**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 June 30, 2002**

**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 [  ]

The number of shares outstanding of the registrant's common stock, par value
      $.001 per share, as of July 17, 2002, was 477,914,877.







**SIEBEL SYSTEMS, INC.
                                    FORM 10-Q
                 For the Quarterly Period Ended June 30, 2002
                               Table of Contents**

**Part I.  Financial Information**



|ITEM 1.   Financial Statements                                                                                                           | Page
|---------------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                                         |     
|Consolidated Balance Sheets as of
          
December 31, 2001 and June 30, 2002                                                         | 3   
|                                                                                                                                         |     
|Consolidated Statements of Operations and Comprehensive Income 
          
    for the three and six months ended June 30, 2001 and 2002 | 4   
|                                                                                                                                         |     
|Consolidated Statements of Cash Flows
          
    for the six months ended June 30, 2001 and 2002                                     | 5   
|                                                                                                                                         |     
|Notes to Consolidated Financial Statements                                                                                               | 6   
|                                                                                                                                         |     
|ITEM 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                    | 17  
|                                                                                                                                         |     
|ITEM 3.   Quantitative and Qualitative Disclosures About Market Risk                                                                     | 38  
|                                                                                                                                         |     

**Part II.  Other Information**



|ITEM 1.   Legal Proceedings                                 | 39
|----------------------------------------------------------- | --
|                                                            |   
|ITEM 4. Submission of Matters to a Vote of Security Holders | 39
|                                                            |   
|ITEM 6.   Exhibits and Reports on Form 8-K                  | 40
|                                                            |   
|**Signatures**                                              | 41

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**Part I.  Financial Information**

**Item 1.  Financial Statements.**

**SIEBEL SYSTEMS, INC.****Consolidated Balance Sheets
                        (in thousands; unaudited)**

`December 31,    June 30,
                                                                               2001          2002
                                                                           ------------  ------------
Assets

Current assets:
   Cash and cash equivalents...........................................   $    799,090  $    868,298
   Short-term investments..............................................        857,565     1,137,681
                                                                           ------------  ------------
          Total cash, cash equivalents, and short-term investments.....      1,656,655     2,005,979

   Marketable equity securities........................................          8,254         6,080
   Accounts receivable, net............................................        396,297       358,932
   Deferred income taxes...............................................         58,131        58,832
   Prepaids and other..................................................         70,766        52,087
                                                                           ------------  ------------
          Total current assets.........................................      2,190,103     2,481,910

Property and equipment, net............................................        353,242       341,340
Goodwill...............................................................         72,869        78,824
Intangible assets, net.................................................         19,000        14,555
Other assets...........................................................         56,905        42,428
Deferred income taxes..................................................         52,725        52,725
                                                                           ------------  ------------
          Total assets.................................................   $  2,744,844  $  3,011,782
                                                                           ============  ============

Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable....................................................   $     14,395  $     22,009
   Accrued expenses....................................................        350,282       357,913
   Deferred revenue....................................................        241,017       277,222
                                                                           ------------  ------------
          Total current liabilities....................................        605,694       657,144

Capital lease obligations..............................................          3,048        17,765
Convertible subordinated debentures....................................        300,000       300,000
                                                                           ------------  ------------
          Total liabilities............................................        908,742       974,909
                                                                           ------------  ------------

Commitments and contingencies

Stockholders' equity:
  Common stock; $0.001 par value; 2,000,000 shares authorized;
     466,950 and 477,024 shares issued and outstanding, respectively...            467           477
  Additional paid-in capital...........................................      1,357,422     1,448,686
  Notes receivable from stockholders...................................           (422)           --
  Deferred compensation................................................         (8,362)       (5,068)
  Accumulated other comprehensive income...............................          6,174        17,559
  Retained earnings....................................................        480,823       575,219
                                                                           ------------  ------------
          Total stockholders' equity...................................      1,836,102     2,036,873
                                                                           ------------  ------------
          Total liabilities and stockholders' equity...................   $  2,744,844  $  3,011,782
                                                                           ============  ============`

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      Six Months Ended
                                                                 June 30,                June 30,
                                                           ---------------------  ----------------------
                                                             2001        2002        2001        2002
                                                           ---------  ----------  ----------  ----------
Revenues:
   Software.............................................  $ 286,839  $  170,109  $  621,940  $  416,156
   Professional services, maintenance and other.........    273,313     235,453     536,962     467,253
                                                           ---------  ----------  ----------  ----------
       Total revenues...................................    560,152     405,562   1,158,902     883,409
                                                           ---------  ----------  ----------  ----------
Cost of revenues:
   Software.............................................      4,462       5,282       8,823      10,577
   Professional services, maintenance and other.........    159,533     119,319     332,208     245,333
                                                           ---------  ----------  ----------  ----------
       Total cost of revenues...........................    163,995     124,601     341,031     255,910
                                                           ---------  ----------  ----------  ----------
       Gross margin.....................................    396,157     280,961     817,871     627,499
                                                           ---------  ----------  ----------  ----------
Operating expenses:
   Product development..................................     49,475      50,303      97,608      99,367
   Sales and marketing..................................    193,378     150,648     405,337     315,993
   General and administrative...........................     42,382      42,794      96,608      84,545
                                                           ---------  ----------  ----------  ----------
       Total operating expenses.........................    285,235     243,745     599,553     499,905
                                                           ---------  ----------  ----------  ----------
       Operating income.................................    110,922      37,216     218,318     127,594
Other income, net.......................................     10,596       9,307      25,295      19,900
                                                           ---------  ----------  ----------  ----------
       Income before income taxes.......................    121,518      46,523     243,613     147,494
Income taxes............................................     44,961      16,748      90,135      53,098
                                                           ---------  ----------  ----------  ----------
       Net income ......................................  $  76,557  $   29,775  $  153,478  $   94,396
                                                           =========  ==========  ==========  ==========

Diluted net income per share............................  $    0.15  $     0.06  $     0.29  $     0.18
                                                           =========  ==========  ==========  ==========
Basic net income per share..............................  $    0.17  $     0.06  $     0.34  $     0.20
                                                           =========  ==========  ==========  ==========

Shares used in diluted share computation................    522,758     524,920     521,846     537,126
                                                           =========  ==========  ==========  ==========
Shares used in basic share computation..................    455,352     474,211     451,682     472,353
                                                           =========  ==========  ==========  ==========
Comprehensive income:
Net income .............................................  $  76,557  $   29,775  $  153,478  $   94,396
Other comprehensive income (loss), net of tax:
   Foreign currency translation adjustments.............     (1,801)     14,802      (6,669)     12,539
   Realized (gain) loss previously recognized in other
      comprehensive income..............................       (598)     (2,478)     (1,774)     (4,730)
   Unrealized gain (loss) on investments................        562       6,744      (2,017)      3,576
                                                           ---------  ----------  ----------  ----------
       Other comprehensive income (loss)................     (1,837)     19,068     (10,460)     11,385
                                                           ---------  ----------  ----------  ----------
       Total comprehensive income.......................  $  74,720  $   48,843  $  143,018  $  105,781
                                                           =========  ==========  ==========  ==========`

See accompanying notes to consolidated financial statements.

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

`Six Months Ended
                                                                                   June 30,
                                                                             --------------------
                                                                               2001       2002
                                                                             ---------  ---------
Cash flows from operating activities:
   Net income.............................................................. $ 153,478  $  94,396
   Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation and other amortization..................................    34,327     66,997
      Amortization of goodwill.............................................    10,237         --
      Amortization of identifiable intangible assets.......................     2,982      4,445
      Compensation related to stock options, net...........................     2,803      2,938
      Provision for doubtful accounts and returns..........................    17,931     11,712
      Tax benefit from exercise of stock options...........................    47,800     10,000
      Deferred income taxes................................................      (201)       497
      Write-down of cost-method investments to fair value..................     2,410      2,508
      Net gains on short-term investments and marketable equity securities.    (1,774)    (4,730)
      Exchange of software for cost-method investments.....................      (971)        --
      Changes in operating assets and liabilities:
         Accounts receivable...............................................    48,653     25,653
         Prepaids and other................................................    12,729     18,679
         Accounts payable and accrued expenses.............................     3,902      9,546
         Deferred revenue..................................................    48,421     36,205
                                                                             ---------  ---------
           Net cash provided by operating activities.......................   382,727    278,846
                                                                             ---------  ---------
Cash flows from investing activities:
   Purchases of property and equipment.....................................  (172,444)   (49,158)
   Purchases of short-term investments.....................................  (583,775)  (886,484)
   Sales and maturities of short-term investments..........................   328,700    605,735
   Purchases of marketable equity securities...............................        --     (1,000)
   Proceeds from sale of marketable equity securities......................       714        853
   Purchase consideration for acquired businesses, net of cash received....     9,484       (500)
   Other non-operating assets and non-marketable securities................    (8,442)    11,364
   Repayments from (advances to) affiliate, net............................    10,579         --
                                                                             ---------  ---------
           Net cash used in investing activities...........................  (415,184)  (319,190)
                                                                             ---------  ---------
Cash flows from financing activities:
   Proceeds from issuance of common stock, net of repurchases..............   118,492     76,152
   Proceeds from equipment financing.......................................        --     24,873
   Repayments of capital lease obligations.................................        --     (4,457)
   Repayments of stockholder notes.........................................       795        422
                                                                             ---------  ---------
           Net cash provided by financing activities.......................   119,287     96,990
                                                                             ---------  ---------
Effect of exchange rate fluctuations on cash and cash equivalents..........    (6,669)    12,562
                                                                             ---------  ---------
Change in cash and cash equivalents........................................    80,161     69,208
Cash and cash equivalents, beginning of period.............................   751,384    799,090
                                                                             ---------  ---------
Cash and cash equivalents, end of period................................... $ 831,545  $ 868,298
                                                                             =========  =========
Supplemental disclosures of cash flows information:
   Cash paid for interest.................................................. $   8,493  $   9,233
                                                                             =========  =========

   Cash paid for income taxes.............................................. $   8,934  $  15,608
                                                                             =========  =========
Supplemental disclosures of non-cash activities:
   Common stock and stock options issued for acquisitions.................. $  28,235  $   5,478
                                                                             =========  =========`

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. Intangible Assets and Goodwill
3. Convertible Subordinated Debentures
4. Commitments and Contingencies
5. Stockholders' Equity
6. Segment and Geographic Information
7. Acquisitions
8. Subsequent Events

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



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



Overview of the Company's Operations

Siebel is a leading provider of eBusiness applications software.  Siebel eBusiness Applications are a
family of leading Web applications software that enables 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.  Our customer relationship management applications enable an organization to sell to, market
to, and service its customers across multiple channels, including the Web, call centers, field, resellers, and retail and dealer
networks.  Our 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.  Our 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, some of our customers have
achieved high levels of satisfaction from these constituencies and continue to be competitive in their markets.



