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CEO comments in today's WSJ not encouraging------------------->
Millennial Computer Menders
See Work Orders Start to Fall
By JON G. AUERBACH
Staff Reporter of THE WALL STREET JOURNAL
New Year's Day is still 10 months away, but millennial computer
menders are already suffering from a hangover.
Fear of a year-2000 disaster, of course,
is still very much alive, with nervous
calendar watchers anticipating that
critical computer systems will pop a
sprocket and shut down on Jan. 1. The
U.S. Treasury is printing extra cash for a possible run on the
banks by people worried about automated tellers, and the Red
Cross is recommending that Americans store alternative-fuel
stoves and three days worth of nonperishable foods and water.
But it is beginning to dawn on the computer industry that it's time
to think beyond the New Year. Spending to fix Y2K software bugs,
estimated to total about $300 billion, peaked last year. Shares of
many of the consulting and services companies that feasted on
Y2K have plummeted. Big corporations have slashed internal
staff assigned to Y2K, and a lot of freelance software consultants
are hitting the streets. Those who can't diversify face imminent
obsolescence.
Howard Rubin, a consultant in Pound Ridge, N.Y., who used to do
a lot of year-2000 work, says he is now focusing on helping
companies develop Internet-commerce software. "It's the next big
wave," says Mr. Rubin, who estimates that year-2000 work now
takes up less than 25% of his time.
Companies whose main business is
troubleshooting the computer bug are
headed for a rough time, says James K.
Sims, chief executive of
computer-services provider Cambridge
Technology Partners Inc. Mr. Sims
predicts there will be a wave of
consolidation in the services industry as
Y2K specialty firms are snapped up by
others. He says Cambridge avoided
Y2K business because of the short life
of the bug.
Even industry giants could end up with a Y2K hangover. Because
many companies are delaying buying new software and
hardware until after the Y2K storm blows over, analysts expect
big service companies, which typically install and maintain large
systems, to face a slowdown as D-day draws nearer.
Gary Helmig, an analyst at SoundView Technology Group Inc.,
expects that International Business Machines Corp. and
Electronic Data Systems Corp. will both be affected by such a
slowdown in the second half of this year.
A spokesman for IBM's services division didn't return calls
seeking comment. A spokesman for EDS says the company
thinks business might actually increase this summer, as big
customers start contracting post-year-2000 services work.
Some companies have already trimmed their Y2K forces. At the
height of its Y2K efforts last year, Consolidated Edison Inc.
deployed the equivalent of about 100 full-time workers on the
problem. Some fixed code at the utility's headquarters in New
York, and others were in the field making sure a myriad of small
digital devices that regulate electricity flow won't shut down in
January. The company now has about 20 workers on Y2K and in
June it plans to scale back even further.
'Virtually All Done'
The utility has already spent about 85% of the $27 million it plans
to dish out on Y2K work. The big push "is virtually all done," says
Robert E. Hedlund, Con Ed's director of technology services. It is
still unclear how fast the Y2K business is evaporating.
A recent survey by BT Alex. Brown analyst Edward S. Caso found
that many companies are shifting their Y2K spending this year to
in-house technicians, depriving service firms of revenue. Mr.
Caso believes that revenue forecasts from the leading year-2000
service providers are overly sanguine.
Wall Street appears to agree. Since last April, a high point for
many computer services stocks, Keane Inc. shares have dropped
about 55%. Shares of IMRglobal Corp. have lost 60% in the
same time period, and Computer Horizons Corp. stock has
plunged about 75%.
Keane acknowledges that many investors are nervous about its
ability to add non-Y2K businesses. But "we knew from the
beginning" that Y2K "was going to be a great ride for a few years
and that's it," says company co-President Brian Keane.
Keane expects that Y2K sales will account for about 20% of
revenue this year, down from a peak of 37% last summer. More
than a year ago, the Boston-based company stopped giving its
sales force bonuses for bringing in new year-2000 business.
Keane and other computer-service firms are hustling to come up
with non-Y2K business from areas such as custom software
development and outsourcing, or taking over customers'
information-technology functions. Mr. Keane says 60% of the
companies that hired Keane for year-2000 work went on to enlist
them for other services work. Convenience-store company
WaWa Food Markets Inc. signed up Keane's programmers to
ready its computers for the millennium back in 1997. Now WaWa,
of Wawa, Pa., is using the services company to help it find
software it needs to help it run its new gasoline business.
In the middle of last year, Computer Horizons' Y2K revenue
peaked at about 33% of overall sales, and has been declining
steadily since. How much new business the company can find to
replace it "is the big question mark," says the firm's chief
executive, John J. Cassese. He projects that Y2K business will
account for just 10% of estimated 1999 sales of $620 million.
Mr. Cassese says the Mountain Lakes, N.J., company is looking
to build software that lets companies sell products over the
Internet and better coordinate manufacturing.
Vincent Addonisio, senior vice president of IMRglobal,
Clearwater, Fla., says he expects Y2K revenue to drop to about
30% of revenue this year, down from a high of above 50%. "We
don't see an event where, as of Dec. 31, 1999, we have no
business at all," he says.
--Bill
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