S.
McVey
- May
3, 2001
Event
Summary
Catalyst International, a fixture in the warehouse management
system software industry, warned investors that it would report a first
quarter loss of $0.53-0.60 per share. The company cited four factors behind
the results: a weaker global economy, longer sales cycles across targeted
vertical markets, lower margins resulting from competition, and customers
opting for outsourced solutions. The announcement comes less than one
month after President and CEO Sean McGowan resigned from the company.
McGowan's
departure is the latest in a series of reorganizations and management
changes that has left the future of the $35 million vendor in doubt. Catalyst's
revenues grew at a moderate pace during McGowan's tenure that began in
1997, while license revenue failed to meet the SCE industry average of
25-30% (see Figure 1). A hallmark of McGowan's strategy was a complete
reliance on WMS to the exclusion of peripheral applications such as transportation,
labor management, and order capture. This and an ineffective SAP
alliance contributed to the expected shortfall.
Figure
1.
Market
Impact
Signed
in 1999, the SAP alliance made Catalyst the preferred provider of warehouse
management systems for SAP's LES (Logistics Execution System).
SAP provided some core WMS functionality with R/3 but had been criticized
for its inadequate depth of offering for certain high volume industries.
Given that deep functionality was Catalyst's strong suit, its inability
to capitalize on this alliance is a disappointment. Though most analysts
predicted the SAP alliance would jumpstart the stalled Catalyst, others
raised concerns over the costly reorganization and potential alienation
of other partners that might result (see TEC's note,
Catalyst International to Tread Water With SAP Through 2000).
The
reorganization of its sales and marketing teams in May 2000 involved the
addition of four new executives but failed to supplement the existing
sales force with sufficient resources to support its commitments to SAP.
Prior to that, Catalyst spent $3.6 million as part of a general corporate
restructuring to accommodate the SAP alliance. The combination of these
costs with a disproportionately small increase in revenues is just one
factor responsible for Catalyst's eroding profit base. In addition, Catalyst's
responsibilities to SAP have resulted in a lack of other large ERP alliances
in which to diversify its market presence and win deals.
SAP
has proven to be an extremely demanding partner. Now that McGowan has
stepped down, Catalyst should protect itself from demise after the completion
of the SAP alliance in 2003 by developing or acquiring functionality peripheral
to its WMS, such as transportation management, order management, or labor
management. The four factors it cites relate to external competition within
the WMS and SCE markets, which will only escalate as time goes on.
Figure
2.
User
Recommendations
Its financial troubles notwithstanding, Catalyst's product still has a
wealth of functionality to offer users in high volume industries that
may have unique operating practices. Prospective clients should include
Catalyst on a short list with other WMS vendors and rate its lack of other
desired components such as transportation management as requiring third-party
support. Due once again to its SAP agreement, Catalyst WMS runs only on
Unix platforms although a web browser interface is available that can
serve as a bridge to Windows-based clients.