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Tech market to rebound in '98

Bears may continue to run through the technology market in 1997, but one industry analyst expects the bulls to charge back in 1998.

SAN FRANCISCO--Bears may continue to run through the technology market in 1997, but Hambrecht & Quist research director Bruce Lupatkin expects the bulls to charge back in 1998, as corporations make wholesale changes to their infrastructure.

Corporations are evaluating their technology needs, especially as the year 2,000 issue draw nears, where they will have to delve into their legacy systems to change code to accommodate the extra digit that comes with the turn of the century or opt to launch a massive upgrade to their systems.

"The bear market is not because of interest rate fears," Lupatkin said during the annual Hambrecht & Quist Technology conference here in San Francisco. "It's because of product transitions in the corporate market."

"They're looking at their exposure and whether to patch or replace. Most will replace and, as a result, it's taking longer for companies to make [their purchasing] decisions and it's being decided at much higher levels than the IS manager," he said.

But as decisions are made throughout 1997, Lupatkin said he expects companies to begin placing their orders for 1998.

"This will hit about the time that tech investors will throw up their hands," he said.

The bear market started to make its presence felt in mid-1995 with the semiconductor industry, which was followed by a rolling correction through Internet and networking stocks.

Lupatkin said he expects there to be fundamental improvement in December 1997.

The Nasdaq, which is laden with technology stocks, is virtually at the same level of a year ago. The market closed at 1217.03 today, up 7.74 points over Friday. Over the course of a year, the market has climbed to a 52-week high of around 1440 in January from a low of around 1020 last July.

Although the year 2,000 issue is expected to drive a major revenue swell for tech companies, those businesses that specialize in resolving the millennium bug issue may not gain a big boost from this event.

"Companies are looking for complete solutions, rather than just jumping into the code and make a few changes," Lupatkin said.

Industry analysts estimate that six percent of the companies' revenues will be earmarked for solving the year 2000 problem, but that only five to ten percent of companies have fixed the problem to date, said James Schmidtt of Westcountry Financial in an earlier interview.

Companies that are expected to first benefit as corporations make their technology decisions are software companies like Netscape (NSCP), Microsoft (MSFT), and IBM (IBM), followed by the applications software vendors, database makers, bandwidth companies, and, finally, hardware vendors, Lupatkin said.