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.
Fig. 1
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:
-
An unsuccessful attempt at utilizing purchased development
of ISI (Information Strategies, Inc.) for an NT version of its Catalyst
WMS product.
-
Premature expansion of its service and maintenance staff
in the U. S. and overseas.
Fig. 1
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.