Siebel 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 20 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.  Providing best-of-class eBusiness functionality, 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' unique 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
the above family 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 (maintenance) services.  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 thereafter.  The Company's Global Services Organization provides professional services, which include a broad range of
implementation services, training and technical support, to the Company's customers and implementation partners.  The Company's
Global Services Organization has significant product and implementation expertise and is committed to supporting customers and
partners through every phase of the eBusiness transformation cycle.  Substantially all of the Company's professional service
arrangements are billed on a time and materials basis.  Payment terms for the above arrangements are negotiated with the Company's
customers and determined based on a variety of factors, including the customer's credit standing and the Company's history with the
customer.



Overview of the Results for the Three and Six Months Ended June 30, 2002



The Company's revenue growth and profitability depend in large part on the overall global economic and business
conditions and the demand for information technology, particularly within the markets in which the Company offers industry-specific
versions of its products.  The majority of the Company's revenues are generated from customers in the high technology,
telecommunications, financial services (including insurance), pharmaceutical, utilities and consumer packaged goods industries.
Accordingly, the Company's business is affected by the economic and business conditions of these industries and the demand for
information technology within these industries.  Although recent economic data indicate that macroeconomic conditions may be
stabilizing, capital spending by corporations, and more specifically technology spending, appears to be lagging behind the overall
economic recovery.  Hence, economic conditions within the information technology industry continued to be extremely difficult during
the first six months of 2002 and, in fact, may have progressively deteriorated.



In response to these challenging economic conditions, at the beginning of 2002, the Company set five broad
objectives, which guided management's decisions during the first six months of 2002: (i) operate a cash-positive, profitable
business; (ii) maintain and improve customer satisfaction levels; (iii) maintain and improve the Company's market leadership; (iv)
maintain the Company's product leadership in eBusiness; and (v) continue to develop solutions for the Company's customers that lower
the total cost of integrating software applications.  To better enable the Company to effectively achieve these five objectives, the
Company commenced a reduction of its workforce in July 2002 and announced a planned consolidation of certain of its facilities,
expected to be completed in the second half of 2002.  Please refer to "Restructuring" below and Note 8 to the accompanying
unaudited financial statements for further details.  The Company believes that this restructuring of its operations will reduce its
operating costs and, thereby, strengthen the Company's future operating performance.  Actions undertaken by management during the
three and six months ended June 30, 2002, included the following:



- The Company maintained the cost controls that it initiated in 2001 and, accordingly, reduced the
discretionary portion of its costs structure to near minimal levels, absent a reduction of the Company's workforce and/or
elimination of a portion of the Company's facilities expenditures.  Specifically, management continued to reduce advertising
expenditures, maintained the chief executive officer salary at one dollar, maintained the 20% reductions in senior executive
compensation, reduced or eliminated bonuses for other employees, deferred merit compensation increases, and reduced other
discretionary expenditures, such as travel and recruiting.

- The Company continued its requirement of obtaining competitive bids for its purchases, where appropriate.  In
addition, the Company continued to require chief executive officer approval for all significant purchases and all
hiring.

- To ensure that the Company maintains continuity of business operations under adverse circumstances, including
a significant geopolitical dislocation in the San Francisco Bay Area, the Company continued to strengthen its data communications
and customer service infrastructure.  The Company expects that by the end of 2002, the Company will have strengthened its ability to
provide high-quality customer service globally even in the event of a significant and sustained system outage at any of the
Company's facilities.

- The Company continued its focus on customer satisfaction by leading a team of systems integrators and
software vendors in a collaborative effort to reduce the cost to the Company's customers of integrating software applications.
Through this collaborative effort, the Company intends to release, later this year, "Universal Application Network," a
standards-based, vendor-independent application integration solution.  Universal Application Network is being designed to address
one of the primary challenges facing the software applications industry: driving down the cost of application ownership and
maintenance.

As a result of these actions and the actions undertaken in 2001, the Company was able to operate a cash-positive,
profitable business in exceptionally challenging economic times; maintain or increase the Company's customer satisfaction
levels; maintain or increase the Company's market share in the various product categories in which it operates; continue as a
technology leader in the customer relationship management market; and continue its efforts to lower the total cost to the Company's
customers of integrating software applications.  In addition, the Company achieved the following financial results:

- Total quarterly expenses decreased by 18%, from $449.2 million in the second quarter of 2001 to $368.3
million in the second quarter of 2002, and decreased by 20%, from $940.6 million for the first six months of 2001 to $755.8 million
for the first six months of 2002.

- Cash and short-term investments increased by $349.3 million, or 21%, from $1,656.7 million as of December 31,
2001, to $2,006.0 million as of June 30, 2002, representing approximately 61% and 67% of total assets, respectively.  During 2001
and the first six months of 2002, a period of deteriorating global economic conditions, the Company increased cash and short-term
investments by $853.4 million, or 74%, primarily through operations.

- Cash flows from operations were $382.7 million and $278.8 million during the six months ended June 30, 2001
and 2002, respectively.

- Deferred revenue, which consists primarily of deferred maintenance revenue, increased by 15%, from $241.0
million as of December 31, 2001, to $277.2 million as of June 30, 2002.

As a result of current economic uncertainties and concerns regarding the accounting practices of publicly
traded companies, the Company believes that three specific factors will increasingly become important measures of a company's
overall performance and value: (i) positive cash flows from operations; (ii) positive earnings that are reported in accordance with
both the form and the intent of generally accepted accounting principles; and (iii) a strong balance sheet.  Since shipment of its
first product in the fourth quarter of 1994, the Company's operations have produced positive annual cash flows and earnings, both of
which have increased in each of the last five years ending December 31, 2001.  The Company believes that its financial position is
strong, with total assets of $3,011.8 million, cash and short-term investments of $2,006.0 million, working capital of $1,824.8
million, and stockholders' equity of $2,036.9 million.

The Company believes that the application of accounting standards are as important as a company's reported
financial position, results of operations and cash flows.  The Company believes that its accounting policies are prudent and provide
a clear view of the Company's financial performance.  The Company utilizes its internal audit department to help ensure that it
follows these accounting policies and maintain its internal controls.  Prior to the release of the Company's financial results, the
Company reviews its annual and quarterly results, along with key accounting policies and assumptions, with its audit committee,
which is composed of independent board members.  To ensure that the Company provides a clear view of its financial performance, the
Company has avoided some of the accounting practices currently in question, such as disclosing operating results on a "pro
forma" basis that excludes amortization of intangibles and/or stock-based compensation.  In addition, the Company has not
entered into any significant transactions with related parties.  The Company does not use off-balance-sheet arrangements with
unconsolidated related parties, nor does it use other forms of off-balance-sheet arrangements such as research and development
arrangements.

Restructuring



As discussed above, during the first six months of 2002, the Company reduced the discretionary portion of its
operating costs to near minimal levels, absent a reduction of its workforce and/or its facilities expenditures.  As a result of the
continued downturn in the information technology industry, certain of the Company's key operating metrics, such as total revenue,
operating margin and revenue per employee, continued to decline from the Company's historical levels.  In response to this decline,
on July 17, 2002, the Company announced a restructuring of its operations and an associated workforce reduction (collectively, the
"Restructuring") intended to: (i) strengthen the Company's competitive position, and (ii) reduce its cost structure and
thereby improving the Company's revenue per employee, operating margin and overall operating performance.



The Company is in the process of finalizing this Restructuring Plan, under which the Company currently expects to
recognize a charge to operations of up to approximately $275.0 million in the second half of 2002.  The Restructuring charge will be
comprised primarily of: (i) severance and associated employee termination costs related to the reduction of the Company's workforce;
(ii) lease termination costs and/or costs associated with permanently vacating facilities; and (iii) impairment costs related to
certain long-lived assets that will be abandoned, as discussed further below.  Total cash outlays under the Restructuring are
expected to be approximately $200.0 million to $225.0 million, and relate primarily to costs associated with permanently vacating facilities and
costs associated with the reduction of the Company's workforce.  The Company expects that the costs associated with permanently
vacating facilities will generally be paid over the remaining lease terms, ending at various dates through December 2023 or over a
shorter period as the Company may negotiate with its lessors.  The costs associated with the reduction of the Company's workforce
will be paid during the second half of 2002.  The total Restructuring charge and related cash outlay are based on management's
current estimates, which may change as the Company finalizes its Restructuring Plan and/or adjusts its current estimates of the
costs to exit certain facilities.



As part of the Restructuring, the Company intends to reduce its workforce by approximately 1,200 employees, or
16% of its workforce.  This workforce reduction will affect substantially all of the Company's organizations and geographical
regions.  Expenses associated with the workforce reduction will be comprised primarily of severance and associated employment
termination costs and will be expensed during the third quarter of 2002.



