InformationWeek

March 29, 1999

Financial News:
Tech Stocks Slide Over Y2K Fears

But new research says remediation work isn't having major effect on IT spending

By Bruce Caldwell

he year 2000 date-field problem may or may not have a major impact on IT systems on Jan. 1, but it's already playing havoc with the prices of technology stocks.

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Investors have been dumping shares of hardware vendors, enterprise software providers, and services companies due to concerns that their customers are shifting IT funds from new projects to year 2000 work. However, an InformationWeek Research survey conducted last week found year 2000 issues aren't affecting IT spending to a major degree.

Last week, Dell Computer's stock slipped nearly 10%, Hewlett-Packard dropped 8.6%, and IBM fell 3.5% over concerns about declining revenue. Enterprise resource planning vendor SAP and technology reseller Inacom Corp. both warned of poor first quarters.

SAP co-chairman Henning Kagermann said he couldn't forecast software license growth for the quarter because "buying patterns are less predictable at present than in prior quarters."

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One reason is clearly the year 2000 problem. IBM addressed the issue in its annual report, released last week: "Efforts by customers to address year 2000 issues may absorb a substantial part of their information technology budgets in the near term, and customers may either delay or accelerate the deployment and implementation of new applications and systems."

More than a third of the 100 IT executives surveyed by InformationWeek Research say their spending plans have changed since their 1999 budgets were created. They cite factors unique to their companies, as well as changing business conditions. But 44% of those whose budgets changed also say Y2K projects had some influence.

IT Spending Rises
Overall, 70% of the respondents say their IT spending has increased over last year. In all, 54% are spending more on year 2000 projects this year than last, and 55% say Y2K work is affecting their company's ability to complete other important projects. That's up from 37% in December.

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Among the projects being delayed are data warehouses, intranet applications, E-commerce initiatives, and extranets (see chart).

Not all the additional money is being absorbed by year 2000 work. Among the projects also getting more funds are Web sites and E-commerce (cited by 75% of survey respondents), servers (59%), PCs (48%), and enterprise software (44%).

At Volkswagen of America in Auburn Hills, Mich., year 2000 work took resources away from routine maintenance of legacy systems, says Pat McCabe, a senior systems analyst. But the automaker has accelerated data warehousing and client-server implementations to replace the legacy systems. The year 2000 budget did "creep upward," says McCabe, but the project is on schedule.

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Analysts agree that year 2000 work is a factor in how resources are allocated, but it isn't having a major impact on the earnings of big technology companies. Other factors, including changes in marketing strategies by PC vendors and the saturation of the ERP market, are also affecting tech companies.

For example, SAP's transition to extended ERP, E-commerce, and vertical industry products "is likely to take years and not quarters," says Chuck Phillips, an analyst with Morgan Stanley Dean Witter, which lowered its rating of SAP last week from outperform to neutral.

--with Tom Stein and Mary Hayes

Additional research:

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