FROM IBD today page A21
<What is Corporate America's New Year's resolution? Judging by the reawakening of Year 2000 stocks, companies are making commitments to fix date problems in their computer systems.
Up to 90% of business software is infected with the Year 2000 bug, estimates Gartner Group Inc..........Firms worldwide will spend $600 BILLION to fix the problem, according to Gartner.
But less than 15% of businesses have finished initial assessment and planning of their Year 2000 projects, Gartner says. It expects the remaining 85% to begin remediation and testing in the next 6 months.
"1997 was the year of assessment; '98 will be the remediation phase," said analyst Russell Welty of Hanifen Imhoff Inc. "People who started a little late are going to have to get their mission-critical systems done first."
Investors' interest in Year 2000 companies had waned much of last year as they wondered what would happen once 2000 had come and gone.
Those worries have subsided as clients scramble to become Year 2000-compliant. Most of the millenium players have more business than they can handle. And that backlog should last well beyond 2000, analysts say. Money is being poured into quick fixes, which will have to be resolved LATER.
"The quick and easy way just creates a lot of maintenance in the future, but that's where the industry has shifted," said analyst Alex Arnold of H.C. Wainwright and Co.
Investors boosted shares of tool makers such as Data Dimensions Inc, and Viasoft Inc. in early '97 but lost interest until a few weeks ago. Service providers like Keane Inc. and Analysts International Corp. have fared better.
The concern with software makers is that their products won't be needed after the conversions are done. Service providers, though, will be in demand to maintain the changes. Many service providers are striking long-term relationships with clients to help with the upkeep, analysts say.
"I think the whole sector of information technology services is now benefiting from Year 2000-related expenditures," said analyst Paul Shain with Robert W. Baird and Co.
About 50% of Viasoft's business now comes from Year 2000 sales. That's up from about 25-30% a year ago, said analysts Kris Tuttle of Soundview Financial Group.
Tuttle's not worried that Viasoft will see a slowdown after the year 2000 conversions. "They have quite a few products, and most of their existing products have been around for upwards of 10 years," he said. "Most of the technology will be needed after 2000."
But Punk Ziegel and Co. analyst Tarun Chandra voices some concern. "If you have 50% or more revenues coming from Year 2000, it becomes that much harder to backfill that steady stream of revenues."
Even so, he doesn't see a precipitous drop in Year 2000 spending after 1999. The major players "all have businesses that will outlast Year 2000," he said.
Welty of Hanifen Imhoff Inc., who follows service providers, agrees. "The opportunity is still tremendous past Year 2000-I.T. demand will remain high in the years to come."
He thinks the service providers will rally in '98. The '97 dropoffs in stock price resulted from all the talk about Year 2000, which didn't translate into a great deal of revenue in the third quarter.
"Where's the money being spent? The reality is, there wasn't money in the budgets," Welty said. "This is the FIRST PART of the MONEY you'll see being spent to be contracted for Year 2000 work to be done."
Computer Horizons Corp., a service provider, is breaking out of a 24-week base. It has IBD's highest-possible Earnings Per Share rank of 99 and a RS of 87. Profit growth has accelerated to the triple digits the past two quarters, from 0% to 23% to 138% to 130%. The stock fell 44% from its July peak through Nov 12, but has rallied about 71% since.
Analysts International, which has a 90 EPS rank and 91 RS, rose 89% last year. The service provider has posted double-digit earnings growth of at least 27% and sales growth of more than 29% the past five quarters.
Keane Inc. is at new highs. Earnings have grown steadily the past four years. Analysts expect a 76% rise in '97 and 36% this year. EPS rank is 97 and RS is 96. Sales expanded 22% to $467 Million in '96 from $383 million in '95.
Among other Year 2000 stocks, Ciber Inc., Information Management Resources Services Inc. and TSR Inc. all have EPS ranks of at least 98 and RS of 86 or more.
With the clock ticking for firms to make their conversions and a new budget cycle this year, Chandra remains bullish on the sector. "We continue to think that the earnings drive we have seen will continue into 1999 and beyond," he said.
He thinks ernings growth can expand into the next seven to eight years from merger activity and higher spending by companies on I.T. issues.
Another area that both the tool makers and service providers could benefit from is the proposed European currency conversion. Analysts say most Year 2000 firms are at least dabbling in the project, because it's a similar problem to what they're dealing with now.
It's difficult at this point to gauge how much business a company can get from Europe, with no concrete details yet available. "I think without a real firm time line of when the European Monetary Union goes into effect, we're uncertain of the scope and scale," said Shain. "But it's indicative of the need for these companies."
Viasoft has been working on currency conversion products. And many European companies are looking to do both Year 2000 and currency conversions, Tuttle says.>>>>>>>
That's all folks-in basically its entirety. Too dumb to figure out what to excerpt for ya'll.
I hope IBD don't come looking for me.
MChen
PS-That's a whole lot of transcribing. WHEW!! |