As a result of the workforce reduction and previous employee attrition, certain of the Company's currently
occupied facilities and facilities scheduled for occupation in early 2003 are projected to be under-utilized.  Accordingly, in July
2002, the Company began developing a plan to improve the utilization of its facilities by consolidating its remaining workforce into
certain existing facilities and permanently removing from its operations certain facilities currently occupied and certain
facilities that the Company does not plan to occupy.  The facilities to be permanently removed from the Company's operations are
primarily in San Mateo, California; Egham, England; and several smaller offices in North America and Europe.  The Company expects
that the portion of the Restructuring charge related to facilities consolidation will be expensed during the second half of 2002.
The Company's estimates of the excess facility charge are based on the expected lease termination costs, costs associated with
satisfying remaining lease commitments, and expected brokerage and other re-letting costs, partially offset by estimated sublease
income.  Estimates related to the total facilities charge may vary significantly depending, in part, on factors which may be beyond
the Company's control, such as the Company's success in negotiating with lessors, the time period required to locate and contract a
suitable sublease and the market rates at the time of such subleases.  Adjustments to the facilities reserve will be made if further
consolidations are required or if actual lease commitments or sublease income differ from amounts currently expected.



As part of the consolidation of the Company's facilities, certain leasehold improvements are expected to be
abandoned in the second half of 2002.  In addition, in connection with the closure of certain facilities, the Company will abandon
certain equipment at these facilities that will no longer be utilized in the Company's operations.  The equipment to be abandoned is
primarily composed of computer equipment, furniture and fixtures.  The Company expects the portion of the Restructuring charge
related to asset impairments will be expensed in the second half of 2002.  The Company's estimates of the asset abandonment charge
are based on the assets currently expected to be abandoned and the potential proceeds from disposal of such assets, among other
factors.



Subject to the timely and successful implementation of the Restructuring, the Company believes that the
Restructuring will further reduce the Company's expense levels and related cash requirements, resulting in a cost structure that is
better aligned with the Company's anticipated future revenues.  Because the Restructuring charge and related benefits are derived
from management's estimates, which are based on currently available information, the Company's Restructuring may not achieve the
benefits currently anticipated or on the timetable or at the level, currently contemplated.  In addition, the Company's software
license revenues and operating performance may continue to be negatively impacted by: (i) the uncertainty in the information
technology industry; (ii) geopolitical uncertainties; (iii) additional terrorist attacks; (iv) a lack of confidence in corporate
governance and accounting practices; (v) the diversity in global economic conditions; (vi) continued intense competition; and (vii)
other factors described under "Risk Factors" below.  Accordingly, additional actions, including a further restructuring of
the Company's operations, may be required in the future.  As a result, the demand for the Company's products and services and,
ultimately, the Company's future financial performance, are difficult to predict with any degree of certainty.



Please refer to "We may not be able to successfully implement our restructuring efforts, and such efforts
may adversely impact our ability to retain and attract future employees" under Risk Factors for further discussion of risks
associated with the Restructuring.



Use of Estimates



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



In addition to these estimates and assumptions that are utilized in preparation of historical 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 proprietary software allows the Company to track its potential revenues with a high degree
of visibility 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, such as the
estimated closing date and potential dollar amount of such 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, which is subject to change.  Specifically, the slowdown in the
global economy and information technology spending 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, and thereby the delays may adversely and materially affect the Company's business, financial condition or results of
operations.

Critical Accounting Policies



The Company believes that there are several accounting policies that are critical to understanding the
Company's historical and future performance, as these policies affect the reported amounts of revenue and the more significant areas
involving management's judgments and estimates. These significant accounting policies relate to revenue recognition, the provision
for doubtful accounts, other-than-temporary declines in the market value of investments, acquired intangible assets, impairments of
long-lived assets and the provision for income taxes.  These policies, and the Company's procedures related to these policies, are
described in detail below.  Please see Note 1 to the accompanying unaudited consolidated financial statements for a detailed
description of these accounting policies.



Revenue Recognition

The Company's software arrangements typically include: (i) an end user license that provides for
an initial fee in exchange for a customer's use of the Company's products in perpetuity based on a specified number of users; (ii) a
maintenance arrangement that provides for technical support and product updates over a period of 12 months; and (iii) a professional
service arrangement on a time and materials basis.

The Company recognizes software revenue using the residual method pursuant to the requirements of Statement
of Position No. 97-2 "Software Revenue Recognition" ("SOP 97-2"), as amended by Statement of Position No. 98-9,
"Software Revenue Recognition with Respect to Certain Arrangements."  Under the residual method, revenue is recognized
when Company-specific objective evidence of fair value exists for all of the undelivered elements in the arrangement (i.e.,
professional services and maintenance), but does not exist for one or more of the delivered elements in the arrangement (i.e., the
software product).  The Company allocates revenue to each undelivered element based on its respective fair value, with the fair
value determined by the price charged when that element is sold separately.  The Company determines the fair value of the
maintenance portion of the arrangement based on the ultimate renewal price of the maintenance charged to the customer based on full
deployment of the licensed software products and the fair value of the professional services portion of the arrangement based on the
hourly rates that the Company charges for these services when sold independently from a software license.  If evidence of fair value
cannot be established for the undelivered elements of a license agreement, the entire amount of revenue from the arrangement is
deferred and recognized over the period that these elements are delivered.

A customer typically prepays maintenance for the first 12 months, and the related revenue is deferred and
recognized over the term of the initial maintenance contract.  Maintenance is renewable by the customer on an annual basis
thereafter.  Rates for maintenance, including subsequent renewal rates, are typically established based upon a specified percentage
of net license fees as set forth in the arrangement.  Professional services revenue primarily consists of implementation services
related to the installation of the Company's products and training revenues.  The Company's software is ready to use by the customer
upon receipt.  While many of the Company's customers may choose to alter the software to fit their individual needs, the Company's
implementation services do not involve significant customization to or development of the underlying software code.  Substantially
all of the Company's professional service arrangements are on a time and materials basis and, accordingly, are recognized as the
services are performed, which is typically over a three- to six-month period subsequent to licensing of the Company's software.

For substantially all of the Company's software arrangements, the Company defers revenue for the fair value of
the maintenance and professional services to be provided to the customer and recognizes revenue for the software license when
persuasive evidence of an arrangement exists and delivery has occurred, provided the fee is fixed or determinable and collection is
deemed probable.  The Company evaluates each of these criteria as follows:

- Evidence of an arrangement: The Company considers a non-cancelable agreement signed by the Company and the
customer to be evidence of an arrangement.

- Delivery: Delivery is considered to occur when media containing the licensed programs is provided to a common
carrier or, in the case of electronic delivery, the customer is given access to the licensed programs.  The Company's typical end
user license agreement does not include customer acceptance provisions.

- Fixed or determinable fee: The Company considers the fee to be fixed or determinable if the fee is not
subject to refund or adjustment.  If the arrangement fee is not fixed or determinable, the Company recognizes the revenue as amounts
become due and payable.

- Collection is deemed probable: The Company conducts a credit review for all significant transactions at the
time of the arrangement to determine the credit-worthiness of the customer.  Collection is deemed probable if the Company expects
that the customer will be able to pay amounts under the arrangement as payments become due.  If the Company determines that
collection is not probable, the Company defers the revenue and recognizes the revenue upon cash collection.

Provision for Doubtful Accounts



The Company initially records its provision for doubtful accounts based on its historical experience of
write-offs and then adjusts this provision at the end of each reporting period based on a detailed assessment of its accounts
receivable and allowance for doubtful accounts.  In estimating the provision for doubtful accounts, management considers: (i) the
age of the accounts receivable; (ii) trends within and ratios involving the age of the accounts receivable, (iii) the customer mix
in each of the aging categories; (iv) the Company's historical provision for doubtful accounts, which has ranged between 1.0% and
3.5% of total revenues; (v) the credit-worthiness of the customer; (vi) the economic conditions of the customer's industry; and
(vii) general economic conditions, among other factors.  Should any of these factors change, the estimates made by management will
also change, which could impact the level of the Company's future provision for doubtful accounts.  Specifically, if the financial
condition of the Company's customers were to deteriorate, affecting their ability to make payments, additional provision for
doubtful accounts may be required.  A number of the Company's customers are in the telecom industry and, as discussed previously, as
part of the Company's evaluation of its provision for doubtful accounts, the Company has considered not only the economic conditions
in that industry but also the financial condition of the Company's customers in that industry in determining the provision for
doubtful accounts.  Should conditions continue to deteriorate in this industry, or any other industry, additional provision for
doubtful accounts may be required.

Other-than-Temporary Declines in the Market Value of Investments



The Company records an investment impairment charge when it determines an investment has experienced a
decline in value that is other-than-temporary.  To make this determination, the Company reviews the carrying value of its short-term
investments and marketable equity securities, along with investments accounted for under the cost method, at the end of each
reporting period to determine if any investments are impaired.  This review includes an evaluation of historical and projected
financial performance, expected cash needs and recent funding events.  Other-than-temporary impairments are recognized in earnings
if the market value of the investment is below its current carrying value for an extended period, which the Company generally
defines as six to nine months, or the issuer has experienced significant financial declines or difficulties in raising capital to
continue operations.  Future adverse changes in market conditions or poor operating results of underlying investments could result
in an inability to recover the carrying value of the investments, thereby possibly requiring an impairment charge in the future.



Acquired Intangible Assets



The Company accounts for its purchases of acquired companies in accordance
with SFAS No. 141 "Business Combinations" ("SFAS 141") and accounts for the related acquired intangible assets
in accordance with SFAS No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142").  In accordance with SFAS
141, the Company allocates the cost of the acquired companies to the identifiable tangible and intangible assets and liabilities
acquired, with the remaining amount being classified as goodwill.  Certain intangible assets, such as "acquired
technology," are amortized to expense over time, while in-process research and development costs ("IPR&D"), if
any, are recorded as a one-time charge at the acquisition date.



Most of the entities acquired by the Company do not have significant tangible assets and, as a result, the
majority of the purchase price is typically allocated to identified intangible assets and goodwill.  The Company's future operating
performance will be impacted by the future amortization of intangible assets, potential charges related to IPR&D, and potential
impairment charges related to goodwill.  Accordingly, the allocation of the purchase price to intangible assets and goodwill has a
significant impact on the Company's future operating results.  The allocation of the purchase price of the acquired companies to
intangible assets and goodwill requires management to make significant estimates and assumptions, including estimates of future cash
flows expected to be generated by the acquired assets and the appropriate discount rate to value these cash flows.  Should different
conditions prevail, material write-downs of net intangible assets and/or goodwill could occur.



