Interesting Y2K investment thoughts from Reuters. These guys STILL
don't talk about the embedded side = good for us!
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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:
*FEATURE-Y2K, a new buzzword in the Fed's lexicon (nN05242787)
*INTERVIEW-Fed Y2K testing to
start June 29--Gambs(nN05269158) *Figuring the Y2K--How tomorrow
becomes yesterday (nN0654711)
*Is your computer millennium ready? Find out (nN07148037) |
