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Carburton Street, London -- BATM Advanced Communications (LSE: BVC) issued a revenue warning today. Not a profits warning, but a statement that its turnover would fall short of market expectations. The market took fright and investors sold in their droves. The company expects full year revenue to come in at around $92m instead of $104m-$110m. Chief executive Zvi Marom was keen to stress pre-tax profits for the full year would meet market expectations.
So why did the shares fall today?
Corporate strategists are interested in the relationship between a business and its customers and suppliers. This branch of management is known as "value chain analysis" and tries to understand how a company interacts with its competitive environment. Clearly, BATM is doing well on the sales side of the equation but not faring that well when it comes to locking in its suppliers.
In today's statement, Zvi Marom blamed German chipmaker Infineon for the delay in delivery of its order of small transceivers. BATM also said it would not be buying optical components from the German company in the future.
Therein lies the problem. BATM is a small player in a very large fibre optic market and as such will find itself marginalised by the larger manufacturers. To get things into some sort of perspective, Infineon posted revenues of €7,283m (£4.5b) for fiscal year ended September 2000. This compares with BATM's estimated turnover of $92m (£76m) for the coming year. Evidently, BATM is small beer in the eyes of the German chipmaker, which boasts Siemens, Compaq Computer (Nadsaq: CPQ), Lucent Technologies (NYSE: LU) and Schlumberger (NYSE: SLB) as its key accounts. In fact Siemens accounts for nearly 17% of Infineon's turnover.
All is not lost!
This was a costly lesson for the young Israel-based high technology company. Zvi Marom was right to ditch his supplier and look for others who would be more likely to give his company a better level of service. BATM needs to take a critical look at how it could improve its supplier value chain to avoid pitfalls of this type in the future.
Where Next?