As required by SFAS 142, the Company has not amortized goodwill associated with acquisitions completed after
June 30, 2001, for any period presented and ceased amortization of goodwill associated with acquisitions completed prior to July 1,
2001, effective January 1, 2002.  Prior to January 1, 2002, the Company amortized goodwill associated with the pre-July 1, 2001
acquisitions over three to five years using the straight-line method.  Identifiable intangibles (acquired technology) are currently
amortized over three years using the straight-line method.  As described below, in lieu of amortizing goodwill, the Company tests
goodwill for impairment periodically and records any necessary impairment in accordance with SFAS 142.



Impairments of Long-Lived Assets



The Company tests goodwill for impairment in accordance with SFAS 142, which requires that goodwill be tested
for impairment at the "reporting unit level" ("Reporting Unit") at least annually and more frequently upon the
occurrence of certain events, as defined by SFAS 142.  Consistent with the Company's determination that it has only one reporting
segment, the Company has determined that it has only one Reporting Unit, specifically the license, implementation and support of its
software applications.  Goodwill will be tested for impairment annually on July 1 in a two-step process.  First, the Company must
determine if the carrying amount of its Reporting Unit exceeds the "fair value" of the Reporting Unit based on quoted
market prices of the Company's common stock, which would indicate that goodwill may be impaired.  If the Company determines that
goodwill may be impaired, the Company compares the "implied fair value" of the goodwill, as defined by SFAS 142, to its
carrying amount to determine the impairment loss, if any.



The Company evaluates all of its long-lived assets, including intangible assets other than goodwill, for
impairment in accordance with the provisions of SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144").  SFAS 144 requires that long-lived assets and intangible assets other than goodwill be
evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be
recoverable based on expected undiscounted cash flows attributable to that asset.  Should events indicate that any of the Company's
assets are impaired, the amount of such impairment will be measured as the difference between the carrying value and the fair value
of the impaired asset and recorded in earnings during the period of such impairment.

Provision for Income Taxes



The Company's valuation allowance on its deferred tax assets pertains to certain tax credits and net
operating loss carryforwards resulting from the exercise of certain employee stock options.  The valuation allowance will be reduced
in the period in which the Company realizes a benefit on its tax return from a reduction of income taxes payable from the
utilization of these credits and losses.  When realized, the tax benefit of these credits and losses will be accounted for as a
credit to shareholders' equity rather than as a reduction of income tax expense.



As part of the process of preparing the Company's financial statements, the Company is required to estimate
its income taxes in each of the jurisdictions in which the Company operates.  This process involves estimating the Company's current
tax liabilities in each jurisdiction, 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 the need for an additional valuation
allowance on its remaining deferred tax assets, 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 deferred tax assets would be charged to income in the
period such determination was made.



To determine the Company's quarterly tax rate, 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 pre-tax income can impact the Company's overall effective tax rate.  Accordingly, the Company may have to increase
its tax rate in future periods should the actual geographical mix or annual pre-tax income differ from amounts currently
expected.

Results of Operations for the Three and Six Months Ended June 30, 2001 and 2002



The following table sets forth the consolidated statement of operations data for the three and six months
ended June 30, 2001 and 2002, expressed as a percentage of total revenues:

`Three Months Ended      Six Months Ended
                                                        June 30,                June 30,
                                                 ----------------------  ---------------------
                                                    2001        2002        2001       2002
                                                 ---------   ---------   ---------  ---------
Revenues:
  Software......................................     51.2 %      41.9 %      53.7 %     47.1 %
  Professional services, maintenance and other..     48.8        58.1        46.3       52.9
                                                 ---------   ---------   ---------  ---------
      Total revenues............................    100.0       100.0       100.0      100.0
                                                 ---------   ---------   ---------  ---------
Cost of revenues:
  Software......................................      0.8         1.3         0.7        1.2
  Professional services, maintenance and other..     28.5        29.4        28.7       27.8
                                                 ---------   ---------   ---------  ---------
      Total cost of revenues....................     29.3        30.7        29.4       29.0
                                                 ---------   ---------   ---------  ---------
        Gross margin............................     70.7        69.3        70.6       71.0
                                                 ---------   ---------   ---------  ---------
Operating expenses:
  Product development...........................      8.8        12.4         8.5       11.2
  Sales and marketing...........................     34.5        37.1        35.0       35.8
  General and administrative....................      7.6        10.6         8.3        9.6
                                                 ---------   ---------   ---------  ---------
      Total operating expenses..................     50.9        60.1        51.8       56.6
                                                 ---------   ---------   ---------  ---------
        Operating income........................     19.8         9.2        18.8       14.4
Other income, net...............................      1.9         2.3         2.2        2.3
                                                 ---------   ---------   ---------  ---------
        Income before income taxes..............     21.7        11.5        21.0       16.7
Income taxes....................................      8.0         4.1         7.8        6.0
                                                 ---------   ---------   ---------  ---------
        Net income..............................     13.7 %       7.4 %      13.2 %     10.7 %
                                                 =========   =========   =========  =========`

Revenues



Software.  Software license revenues decreased by 41% from $286.8 million for the three months ended June
30, 2001, to $170.1 million for the three months ended June 30, 2002, and decreased by 33% from $621.9 million for the six months
ended June 30, 2001, to $416.2 million for the six months ended June 30, 2002.   As previously discussed, the Company's customers
and ultimately the Company's software license revenues have been impacted by: (i) the continued deterioration in the information
technology industry; (ii) the weakness of the global economy; (iii) fear of additional terrorist attacks; (iv) a lack of confidence
in corporate governance and accounting practices; (v) continued intense competition; and (vi) geopolitical uncertainties.  These
factors have caused many of the Company's customers to: (i) delay the initiation of the purchasing process; (ii) increase the time
to complete a software purchase; and/or (iii) reduce their capital expenditure budgets and ultimately the size of their purchases of
the Company's software.  As a result, the Company's software license revenues have decreased during the three and six months ended
June 30, 2002, compared to the respective periods in 2001.  Please refer to the risk factor "A
variation in the conversion of our revenue pipeline to contracts could adversely affect our revenues and ability to forecast
operations."

Software license revenues as a percentage of total revenues decreased from 51% in the three
months ended June 30, 2001, to 42% in the three months ended June 30, 2002, and decreased from 54% in the six months ended June 30,
2001, to 47% in the six months ended June 30, 2002.  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 anticipates that the Company's software license revenues will return to positive
sequential quarterly growth as the overall economic conditions strengthen and, more specifically, the overall demand for information
technology increases.  The Company does not expect an improvement in information technology spending in the immediate future and,
accordingly, the Company currently expects quarterly software license revenues in the second half of 2002, both in terms of absolute
dollars and as a percentage of total revenues, to remain comparable to or decrease from the levels achieved in the second quarter of
2002.



The Company markets its products in the United States through its direct sales force and internationally through
its direct sales force and to a limited extent through distributors, primarily in Europe, Asia Pacific, Japan and Latin America.
International license revenues accounted for 56% and 46% of software license revenues for the three and six months ended June 30,
2001, respectively, compared to 34% and 37% of software license revenues for the three and six months ended June 30, 2002,
respectively.  International software license revenues declined in 2002 from the levels in 2001 primarily due to the economic
conditions in Europe and Asia lagging behind the deterioration of economic conditions in the United States by approximately six
months.  The Company expects international software license revenues will continue to account for a significant portion of total
software license revenues in the future.



Professional Services, Maintenance and Other.  Professional services, maintenance and other revenues are
primarily composed 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 a software
license arrangement and, accordingly, the Company's professional services revenues 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
14% from $273.3 million for the three months ended June 30, 2001, to $235.5 million for the three months ended June 30, 2002, and
decreased by 13% from $537.0 million for the six months ended June 30, 2001, to $467.3 million for the six months ended June 30,
2002.  As a percentage of total revenues, professional services, maintenance and other revenues were 49% and 46% during the three
and six months ended June 30, 2001, respectively, compared to 58% and 53% during the three and six months ended June 30, 2002,
respectively.





On January 1, 2002, the Company adopted EITF No. 01-14 "Income Statement Characterization of
Reimbursements Received for 'Out-of-Pocket' Expenses Incurred" ("EITF 01-14").  EITF 01-14 requires that certain
out-of-pocket expenses rebilled to customers be recorded as revenue versus an offset to the related expense.  Prior to the adoption of
EITF 01-14, the Company recorded rebilled out-of-pocket expenses as an offset to the related expense.  Comparative financial
statements for prior periods have been conformed to the current year presentation.



Cost of Revenues



Software.  Cost of software license revenues includes amortization of acquired technology; third-party
software royalties; and product packaging, production and documentation.  All costs incurred in the research and development of
software products and enhancements to existing products have been expensed as incurred.  Cost of software license revenues was $4.5
million and $8.8 million for the three and six months ended June 30, 2001, respectively, compared to $5.3 million and $10.6 million
for the three and six months ended June 30, 2002, respectively.  As a percentage of software license revenues, cost of software
license revenues was 2% and 1% in the three and six months ended June 30, 2001, respectively, compared to 3% for both the three and
six months ended June 30, 2002.  Cost of software license revenues increased in absolute dollars and as a percentage of software
license revenue primarily due to increases in amortization expense associated with the acquired technology obtained in the
acquisition of nQuire Software, Inc., as discussed in Note 7 to the accompanying unaudited consolidated financial statements.  These
costs as a percentage of software license revenues are expected to remain comparable in the second half of 2002 to the percentage of
software license revenues incurred during the second quarter of 2002.



