Catalyst International to Tread Water With SAP Through 2000

  • Written By: Steve McVey
  • Published: August 30 2000

Catalyst International to Tread Water With SAP Through 2000
S. McVey - August 30, 2000

Event Summary

Warehouse management system (WMS) vendor, Catalyst International, recently reported fiscal results for the second quarter 2000. Total revenue was $11.1 million, an increase of 7.2% over the first quarter, but slightly less than revenue of $11.5 million for the second quarter of 1999. License revenue decreased by 6.7% from the first quarter of 2000 and fell by an even more alarming 30% from the second quarter of 1999. Services revenue, derived primarily from modifications implemented for clients rose to $6.9 million, a slight increase over the first quarter figure, $6.2 million.

Figure 1.

The only financial highlight on Catalyst's second quarter report card was profitability, which topped $603,000, an increase of 128% over the first quarter. The strong profits notwithstanding, its recent results are disappointing in that they fail to demonstrate the efficacy of the SAP alliance.

Market Impact

Masked by somewhat feigned exuberance over its earnings is the fact that Catalyst's license revenue declined 30% from the same quarter one year ago. While Catalyst should be congratulated for improving profitability, the Wall Street and user communities were clearly expecting to see more revenue from its pact with ERP giant SAP.

Though some observers might be tempted to pronounce the SAP alliance dead, a few more quarters of operation are necessary to allow a valid determination to be made. Catalyst admits that the deal, now nearly one year in existence, has not produced results as quickly as previous estimates held. The company recently revised downward its revenue projections for 2000 to $42 million, which is simply twice their first half revenue of $21.4 million, implying a flat growth curve for the remainder of the year. Though this may not fall outside the realm of possibility, considering that the second half is usually stronger than its first (with the exception of 1999 due to Y2K), it clearly was less than Catalyst originally expected.

Catalyst faces a Herculean task in educating SAP's sales force about its WMS products, which is critical for enabling them to sell them efficiently without placing an unmanageable burden on Catalyst. In the meantime, Catalyst has scrambled to develop new Internet offerings, specifically its online marketplace offering, Catalyst-Exchange, to address a conspicuous gap in its Web strategy (see TEC note, "Catalyst International"). Spread thin and faced with increasingly competitive market pressures, Catalyst is unlikely to see any real growth in new license revenue during the second half of 2000, though we feel its revised target to be attainable (60% probability).

User Recommendations

For companies in retail, consumer packaged goods, or industrial technology, the Catalyst WMS products offer a rich set of features that can be customized according to specific customer requirements. We encourage users to include Catalyst on a short list for Unix WMS selections. SAP users who are unsatisfied with's WMS capabilities will certainly wish to evaluate Catalyst, but will have to wait until 4Q 2000 for general availability of the dedicated interface between the two applications. These users should view the stated timeframe for the release with caution, however, as Catalyst had previously announced an interface would be available in 3Q 2000.

Currently, Catalyst uses third party software from EAI (Enterprise Application Integration) vendor Mercator to integrate WMS and SAP R/3. Provided Catalyst can one day refine its ability to execute alongside SAP, SAP users should find the alliance to be a low risk alternative to other SAP WMS combinations.

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