Catalyst International Bit by Y2K Bug

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Catalyst International Bit by Y2K Bug
S. McVey - October 4th, 1999

Event Summary

Warehouse Management System (WMS) vendor Catalyst International, Inc. announced that it expects to incur a third quarter loss of approximately $5.7 to $6.5 million, which includes a non-recurring charge of between $4.0 million and $4.5 million relating to the discontinuance of Catalyst's Windows NT product development and restructuring in connection with the previously announced SAP alliance. As reasons for the loss, company representatives cite customer reticence due to Y2K issues and uncertainty over identity of the new business partner.

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Market Impact

Y2K is too often a convenient scapegoat for poor earnings. Since assuming control in 1Q97, President and CEO Sean McGowan has managed to reverse Catalyst's downward trend, albeit with some difficulties. McGowan's appointment came on the heels of a $7.1 million loss in fiscal 1996, which resulted largely from two factors:

  1. An unsuccessful attempt at utilizing purchased development of ISI (Information Strategies, Inc.) for an NT version of its Catalyst WMS product.

  2. Premature expansion of its service and maintenance staff in the U. S. and overseas.

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Massive turnover of its direct sales force contributed to weak revenues in 1997, although a combination of reduced operating expenses and increased hardware revenues mitigated the loss over that of the previous year. Finally, in 1998, Catalyst saw a return to profitability.

This quarter's projected loss aside, Catalyst should prosper in the long term from the new alliance with SAP. McGowan has shown commitment to the arrangement by restructuring the management team to accommodate the change in business plan. For the present, abandonment of an NT-based product will enable Catalyst to concentrate resources on Unix versions of CatalystWMS. In addition, the alliance should bring additional partnerships on the international front that will reinforce Catalyst's strategy of using local Value Added Resellers to market, sell, and implement its products. Though Catalyst stands to grow its market share significantly, larger players in the SCE (Supply Chain Execution), such as Industri-Matematik, Manhattan Associates, Optum, and EXE Technologies should remain in front in the near term.

User Recommendations

Users should look at the big picture when considering a new business partner. The dip in Catalyst's earnings results primarily from short term reorganization and write-offs that should be resolved within the next four to six months. Companies in retail, consumer packaged goods, or industrial technology should be encouraged by the prospects offered to Catalyst for future growth through its partnership with SAP.

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