Professional Services, Maintenance and Other.  Cost of professional services, maintenance and other
revenues consist 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 $159.5 million and $332.2 million for the
three and six months ended June 30, 2001, respectively, to $119.3 million and $245.3 million for the three and six months ended June
30, 2002, respectively.  As a percentage of professional services, maintenance and other revenues, these costs were 58% and 62% in
the three and six months ended June 30, 2001, respectively, as compared to 51% and 53% in the three and six months ended June 30,
2002, respectively.  The decrease in the absolute dollar amount reflects (i) the reduction of headcount in response to the global
economic downturn and the subsequent decrease in demand for the Company's implementation services; (ii) a reduction in the use of
third-party contractors; and (iii) an acceleration of the Company's cost control initiatives, including reductions of discretionary
expenditures such as travel and entertainment and incentive and other variable compensation. The decrease as a percentage of
professional services, maintenance and other revenues from the 2001 periods to the 2002 periods reflects: (i) the continued growth
of the Company's higher-margin maintenance revenues; (ii) a higher utilization of the Company's global services personnel; (iii) a
reduction in the use of third-party contractors; and (iv) an acceleration of the Company's cost control initiatives discussed
above.



As a result of the Company's Restructuring discussed above, the Company expects that professional services,
maintenance and other costs in terms of absolute dollars will decrease from the levels obtained in the second quarter of 2002.  The
Company expects that professional services, maintenance and other costs as a percentage of professional services, maintenance and
other revenues will remain comparable in the second half of 2002 to the levels incurred during the second quarter of 2002.



As discussed above, prior to adoption of EITF 01-14, the Company recorded rebilled out-of-pocket expenses as
an offset to the related expense.  Comparative financial statements for prior periods have been conformed to the current year
presentation.



Operating Expenses



Product Development.  Product development expense includes costs associated with the development of
new products, enhancements of existing products and quality assurance activities and consists 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 increased from $49.5 million and $97.6 million for the three and
six months ended June 30, 2001, respectively, to $50.3 million and $99.4 million for the three and six months ended June 30, 2002,
respectively.  As a percentage of total revenues, product development expense was 9% and 8% for the three and six months ended June
30, 2001, respectively, as compared to 12% and 11% for the three and six months ended June 30, 2002, respectively.

The increase in product development expense was primarily attributable to costs of additional personnel and
depreciation of equipment utilized in the Company's product development operations.  The Company added these personnel and related
costs to support the development and testing of Siebel 7 and subsequent releases.  Product development expense as a percentage of
total revenues increased primarily as a result of the Company's increased investment in its research and development of new products
during a period in which the Company's software license revenues decreased.  In response to the weak economic conditions in the
information technology industry and in connection with the Company's Restructuring discussed above, the Company reduced its product
development staff in July 2002 and anticipates removing from its operations excess facility capacity in the second half of 2002.
While the Company anticipates that it will continue to devote substantial resources to develop new products, new versions of its
existing products and additional modules, the Company expects product development expense to decrease, both in terms of the absolute
dollar amount and as a percentage of total revenues, in the third and fourth quarters of 2002 as compared to the levels obtained
during the second quarter of 2002.



Sales and Marketing.  The Company continues to place significant emphasis, both domestically and
internationally, on direct sales through its own sales force.  Accordingly, sales and marketing expense is composed primarily of
costs associated with the Company's sales and marketing personnel, including the Company's product marketing personnel, and consists
primarily of salaries, commissions and bonuses earned by these personnel, along with field office expenses and travel and
entertainment related to these personnel.  Sales and marketing expense also includes promotional and advertising expenses.  Sales
and marketing expense decreased from $193.4 million and $405.3 million for the three and six months ended June 30, 2001,
respectively, to $150.6 million and $316.0 million for the three and six months ended June 30, 2002, respectively.  As a percentage
of total revenues, sales and marketing expense was 35% for the three and six months ended June 30, 2001, as compared to 37% and 36%
for the three and six months ended June 30, 2002, respectively.



Sales and marketing expense decreased in terms of absolute dollars during the three and six months ended June
30, 2002, from the comparable periods in 2001, primarily due to the Company's cost control initiatives and the decrease in sales
commissions that resulted from a decrease in the Company's software license revenues.  In response to the weakening global economy,
the Company reduced its expenditures throughout 2001 and has continued to closely monitor its expenses during the six months ended
June 30, 2002.  The Company's cost controls included: (i) decreasing or eliminating incentive compensation and reducing executive
compensation; (ii) deferring merit compensation increases; (iii) reducing advertising, travel and other discretionary expenditures;
and (iv) reducing headcount in the second half of 2001.  In addition, as discussed above under Restructuring, the Company has
reduced its sales and marketing staff in July 2002 and currently expects to consolidate excess facilities to further reduce sales
and marketing expense.  Accordingly, the Company expects that sales and marketing expense, in terms of absolute dollars and as a
percentage of total revenues, will decrease in the third and fourth quarters of 2002 as compared to the levels obtained during the
second quarter of 2002.



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
expense was $42.4 million and $96.6 million for the three and six months ended June 30, 2001, respectively, as compared to $42.8
million and $84.5 million for the three and six months ended June 30, 2002, respectively.  As a percentage of total revenues,
general and administrative expense was 8% for the three and six months ended June 30, 2001, as compared to 11% and 10% for the three
and six months ended June 30, 2002, respectively.  General and administrative expense in terms of absolute dollars increased from
the three months ended June 30, 2001, to the three months ended June 30, 2002, due primarily to an increase in facility- (i.e.,
rent) and equipment- (i.e., depreciation) related expenses.  The increase in rent and depreciation was partially offset by a
decrease in the Company's provision for doubtful accounts, the elimination of goodwill amortization in 2002 as a result of the
adoption of SFAS 142, and management's cost control initiatives described above.  The decrease in absolute dollars from the six
months ended June 30, 2001, to the six months ended June 30, 2002, was due primarily to: (i) management's cost control initiatives;
(ii) a decrease in the Company's provision for doubtful accounts; and (iii) the elimination of goodwill amortization expense,
partially offset by an increase in rent and depreciation expense.



As a result of management's cost control initiatives, during the three and six months ended June 30, 2002,
the vast majority of general and administrative expenses were relatively fixed in nature, absent a reduction in workforce or
facilities-related expenditures.  Accordingly, due primarily to a decrease in total revenues, general and administrative expense
increased as a percentage of total revenues during the three and six months ended June 30, 2002, as compared to respective periods
in 2001.  As discussed above, the Company announced the Restructuring in July 2002, which the Company expects will better align its
costs structure with its current revenue levels.  Therefore, the Company anticipates that general and administrative expense, in
terms of absolute dollars and as a percentage of total revenues, will decrease in the third and fourth quarters of 2002 as compared
to the levels obtained during the second quarter of 2002.

Operating Income and Operating Margin



Operating income was $110.9 million and $218.3 million for the three and six months ended June 30, 2001,
respectively, compared to $37.2 million and $127.6 million for the three and six months ended June 30, 2002, respectively.
Operating margins were 20% and 19% during the three and six months ended June 30, 2001, respectively, as compared to 9% and 14%
during the three and six months ended June 30, 2002, respectively.  Operating income decreased in the three and six months ended
June 30, 2002, from the comparable periods in 2001 due primarily to: (i) the year-over-year decrease in software license revenues,
and (ii) the Company's increased investment in product development.  This decline in operating income was partially offset by: (i)
management's cost control initiatives, and (ii) the elimination of the requirement to amortize goodwill, which totaled approximately
$4.7 million and $10.2 million during the three and six months ended June 30, 2001, respectively.  Please refer to Notes 1 and 2 to
the accompanying unaudited consolidated financial statements for further discussions regarding the elimination of the requirement to
amortize goodwill.  While both of these factors had positive effects on operating margins in 2002, they were offset by: (i) a higher
percentage of total revenues coming from professional services, maintenance, and other revenues, which are at lower margins than
software license revenues and (ii) the Company's increased investment in product development.

Other Income, Net





`Three Months Ended    Six Months Ended
                                                       June 30,              June 30,
                                                 --------------------  --------------------
                                                   2001       2002       2001       2002
                                                 ---------  ---------  ---------  ---------
Interest income................................ $  17,136  $  14,885  $  36,244  $  28,957
Interest expense...............................    (4,362)    (4,889)    (9,096)    (9,836)
Net gains on investments.......................       598      2,478      1,774      4,730
Write-down of cost-method investments..........    (1,738)    (2,508)    (2,410)    (2,508)
Other, net.....................................    (1,038)      (659)    (1,217)    (1,443)
                                                 ---------  ---------  ---------  ---------
                                                $  10,596  $   9,307  $  25,295  $  19,900
                                                 =========  =========  =========  =========`

Interest income represents earnings on the Company's cash and short-term investments.  Interest income
decreased during the three and six months ended June 30, 2002, from the levels for the comparable periods in 2001, primarily due to
a decline in interest rates, partially offset by the Company's increased balances of cash and short-term investments.  Interest
expense for all periods presented primarily represents interest on the Company's $300.0 million convertible subordinated debentures
(see Note 3 to the accompanying unaudited consolidated financial statements).



During the three and six months ended June 30, 2001 and 2002, net gains on investments were primarily the
result of gains from sales of the Company's short-term investments.  For the 2002 periods, the gains on investments were partially
offset by a $0.6 million write-down of one of the Company's marketable equity securities to fair value, as the decline was
determined to be other-than-temporary.  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 and six months ended June 30, 2001 and 2002, the
Company wrote down certain of these investments accounted for under the cost method to fair value as the decline in these
investments was deemed to be other-than-temporary.  Other, net for all periods presented is primarily composed of banking fees and
foreign currency gains or losses.

Provision for Income Taxes







Net Income



The Company had net income of $76.6 million and $153.5 million for the three and six
months ended June 30, 2001, respectively, as compared to $29.8 million and $94.4 million for the three and six months ended June 30,
2002, respectively.  Diluted net income per share was $0.15 and $0.29 for the three and six months ended June 30, 2001,
respectively, compared to $0.06 and $0.18 for the three and six months ended June 30, 2002, respectively.



