For Year 2000 Service Providers,
Year 2001 May Not End Odyssey
Date: 3/11/98
Author: Norm Alster
Year 2000 work has boosted software and consulting
firms large and small. Most outfits that can fix the so-
called ''millennium bug'' are actually turning away
business these days. Some lack staff. Some worry about
the legal risk in last-minute rush jobs.
But what happens once the push is past in fixing
computers to read the years 2000 and beyond? And
when exactly will the Year 2000 rush end?
Some people in the industry expect the business to
remain strong well into the new millennium.
''I don't think this craze will end until 2002, 2003,''
reckoned Stephanie Moore, an analyst with Giga
Information Group in Cambridge, Mass.
That would be good news for firms like Computer
Horizons Corp. of Mountain Lakes, N.J. Computer
Horizons did over $70 million in Year 2000 work last
year. It has a backlog of $250 million of work to be done
over the next two years.
Senior Vice President David Reingold says he's not
worried about the prospect of a sharp drop in demand.
''This isn't a ski jump where you go to the end and fall
off,'' said Reingold. ''It'll increase through the year 2002.''
Not all Year 2000 service providers are so sure. Take
Unisys Corp.'s Information Services Group. Barbara
Babcock, vice president of marketing and strategy,
expects Y2K business to ''drop way off'' starting in 2000.
Tom McAndrew, managing director and senior partner
at El Segundo, Calif.-based Computer Sciences Corp.,
agrees. ''It will drop off significantly,'' he said.
Still, optimists and pessimists in the Y2K trade appear to
agree on one point: For the service providers, the
benefits of Y2K work will long outlive the work itself.
''It really is an opportunity to build a sustained
relationship with a client,'' noted Unisys' Babcock.
Year 2000 work has a multiplier effect. ''We generated
$1.70 of non-Y2K work for every $1 of Y2K,'' noted Brian
Keane, co-president at Keane Inc. in Boston. For his
firm and others, Y2K provides an opportunity to
''cross-sell'' services to a widened customer base, he
said.
Boston-based Keane did $150 million in Y2K business
last year and could do as much as $300 million this year.
Thereafter, the decline in business, Brian Keane figures,
will be gradual rather than steep. And with Keane using
the Y2K work to land new applications outsourcing
contracts, ''We fully expect to more than replace the Y2K
revenue stream.''
Computer Sciences expects other work to pick up as
Year 2000 work falls off, says McAndrew. ''Our mix
shifts all the time,'' he said. ''If it's not Year 2000, we'd be
doing strategic planning or applications replacement.''
With the century's turn, McAndrew expects firms to
spend more on electronic commerce and other services.
Computer Sciences has 2,000 to 3,000 employees doing
Year 2000 work.
But what does the future hold for companies that are
doing nothing but Year 2000 fixes?
Alydaar Software Corp. of Charlotte, N.C., expects to
boost revenue from last year's $11 million to roughly $75
million this year. ''I would say we're going to peak in '99,''
said Chief Executive Bob Gruder.
After that, Gruder expects a slow decline for a couple of
years. By '02 and '03, Y2K work should be ''off
substantially,'' he said.
Gruder's plan for dealing with the eventual decline? Use
the cash flow generated by Y2K work to make
acquisitions in other areas, notably systems integration.
So what accounts for the wide divergence in predicted
Year 2000 business volumes after the fateful year?
Optimists see a rush of late business from computer
users that haven't yet tackled the problem. And with
programmers hard to come by, some jobs simply can't be
completed in time.
Giga Analyst Moore also expects a late kick from
Europe. To this point, many European financial
institutions, for example, have had their hands full
preparing for currency unification. Year 2000 work has
been strictly back burner.
''The Europeans haven't begun to deal with it,'' said
Moore.
Rather than fix old code that couldn't tell one century
from the next, some firms initially planned to buy new
systems instead. But, noted Reingold, these computer
users are finding that they can't install the replacement
systems in time. So some are deciding to fix the old
systems after all, providing yet another kicker to Y2K
business.
Many firms with large computer bases are tackling the
Year 2000 problem with a process known as ''triage.''
Essentially, this involves prioritizing Year 2000 work.
Applications that simply must run trouble-free - order
and payment systems, for example - are fixed first.
Less-critical fixes could slip beyond 2000.
At this point, the optimists and pessimists part ways.
Optimists believe that this remaining work will cushion
any decline in Y2K work in the early years of the 21st
century.
But some pessimists argue that the noncritical work left
undone will be fixed as needed by the customers
themselves.
''My view is that anything they don't catch, they're
going to have to use internal resources to fix,'' said
Computer Sciences' McAndrew.
He also doesn't believe computer users will hire Year
2000 specialists to sit on-site, waiting for a system to
stumble on a 21st century date. ''For most companies,
it's not efficient to have outsiders on-site as
trouble-shooters,'' said McAndrew.
So McAndrew believes small firms that totally depend
on Y2K work could run into serious problems. ''Some of
these companies are going to disappear on Jan. 3, 2000,''
he predicted.
(C) Copyright 1998 Investors Business Daily, Inc. |
