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Profiting from the Year 2000 bug

The Year 2000 bug will be a nightmare for some companies, but a boon to others. Some analysts suggest that Y2K fix-it vendors will be a wise investment in the future.

If you believe the doomsayers, the Year 2000 problem will cause havoc for companies and federal institutions increasingly dependent on their computer systems. The upside, if you believe Wall Street, is that the so-called millenium bug will be a moneymaking opportunity for a handful of software makers and consulting firms.

The question for investors hoping to cash in on the trend, say analysts, is whether those companies will stick around after the year 2000 passes by.

Many investors have been seeing significant returns from their 8 myths about the millennium bug / CNET special report investments in companies that provide tools and services to institutions trying to fix the Year 2000 (Y2K) bug. But in the next six months, "the investor community is going to begin to distinguish between those companies that will last through the year 2000 and beyond, and those that are just flashes in the pan," James Stearns, managing director of Cruttenden Roth, said at a recent New York conference hosted by the California-based regional investment banking company.

The conference drew representatives from about 30 companies, as well as several dozen industry analysts. Less than a week later, a similar conference, hosted by the investment banking company H.C. Wainright & Co., was held in Boston. Along with industry and financial analysts, the Boston conference hosted several organizations that provide tools and services to companies taking on the millennium problem.

Bruce Hall, vice president of marketing and strategic partnerships for Trigent Software and one of the keynote speakers at the Boston conference, warned that those rushing to invest in companies battling the Year 2000 bug should be wary of riding the Y2K wave. "Investors need to figure out what vendors will be still standing after the year passes," Hall said.

Although vendors at the Boston conference insisted they would remain in business after the beginning of the new century, industry analysts warn that making the transition from being a Y2K fix-it company to being a successful general tools and services provider could prove to be a challenge.

"All of a sudden you are really profitable...Then what? Do you have the ability to move into other markets?" asked Hall, a former research director for the Gartner Group who also has testified before Congress on the Year 2000 issue. "It's a really tough way to define a market strategically, because it is so big and so short-term."

The millennium bug stems from decisions by programmers of the 1960s to save memory space by using only the last two digits of a year instead of all four when referring to the date, a kind of shorthand that programmers continued to use until very recently. But when 00 comes up for the year 2000, many computers will view it as 1900 instead, causing widespread problems.

Patches and upgrades to new systems will resolve the bug for businesses with packaged software relatively easily. But for many of the older, COBOL-coded mainframes, and for the hard-coded software used by many cash registers, diagnoses and solutions will prove much more troublesome and costly.

Estimates from the Gartner Group have put the cost of dealing with the bug between $300 billion to $600 billion.

So while the Year 2000 issue potentially could be a huge headache for technology users, computer vendors and industry consultants are already cashing in on fears of Year 2000 crashes.

A study released by International Data Corporation expects the high-tech market to benefit from extra spending on Y2K-related problems, which may continue throughout the year. Existing information technology budgets are being exhausted, and additional cash from other areas is being shifted toward dealing with problems associated with the year 2000 changeover.

In fact, investor pressure may be forcing companies to adopt Y2K projects, said Peter DeJager, an outspoken pundit on the year 2000 bug who also spoke at the Wainright conference in Boston.

"Nothing more than a call from an investor saying, 'I'm going to pull my investments in your company unless you have a Y2K project' will make a company start one faster," DeJager said.

Such circumstances are welcomed by Y2K fix-it vendors, some of which described their products and strategies into the next millennium at the Boston conference. The theme seemed to be downplaying the significance of the year 2000 on the overall revenues of such vendors and underscoring the reasons why vendors should succeed beyond the dawn of the new millennium.

A spokesman for tools maker Accelr8 Technology, who said his company's market is helping firms migrate their computer systems from DEC/VAX platforms, or proprietary systems, to the Windows NT platform, explained the advantage Y2K fix-it vendors will have in the next century.

"Our belief is that the Year 2000 problem is forcing companies to face the modernization of their IT environments," the Accelr8 spokesman said. "...we plan to be in the migration business into the first decade of the new century."

Following the Boston conference, DeJager, who promotes Y2K awareness through radio and TV interviews as well as through his own Web page, told investors that vendors who survive into the post-Y2K era will be good investments in the future. "These companies," he said, "will know more about the computer systems in the companies they've brought forward than any others out there."

Reuters contributed to this report.