Adoption of Accounting Standards



During the six months ended June 30, 2001 and 2002, the Company adopted new accounting standards related to
the accounting for its: derivative instruments and hedging activities; business combinations; intangible assets and goodwill;
impairment of long-lived assets; discontinued operations; and presentation of rebilled out-of-pocket expenses.  There was not a
cumulative transition adjustment upon the adoption of any of these accounting standards, and 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.  The
following is a brief summary of the accounting standards adopted during the six months ended June 30, 2001 and 2002:



Derivatives Instruments and Hedging Activities.	 On January 1, 2001, the Company adopted Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133").  SFAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities.  SFAS 133
requires that all derivatives be recognized as either assets or liabilities at fair value.  Derivatives or portions of derivatives
that are not designated as hedging instruments are adjusted to fair value through earnings and are recognized in the period of
change in their fair value.  The Company does not believe that the application of SFAS 133 will significantly alter the Company's
hedging strategies.  However, its application may increase the volatility of other income and expense and other comprehensive
income.



Business Combinations.  On July 1, 2001, the Company adopted certain provisions of SFAS 141, as required
for business combinations consummated after June 30, 2001.  The Company adopted the remaining provisions of SFAS 141 effective
January 1, 2002.  SFAS 141 requires that all business combinations be accounted for using the purchase method, thereby prohibiting
the pooling-of-interests method.  SFAS 141 also specifies criteria for recognizing and reporting intangible assets apart from
goodwill; however, assembled workforce must be recognized and reported in goodwill.



Goodwill and Intangible Assets.  On July 1, 2001, the Company adopted certain provisions of SFAS 142, as
required for goodwill and intangible assets acquired in purchase business combinations consummated after June 30, 2001.  The Company
adopted the remaining provisions of SFAS 142 effective January 1, 2002.  SFAS 142 requires that intangible assets with an indefinite
life should not be amortized until their life is determined to be finite, and all other intangible assets must be amortized over
their useful life.  SFAS 142 also requires that goodwill not be amortized but instead tested for impairment at the "Reporting
Unit" level, as defined, at least annually and more frequently upon the occurrence of certain events.  The Company has
completed the first step of the transitional goodwill impairment test and has determined that there was no transitional impairment
upon full adoption.



Impairment of Long-Lived Assets and Discontinued Operations.  On January 1, 2002, the Company adopted SFAS
144.  SFAS 144 supersedes certain provisions of APB Opinion No. 30 "Reporting the Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" and
supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."



Presentation of Rebilled Expenses.  On January 1, 2002, the Company adopted EITF 01-14.  EITF 01-14
requires that certain out-of-pocket expenses rebilled to customers be recorded as revenue versus an offset to the related expense.
Prior to the adoption of EITF 01-14, the Company recorded rebilled out-of-pocket expenses as an offset to the related expense.
Comparative financial statements for prior periods have been conformed to the current year presentation.  This change had no effect
on operating income or net income for any period presented.



Liquidity and Capital Resources



The Company derives its liquidity and capital resources primarily from the Company's cash flows from
operations and from working capital.  The Company's cash, cash equivalents and short-term investments increased from $1,656.7
million as of December 31, 2001, to $2,006.0 million as of June 30, 2002, representing approximately 61% and 67% of total assets,
respectively.  The Company's days sales outstanding in accounts receivable was 73 days as of December 31, 2001, compared with 80
days as of June 30, 2002.  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.  The Company does not have any off-balance-sheet arrangements with
unconsolidated entities or related parties and, accordingly, the Company's liquidity and capital resources are not subject to
off-balance-sheet risks from unconsolidated entities.

As of June 30, 2002, the Company's future fixed commitments for cash payments primarily related to
obligations under non-cancelable operating and capital leases and the Company's convertible subordinated debentures.  The Company
leases facilities under non-cancelable operating leases expiring between 2002 and 2022 and certain equipment under non-cancelable
operating and capital leases expiring between 2002 and 2014.  Future minimum lease payments under these leases as of June 30, 2002,
consisted of $52.6 million due for the remainder of 2002, $594.4 million due within five years subsequent to 2002, and $619.1
million due in 2008 and thereafter.  In addition, as of June 30, 2002, the Company had $300.0 million of convertible subordinated
debentures outstanding.  These debentures mature on September 15, 2006; bear interest at a rate of 5.50%; and are convertible at the
option of the holder into 12.9 million shares of the Company's common stock at any time prior to maturity, at a conversion price of
$23.32 per share, subject to adjustment under certain conditions.  The Company may redeem the notes, in whole or in part, at any
time on or after September 15, 2002.  The redemption price will range from $309.4 million to $302.4 million if the notes are
redeemed between September 15, 2002, and September 14, 2006.  Any redemption made on or after September 15, 2006, will be at $300.0
million.  The Company will pay accrued interest to the redemption date.



Cash provided by operating activities was $382.7 million and $278.8 million for the six months ended June 30,
2001 and 2002, respectively.  Despite the weak economic conditions, the Company has continued to operate its business to produce
positive cash flows from its operations.  The Company's cash provided from operations in each of these periods was primarily derived
from the Company's earnings prior to non-cash expenses such as depreciation, amortization and bad debt.  Also contributing to cash
flows from operations is: (i) the tax benefit related to the exercise of employee stock options, which reduces the Company's cash
outlay for income tax expense, and (ii) changes in the Company's working capital, which is primarily composed of collections of
accounts receivable and increases in deferred revenue. The Company's cash provided by operating activities decreased in 2002 from
the comparable period in 2001 primarily as the result of the decreases in revenues and operating income that occurred, in part, as a
result of the weak global economic conditions.



Cash used in investing activities was $415.2 million and $319.2 million for the six months ended June 30,
2001 and 2002, respectively.  During each of the 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 six
months ended June 30, 2001 and 2002, the Company reinvested its cash flows from operations into short-term investments in net
amounts of $255.1 million and $280.7 million, respectively, and had purchases of property and equipment, including leasehold
improvements, of $172.4 million and $49.2 million, respectively.  Other investing activities totaled approximately $12.3 million and
$10.7 million during the six months ended June 30, 2001 and 2002, respectively.



Capital expenditures were significantly higher in the first half of 2001 compared to the first half of 2002
primarily as a result of the following: (i) expansion of the Company's infrastructure during 2001 to support the development and
testing of Siebel 7, and (ii) purchases of tenant improvements and furniture and fixtures for newly leased facilities.  The Company
may purchase land and buildings in the future to meet its facilities requirements.



Cash provided by financing activities was $119.3 million and $97.0 million during the six months ended June
30, 2001 and 2002, respectively.  For the six months ended June 30, 2001 and 2002, the Company's financing activities consisted
primarily of net proceeds of $118.5 million and $76.2 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 six months ended June 30,
2002, the Company also received proceeds of $24.9 million from equipment financing, partially offset by net repayments on this
financing and other capital leases of $4.5 million.



While the Company believes that the anticipated cash flows from operations, along with cash, cash equivalents
and short-term investments, 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 or other means in the future, depending
upon market conditions.



Risk Factors

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

Our total revenue and operating results may fluctuate.

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

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

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

Our quarterly operating results may fluctuate.

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

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

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

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



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

The revenue growth and profitability of our business depends on the overall demand for eBusiness applications
software and services, particularly within the industries in which we offer specific versions of our products.  Because our sales
are primarily to major corporate customers in the high technology, telecommunications, financial services (including insurance),
pharmaceutical, utilities and consumer packaged goods industries, our business depends on the overall economic conditions and the
economic and business conditions within these industries.  The progressive weakening of the global economy, the weakening of the
information technology industry, and the weakening of the business conditions within the above industries has caused a decrease in
our software license revenues in both 2001 and 2002.  A softening of demand for computer software caused by a continued weakening of
the economy, domestically or internationally, may result in a continued decrease in revenues and growth rates.  In addition, the
financial, political, economic and other uncertainties following the terrorist attacks upon the United States have led to a further
weakening of the global economy.  Subsequent terrorist acts and/or the threat of future outbreak or continued escalation of
hostilities involving the United States or other countries could adversely affect the growth rate of the Company's software license
revenue and have an adverse effect on our business, financial condition or results of operations.



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



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

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.



In July 2002, we announced a restructuring of our operations involving, among other things, the reduction of our
workforce by approximately 1,200 employees worldwide and the consolidation of certain excess facilities.  As part of this
restructuring, we may permanently remove from our operations or terminate certain of our leased facilities, which may require the
Company to negotiate certain lease terminations and/or subleases of our facilities.  We cannot predict when or if we will be
successful in negotiating lease termination agreements or subleases of our facilities on terms acceptable to us.  Should we be
unsuccessful in such negotiations or if the negotiated terms are less favorable than currently anticipated, we may be required to
materially increase our restructuring charge in future periods.  In addition, we cannot assure you that our restructuring program
will achieve all of the benefits we currently anticipate or on the timetable contemplated.



Workforce reductions, including the one we announced in July 2002, could result in a temporary lack of focus and
reduced productivity by our remaining employees, which in turn may affect our revenues in the current or a future quarter.  In
addition, prospects and current customers may decide to delay or not purchase our products due to the perceived uncertainty caused
by our restructuring.  We cannot assure you that we will not reduce or otherwise adjust our workforce again in the future or that
the related transition issues associated with such a reduction will not occur again.  In addition, employees directly affected by
the reduction may seek future employment with our business partners, customers or competitors.  Although our employees are required
to sign a confidentiality agreement at the time of hire, we cannot assure you that the confidential nature of certain proprietary
information will be maintained in the course of such future employment.  Further, we believe that our future success will depend in
large part upon our ability to attract and retain highly skilled personnel.  We may have difficulty attracting such personnel as a
result of a perceived risk of future workforce reductions.



