Hope CRYSF moves higher now. Article out is positive on CRYSF.
Thursday May 7, 1:32 pm Eastern Time
Some investors see Millennium Bug as opportunity
By Scott Gerlach
NEW YORK, May 7 (Reuters) - Most people call the Millennium Bug a problem. But
some investors, particularly those with an appetite for risk, prefer to see it as an
opportunity.
U.S. companies will spend at least $50 billion to update old computer equipment and
software that cannot handle dates beyond December 31, 1999, according to
conservative estimates.
Worldwide expenditures for the Year 2000 problem, according to the Stamford,
Conn.-based Gartner Group consultancy, could total $300 billion to $600 billion.
Because much of this spending will flow to firms involved in solving the century date
muddle, portfolio managers see a terrific investment opportunity in certain kinds of
technology stocks.
''The very aggressive plays here are in the software component,'' said Brett Barry, a
domestic equity portfolio manager at Bailard, Biehl & Kaiser.
Software developers aiming a ''silver bullet'' at the Millennium Bug represent a risky,
pure-play Year 2000 investment, Barry said.
These companies sometimes have shaky cash flow and tenuous marketing strategies,
and they could see their raison d'etre evaporate after midnight, January 1, 2000. But
pick the right stock, one that
shoots the bug dead, and rewards could be enormous.
''It's kind of like biotech investing,'' Barry said. ''There's probably a lot of cash burn
going on in this area, and probably one or two (companies) will be successful. Certainly
you'd need a basket of
those type of stocks to really sleep at night.''
Two examples, Crystal Systems Solutions (CRYSF - news) and Peritus Software
Solutions Inc. (PTUS - news), represent extremes of the genre.
Israel-based Crystal Systems, which develops software related to European currency
convergence as well as the Year 2000 problem, recently reported record first-quarter
earnings it partially
attributed to marketing successes.
Massachussetts-based Peritus reported a first-quarter loss, saw its shares fall to
near-record lows and faces class-action lawsuits charging it artificially inflated its stock.
''Apparently they had a real good product, but they were deficient in the marketing
area,'' said Eric Efron, co-manager of USAA's Aggressive Growth Fund.
The moral according to Efron: Investors must ferret out firms with solid, sustainable
business plans because a killer product might not sell itself.
Investors who cannot stomach the risk of pure-play millennium software firms can still
make Year 2000 bets by targeting diversified service companies for whom the bug is
merely one of many business
aims.
Such firms include Computer Associates (CA - news), Electronic Data Systems Corp.
(EDS), Computer Horizons Corp. (CHRZ - news) and myriad other firms.
''Right now, people seem to prefer the service companies rather than the companies that
provide the software solutions themselves,'' Efron said. ''Some of these have been in
business for 20 or 30
years.''
But both fund managers acknowledged that valuations appeared rather high in the
technology service sector.
''My feeling is that the service-type stocks have for the most part been very hot -- most
of the easy money has been made,'' BBK's Barry said. ''I would consider buying these
only after considerable
weakness.''
A final investment option, perhaps the least risky, might be less apparent. As businesses
ponder the vast expense of simply fixing their old software, many are choosing to
revamp their data processing
systems completely.
Obviously, this phenomenon proves a boon to makers of networking hardware and
software, companies such as Oracle Corp. (ORCL - news), IBM (IBM - news) and
Germany's SAP AG
(SAPG.F).
But less obviously, it could provide eventual cost savings to those companies' clients,
boosting productivity at firms that junk their old systems and adopt new technology.
''There are significant opportunities if we see this wholesale shift, and in the long run that
might be the cheapest fix of all,'' Barry said.
For related stories, please go to:
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*INTERVIEW-Fed Y2K testing to start June 29--Gambs(nN05269158) *Figuring the
Y2K--How tomorrow becomes
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*Is your computer millennium ready? Find out (nN07148037) |
