain
investors, as amended April 30, 1996 and June 14, 1996. (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)                                                                                                                                                      
|10.7.2         | Seventeenth Amendment of Lease, dated February 5, 2003, by and between Siebel Systems, Inc.
and Crossroads Associates and Clocktower Associates, and ancillary documents thereto. (2)
|99.1           | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (7)                                                                                                         

__________________

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

(b)	Reports on Form 8-K.

On January 22, 2003, the Company filed a current report
on Form 8-K reporting under Item 5 that on January 21, 2003, the Company's Chief
Executive Officer voluntarily cancelled approximately 26 million of his stock
options.  Please refer to Note 5 of the accompanying unaudited consolidated
financial statements for a further discussion of this cancellation.

On January 29, 2003, the Company filed a current report
on Form 8-K reporting under Item 5 that on January 29, 2003, the Board of
Directors of the Company approved the adoption of a Rights Plan.  Please refer
to Note 4 of the accompanying unaudited consolidated financial statements for a
further discussion of the Rights Plan.

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.

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**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: May 15, 2003By:
    /s/ Kenneth A. GoldmanKenneth A. GoldmanSenior Vice President, Finance and
                                    Administration and
                                    Chief Financial Officer(Principal Financial Officer)

---



CERTIFICATIONS



I, Thomas M. Siebel, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Siebel Systems, Inc.;

2. 	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this quarterly report;

3. 	Based on my knowledge, the financial statements, and other financial information included in this quarterly
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this quarterly report;

4. 	The registrant's other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) 	designed such disclosure controls and procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) 	evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) 	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;

5. 	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to
the registrant's auditors and the audit committee of registrant's Board of Directors (or persons performing the equivalent
function):

a) 	all significant deficiencies in the design or operation of internal controls which could adversely affect
the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and

b) 	any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal controls; and

6. 	The registrant's other certifying officers and I have indicated in this quarterly report whether or not
there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

Dated: May 15, 2003



| |     |                     
| | --- | --------------------
| | By: | /s/ Thomas M. Siebel

| |                 
| | ----------------
| |                 
| | Thomas M. Siebel
| | Chairman and CEO

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I, Kenneth A. Goldman, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Siebel Systems, Inc.;

2. 	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this quarterly report;

3. 	Based on my knowledge, the financial statements, and other financial information included in this quarterly
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this quarterly report;

4. 	The registrant's other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) 	designed such disclosure controls and procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) 	evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) 	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;

5. 	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to
the registrant's auditors and the audit committee of registrant's Board of Directors (or persons performing the equivalent
function):

a) 	all significant deficiencies in the design or operation of internal controls which could adversely affect
the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and

b) 	any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal controls; and

6. 	The registrant's other certifying officers and I have indicated in this quarterly report whether or not
there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

Dated: May 15, 2003


By:
    /s/ Kenneth A. GoldmanKenneth A. GoldmanSenior Vice President, Finance and
                                    Administration and
                                    Chief Financial Officer

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