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



If we fail to manage the size of our operations effectively, our business, financial condition or results of
operations could be materially and adversely affected.  Since we began operations in 1994 and continuing throughout early 2001, our
business grew rapidly.  Throughout the last nine months of 2001 and the first six months of 2002, our revenues have declined as a
result of deterioration in the overall economy and information technology industry.  These rapid changes in our business have placed
a significant strain on our management systems and resources.  In response to the continued deterioration in the information
technology industry, management announced a restructuring of our operations in July 2002.  This restructuring has its own risks,
many of which are discussed above under "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."  In addition, if we return to growth in the
future, that growth may require us to implement new systems or upgrade current systems, and the failure to successfully implement
such new or improved systems could materially and adversely affect our business.



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

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

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

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

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

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

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

Siebel eBusiness Applications communicate through public and private networks over the Internet.
The success of our products may depend, in part, on our ability to continue developing products that are compatible with the
Internet.  We cannot predict with any assurance whether the demand for Internet-related products and services will increase or
decrease in the future.  The increased commercial use of the Internet could require substantial modification and customization of
our products and the introduction of new products.

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

We operate in a competitive and rapidly changing market.

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

Our customers may not successfully implement our products.

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

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

A substantial majority of our license revenues are attributable to sales of Siebel Sales, Siebel Service,
Siebel Call Center, Siebel Analytics, Siebel Interactive Selling and related products.  In addition, we offer industry-specific
versions of these products.  We expect that these products and related consulting, maintenance and training services will continue
to account for a majority of our future revenues.  Our success depends in part on our ability to market and maintain the industry-specific
versions of our products.  Factors adversely affecting the cost and pricing of, or demand for, these products, such as
competition or technological change, could have a material adverse effect on our business, financial condition or results of
operations.

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

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

Our distribution channels may create additional risks.

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

Our revenue is concentrated in a relatively small number of customers.

Our success depends on gaining new customers and maintaining relationships with our existing customers.
From quarter to quarter, a relatively small number of customers generally account for a significant percentage of our revenues.  We
expect that licenses of our products to a limited number of customers will continue to account for a significant percentage of
revenue in an individual quarter for the foreseeable future; however, because the top ten customers vary from quarter to quarter, we
anticipate that license revenues from the top ten customers for an entire fiscal year will be less significant.  For the six months
ended June 30, 2002, software license revenues from our 10 largest customers accounted for approximately 26% of total software
license revenues.  The failure to successfully market our products to new customers or to new industries, or the loss of a small
number of customers or any reduction or delay in orders by any such customer, could have a material adverse effect on our business,
financial condition or results of operations.

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

The software market in which we compete is characterized by: (i) rapid technological change; (ii)
frequent introductions of new products; (iii) changing customer needs; and (iv) evolving industry standards.  To keep pace with
technological developments, evolving industry standards and changing customer needs, we must support existing products and develop
new products (e.g., Siebel 7, which was released in the fourth quarter of 2001).  We may not be successful in developing, marketing
and releasing new products or new versions of Siebel eBusiness Applications that respond to technological developments,
evolving industry standards or changing customer requirements.  We may also experience difficulties that could delay or prevent the
successful development, introduction and sale of these enhancements.  In addition, these enhancements may not adequately meet the
requirements of the marketplace and may not achieve any significant degree of market acceptance.  If release dates of any future
products or enhancements to Siebel eBusiness Applications are delayed, or if these products or enhancements fail to achieve
market acceptance when released, our business, operating results and financial condition could be materially and adversely affected.
In addition, new products or enhancements by our competitors may cause customers to defer or forego purchases of our products, which
could have a material adverse effect on our business, financial condition or results of operations.



To be successful, we must effectively compete in the eBusiness systems market.

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

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

A large number of personal, departmental and other products exist in the eBusiness applications market. Our
competitors include a number of companies that compete with us primarily within a particular product line (e.g., analytics,
interactive selling, etc.) and/or the prospective customer's industry (e.g., life sciences, financial services, etc.).  These
companies include Amdocs Limited; CAS GmbH; Chordiant Software, Inc.; Dendrite International, Inc.; E.piphany, Inc.; FrontRange
Solutions, Inc.; Interact Commerce Corporation; JD Edwards & Company; Kana Software, Inc.; ONYX Software Corporation; Pivotal
Corporation; and Salesforce.com, Inc., among many others.  In addition, our competitors include several companies, such as Oracle
Corporation, PeopleSoft, Inc. and SAP AG, that compete in a majority of the Company's product lines.  Some of these competitors have
longer operating histories; significantly greater financial, technical, marketing and other resources; significantly greater name
recognition; and a larger installed base of customers than we do.  In addition, many competitors have well-established relationships
with our current and potential customers.  As a result, these competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or to devote greater resources to the development, promotion and sale of their
products than we can.

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

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

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



Software errors or defects in our products could reduce revenues.

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

We need to successfully integrate acquisitions.



Our business strategy includes pursuing opportunities to grow our business, both internally and through selective
acquisitions, investments, joint ventures and strategic alliances.  Our ability to implement this strategy depends, in part, on our
success in making such acquisitions, investments, joint ventures and strategic alliances on satisfactory terms and successfully
integrating them into our operations.  Implementation of this strategy may impose significant strains on our management, operating
systems and financial resources.  Failure to manage this growth, or unexpected difficulties encountered during expansion, could have
an adverse effect on our business, financial condition or results of operations.

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

We acquired two companies during 2001, nQuire Software, Inc. and Sales.com, Inc., and may acquire
additional companies in the future.  We may not be able to successfully assimilate the additional personnel, operations, acquired
technology and products acquired from these companies into our business.  In particular, we will need to assimilate and retain key
professional services, sales, engineering and marketing personnel.  Key personnel from the acquired companies have in certain
instances decided, and they may in the future decide, to pursue other opportunities.  In addition, it may be necessary to integrate
products of these companies with our technology, and it is uncertain whether we may accomplish this easily or at all.  These
integration difficulties could disrupt our ongoing business, distract management and employees or increase expenses.  Acquisitions
are inherently risky, and we may also face unexpected costs, which may adversely affect operating results in any quarter.

If we acquire additional companies, products or technologies, we may face risks similar to those faced in
our other acquisitions.

We may continue to make other investments in complementary companies, products or technologies.  We may
not realize the anticipated benefits of any other acquisition or investment.  If we acquire another company, we will likely face the
same risks, uncertainties and disruptions as discussed above with respect to our other acquisitions.  In addition, our profitability
may suffer because of acquisition-related costs or amortization costs for acquired intangible assets.

Rising energy costs and power system shortages in California may result in increased operating expenses and
reduced net income and harm to our operations due to power loss.

In 2001, the western United States (and California in particular) experienced significant power
shortages, and such shortages may continue or worsen in the near future.  As a result, energy costs in California, including natural
gas and electricity, may rise significantly relative to the rest of the United States.  Because our principal operating facilities
are located in California, our operating expenses may increase significantly if this shortage recurs.  In addition, certain of our
operations or facilities may be subject to "rolling blackouts" or other unscheduled interruptions of electrical power.  A
sustained or frequent power failure could disrupt our operations and the operations of our third-party service providers, which
would limit our ability to provide our products and services to our customers, harming our customer relationships and having an
adverse effect on our business, financial condition or results of operations.

The loss of key personnel could negatively affect our performance.

Our performance depends on the continued service of our key technical, sales and senior management
personnel, particularly Thomas M. Siebel, our Chairman and Chief Executive Officer.  None of our key employees has entered into an
employment agreement with us.  The loss of the services of one or more of our executive officers could have a material adverse
effect on our business, operating results and financial condition.  To integrate into our company, new senior personnel must spend a
significant amount of time learning our business model and management system, in addition to performing their regular duties.
Accordingly, until new senior personnel become familiar with our business model and systems, their integration may result in some
disruption to our ongoing operations.





Catastrophic events could negatively affect our information technology infrastructure.

The efficient operation of our business, and ultimately our operating performance, depends on the
uninterrupted use of our critical business and information technology systems.  Many of these systems require the use of specialized
hardware and other equipment that is not readily available.  A significant portion of these critical business and information
technology systems are concentrated in the San Francisco Bay Area.  We are currently in the process of creating redundant
communications and customer service infrastructure in several geographic locations to ensure uninterrupted service and system back
up.  Until we complete the creation of the duplicate systems, in the event of a natural disaster, a fire or other catastrophic event
such as the recent terrorist attacks upon the United States, in the San Francisco Bay Area that results in the destruction of these
systems, the replacement of these systems and restoration of the archived data and normal operation of our business could take
several days to several weeks.  During the intervening period when our critical business and information technology systems are
inoperable, our ability to conduct normal business operations could be significantly and adversely impacted and as a result our
business, financial condition or results of operations could be adversely affected.

Leverage and debt service obligations may adversely affect our cash flow.

As of June 30, 2002, we have $300.0 million of convertible subordinated notes outstanding, bearing
interest at 5.50% and due September 15, 2006 (see Note 3 to the accompanying unaudited consolidated financial statements).  While
our current cash and short-term investments are sufficient to pay our current outstanding indebtedness, we cannot assure you that
any future financing arrangements will be available, or if available, on terms acceptable to us.  Our current or future leverage
could have negative consequences, including:

- Increasing our vulnerability to general adverse economic and industry conditions;
- Limiting our ability to obtain additional financing;
- Requiring the dedication of a substantial portion of our expected cash flow from operations to service our
indebtedness, thereby reducing the amount of our expected cash flow available for other purposes, including capital
expenditures;
- Limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which
we compete; and
- Placing us at a competitive disadvantage compared to less leveraged competitors and competitors that have
better access to capital resources.

We may not be able to protect our proprietary information.

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

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

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

We license certain software from third parties.  These third-party software licenses may not continue to be
available to us on acceptable terms.  The loss of, or inability to maintain, any of these software licenses could result in shipment
delays or reductions.  This could materially and adversely affect our business, financial condition or results of operations.



Our international operations involve unique risks.

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

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

Some of our stockholders may be able to exercise control over matters requiring stockholder approval.

Our current officers, directors and entities affiliated with us together beneficially owned a significant
portion of the outstanding shares of common stock as of June 30, 2002.  While these stockholders do not hold a majority of our
outstanding common stock, they will be able to exercise significant influence over matters requiring stockholder approval, including
the election of directors and the approval of mergers, consolidations and sales of our assets.  This may prevent or discourage
tender offers for our common stock.

