It is very much for real and it has already begun to impact the market.
If you believe that the tech sector has been the driving force in this bull market, then you might also believe that when a fundamental change in enterprise SW/HW buying patterns occurs, it might negatively impact the overall market as well.
Y2K causes such a change in buying patterns. Contact any CIO, VP of IS, Director of IS or IS Manager. Ask them what is on their agenda for this year and next year. Most will include Y2K preparations on their list of 5-7 major objectives.
So what?
Well, it means that staff and resources aren't being used elsewhere on more productive endeavors. It means they can't do other large projects like an SAP installation or a sales force automation project or upgrade all their desktops to Windows 98. It forestalls spending on LARGE projects that might not be done in time for 1/1/2000. Most IS executives want their shops to be STABLE and have as little in flight on 1/1/2000 as possible.
For companies with ultra-high PEs in the tech sector, this spells doom. We have been calling it Asia and Clinton and Japan and Brazil. Yes these too are factors, but the linkage to a Y2K related slowing in sales hasn't come into widespread acceptance. Only a handful of these enterprise HW/SW companies are admitting to this sales slowdown. Those with large service revenue bases are least impacted. Those without will be devastated. Long implementation cycle products are impacted first, short cycles (PCs, routers) last.
It has also fueled the tech sector boom over the past two years. Companies have RACED to upgrade PCs, install new back office software, replace aging desktop application suites, all in an effort to become Y2K compliant. What happens when they get there? This burst of spending ceases. Yes there will always be laggards and new companies buying products, but the HUGE amount of product moved by industry leaders like CSCO, DELL, MSFT, ORCL, SAP is in part due to our need to prepare for Y2K.
We are now at the point in time where companies that have acquired these products are installing them. Companies that have not in many cases no longer have the time and are making modifications to existing systems.
Am I just a raging Y2K fanatic? No.
Until July of this year I was fully invested and at my margin limits in tech sector leaders. But the warning signs began in April. The first was Manugistics. It was chalked up to inability to execute on their part. They have continued to fall. Many well ahead of the sales slowdown, but in anticipation of it.
I have managed large IBM shops for more than 10 years, spent another 10 or so in non-IBM shops building infrastructure and 3 selling for Oracle in very large account settings. The macro-economic effect of Y2K on enterprise HW/SW sales is absolutely for real.
It has some rather nasty consequences. For example, it means we will NOT have a Q1 tech stock rally next year, as we have had the past two years. Too much about these companies 1999 earnings will be known by then and investors will be gun shy. Without a Q1 rally, the NASDAQ, largely propelled by the tech sector big caps will continue to sag throughout 1999. Sub 1000 isn't an impossibility.
Yes, there are some exceptions. Not many. How much money can you pile on CSCO or DELL or ORCL (perhaps) before they are so overvalued they must come tumbling down as they did several weeks ago?
Yes, Y2K is for real. Very real. And this is just one example of its impact.
BTW, the notion of a Y2K stock is ludicrous. This post has nothing to do with those vendors calling themselves Y2K companies. They exploit the topic, sell products that largely don't help resolve Y2K problems and ALL have very short lives. How do they derive revenues after Q3 next year? They don't. Don't confuse a software/hardware company impact by slowing sales due to Y2K with a company that sells products for detecting and fixing Y2K related software problems. They aren't the same thing. You can't buy stock in a Y2K company to profit from what is at hand. They ran up well in advance and can only come down from here.
ttf |