Our stock price may continue to be volatile.

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

Provisions in our charter documents may prevent certain corporate actions.

Our Board of Directors is authorized to issue up to 2,000,000 shares of preferred stock and to determine
the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further approval
by our stockholders.  One of these shares has been designated Series A1 Preferred Stock, which was issued in connection with the
acquisition of Janna Systems Inc.  Please see Note 5 to the accompanying unaudited consolidated financial statements for a more
detailed description of the Series A1 Preferred Stock.  Preferred stock could be issued with voting, liquidation, dividend and other
rights superior to those of the common stock.  The rights of the holders of common stock will be subject to and may be adversely
affected by the rights of the holders of any preferred stock that may be issued in the future.  The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could make it more
difficult for a third party to acquire a majority of our outstanding voting stock.  We have a classified Board of Directors.  This
and certain other provisions of our certificate of incorporation and certain provisions of our bylaws and of Delaware law could
delay or make more difficult a merger, tender offer or proxy contest.

Due to these and other factors, we may not meet expectations of securities analysts or investors with respect
to revenues or other operating results of the combined company, which could adversely affect our stock price.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk.



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



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

The following summarizes as of June 30, 2002, 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) 2,893   US$1,508  $       (143)

Brazilian real ("BRL") (contracts to
  pay BRL/receive US$)...................     (BRL) 4,047   US$1,725  $        296

Canadian dollars ("CAD") (contracts
  to pay CAD/receive US$)................     (CAD) 7,316   US$4,734  $        (78)

Japanese yen ("YEN") (contracts to
  pay Yen/receive US$)................... (YEN) 1,780,566  US$13,857  $       (751)

Mexican peso ("MXN") (contracts
  to pay MXN/receive US$)................    (MXN) 24,703   US$2,470  $        (48)

Singapore dollars ("SGD") (contracts
  to pay SGD/receive US$)................        (SGD) 74      US$50  $         (8)

British pounds ("GBP") (contracts to
  receive GBP/pay EUR)...................       (GBP) 853    EUR 613  $        280

Czech Republic koruna (contracts to
  receive CZK/pay EUR)...................    (CZK) 64,176  EUR 2,128  $         19

Euro ("EUR") (contracts to receive
  EUR/pay US$)...........................   (EUR) 129,653  US$117,281 $      8,781

Korea won (contracts to receive
  KRW/pay US$)........................... (KRW) 1,638,939   US$1,332  $         18

Swedish krona ("SEK") (contracts to
  receive SEK/pay EUR)...................    (SEK) 17,417  EUR 1,904  $         28

Swiss franc ("CHF") (contracts to
  receive CHF/pay EUR)...................    (CHF) 12,119  EUR 8,341  $        (82)`

The following summarizes the Company's short-term investments and the weighted average yields, as of June 30,
2002 (in thousands):

`Expected Maturity Date
                         -----------------------------------------------------------------
                                                                         There-
                           2002      2003      2004     2005     2006    after      Total
                         --------- --------- -------- -------- -------- --------  ---------
US Treasury and Agency
  securities............  $63,831  $153,560   $62,440  $11,234       --   $1,876   $292,941
Weighted average yield..     2.19%     2.45%     3.05%    3.44%      --     4.06%

Corporate bonds......... $133,048  $227,244   $97,834  $62,220  $37,656  $28,735   $586,737
Weighted average yield..     2.08%     2.78%     3.54%    3.51%    4.98%    4.76%

Asset-backed securities.  $21,977   $61,128  $113,741  $50,471   $8,050   $2,636   $258,003
Weighted average yield..     1.95%     2.69%     3.81%    4.10%    4.83%    5.05%`

As of June 30, 2002, we had an investment portfolio of fixed income securities, excluding those classified as
cash and cash equivalents, of $1,137.7 million.  These securities, like all fixed income instruments, are subject to interest rate
risk and will decline in value if market interest rates increase.  If market interest rates were to increase immediately and
uniformly by 100 basis points from levels as of June 30, 2002, the fair value of the portfolio would decline by $16.0 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 $0.6 million decrease in the fair value
of our marketable equity securities as of June 30, 2002.



The fair value of our convertible subordinated debenture fluctuates based upon changes in the price of our
common stock, changes in interest rates and changes in our credit-worthiness.  The fair market value of the convertible subordinated
debenture as of June 30, 2002, was $298.9 million.

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Part II.	Other Information

Item 1.	Legal Proceedings.



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 of these legal matters will have a material adverse effect on our consolidated financial position,
results of operations or cash flows.

Item 4.	Submission of Matters to a Vote of Security Holders



The Company's Annual Meeting of Stockholders (the "Annual Meeting") was held on June 6, 2002.  At
the Annual Meeting, the stockholders of the Company: (i) elected each of the persons below to serve as a director of the Company
until the 2005 Annual Meeting of Stockholders or until his successor is elected, and (ii) ratified the selection of KPMG LLP as the
Company's independent auditors for the year ending December 31, 2002.  The following sets forth the results of the voting at the
Annual Meeting.



The first proposal related to the election of Thomas M. Siebel, James C. Gaither and Marc F. Racicot to serve as
directors of the Company until the 2005 Annual Meeting of Stockholders or until their successors are elected.  The other directors
whose terms of office continued after the meeting were Patricia A. House, Eric E. Schmidt, Ph.D., A. Michael Spence, Ph.D., Charles
R. Schwab, and George T. Shaheen.  The votes for and withheld for such nominees were as follows:

`NAME              FOR         AGAINST
--------------------  ------------  ------------

Thomas M. Siebel      355,177,945    43,251,552
James C. Gaither      387,677,437    10,752,060
Marc F. Racicot       393,595,814     4,833,683`

The second proposal related to the selection of KPMG LLP as the Company's independent auditors for the year
ending December 31, 2002.  There were 387,814,611 votes cast in favor of the proposal and 9,141,796 votes cast against the proposal.
There were 1,473,090 abstentions and no broker non-votes.

Item 6.	Exhibits and Reports on Form 8-K.

(a) Exhibits.

|Exhibit | Description of Document                                                                                                                                         
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1     | Arrangement Agreement dated September 11, 2000, among the Registrant, certain indirectly
wholly owned subsidiaries of the Registrant, and Janna Systems Inc. (1)
|3.1     | Amended and Restated Certificate of Incorporation of the Registrant, as amended to date. (2)                                                                    
|3.2     | Bylaws of the Registrant. (3)                                                                                                                                   
|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 the Registrant and certain
investors, as amended April 30, 1996 and June 14, 1996. (3)      
|4.4     | Certificate of Designation of Series A1 Preferred Stock of the Registrant. (1)                                                                                  
|4.5     | Indenture between the Registrant, as Issuer, and Chase Manhattan Bank and Trust Company,
National Association, as Trustee, dated September 15, 1999. (4)        
|10.1    | Registrant's 1996 Equity Incentive Plan, as amended. (5)                                                                                                        
|10.2    | Registrant's Employee Stock Purchase Plan, as amended. (6)                                                                                                      
|10.3    | Form of Indemnity Agreement entered into between the Registrant and its officers and directors. (3)                                                             
|10.4    | Registrant's Deferred Compensation Plan, dated January 10, 1997. (7)                                                                                            
|10.5    | Lease Agreement, dated June 4, 1996, by and between the Registrant and Crossroad Associates
and Clocktower Associates, as amended. (3)                          
|10.5.1  | Amendments to Lease Agreement, by and between the Registrant and Crossroad Associates and
Clocktower Associates. (8)                                            
|10.6    | Lease Agreement, dated March 11, 1999, by and between the Registrant and Sobrato Interests III,
as amended. (9)                                                 
|10.6.1  | First Amendment to Lease  dated June 11, 1999, and Second Amendment to Lease dated
July 31, 1999. (10)                                                          
|10.7    | Lease Agreement, dated March 11, 1999, by and between the Registrant and Sobrato Interests III,
as amended. (9)                                                 
|10.7.1  | First Amendment to Lease  dated June 11, 1999, and Second Amendment to Lease dated
July 31, 1999. (10)                                                          
|10.8    | Lease Agreement, dated June 11, 1999, by and between the Registrant and Sobrato Interests III,
as amended. (9)                                                  
|10.8.1  | First Amendment to Lease  dated September 23, 2000. (10)                                                                                                        
|10.9    | Lease Agreement, dated August 16, 1999, by and between the Registrant and Spieker
Properties, L.P., as amended. (9)                                             
|10.9.1  | Amendment Number One to Lease, dated October 26, 2000, and Amendment Number Two to Lease,
dated June 29, 2001. (8)                                              
|10.10   | Registrant's 1998 Equity Incentive Plan, as amended. (11)                                                                                                       
|99.1    | Certification pursuant Section 906 of the Corporate Fraud Accountability Act of 2002. (8)                                                                       

__________________

(1)	Incorporated by reference to the Registrant's Current Report on Form 8-K filed on November 27,
2000.

(2)	Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
2001.
(3)	Incorporated by reference to the Registrant's Registration Statement on Form S-1 (No. 333-03751), as
amended.
(4)	Incorporated by reference to the Registrant's Registration Statement on Form S-3 (No. 333-91777) filed on
November 30, 1999.
(5)	Incorporated by reference to the Registrant's Definitive Proxy Statement on Schedule 14A filed on
September 17, 1999.
(6)	Incorporated by reference to the Registrant's Registration Statement on Form S-8 (No. 333-07983), as
amended.
(7)	Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
(8)	Filed herewith. 
(9)	Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999.
(10)	Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000.
(11)	Incorporated by reference to the Registrant's Registration Statement on Form S-8 (No. 333-72218), as
amended.



(b)	Reports on Form 8-K.

None.

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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: August 7, 2002By:
    /s/ Kenneth A. GoldmanKenneth A. GoldmanSenior Vice President, Finance and
                                    Administration and
                                    Chief Financial Officer(Principal Financial Officer)

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