The Worldwide Financial Impact of the Y2K Problem
Hi Tim:
Here are excerpts from a recent IDC report on Y2K problem and the estimated spending patterns for regions around the world.Very interesting to see the worldwide patten in projected spending particularly in hardware,it reveals some interesting facts,I thought, and shown in bold.
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IDC Executive Insights
Analyst: Thomas D. Oleson, Research Director; Luisa Bordoni, Director
IDC Opinion
What are the true expenses associated with the Y2K problem?
IDC has been on top of year 2000 (Y2K) spending since the company's 1996 research study of 500 U.S. executives. IDC's 1998 results from the Y2K survey of U.S. companies, while increasing our estimates 6.1%, confirm our earlier estimates of combined internal and external IT spending. Total Y2K spending in the United States from 1995 through 2001 will be $121.96 billion, of which $66.30 billion will be external spending (including services, hardware, and software). The $121.96 billion Y2K estimate represents only 2.6% of total IT spending in the United States over the six-year period......
....IDC estimates that the worldwide Y2K spending from 1995 through 2001 will be $296.74 billion, which represents only 2.9% of worldwide IT spending. Worldwide external IT spending will total $161.78 billion over this period.
Methodology
IDC's Y2K research is based on a number of in-depth surveys in the United States and Europe, the sample sizes of which are sufficiently large for figures to be accurate within 5% of the estimate. Research data was also supplied by IDC offices in Tokyo, Singapore, Sydney, Australia, Mexico City, and Buenos Aires. Additional Y2K data comes from IDC's 1998 Global IT Survey, based on nearly 12,000 interviews with people at small, medium-sized, and large businesses worldwide. Respondents to this survey represent 80% of all technology spending in the world. The annual Global IT Survey studies the spending and direction patterns of businesses worldwide.
IDC's year 2000 data addresses all information technology spending in companies: internal and external services, hardware, and software. It does not address non-IT expenses, such as legal fees or chips embedded in non-IT equipment.
All dollar figures expressed in this document are fixed at 1997 exchange rates.
Note: All numbers presented in this document might not be exact due to rounding...............
In early 1997, IDC published its estimate of total Y2K spending for the United States at $115 billion. We estimated that the figure would be close to $250 billion worldwide. Today, because of poor testing practices and project slippage, we have increased the estimate in the United States to $121.96 billion. Worldwide, the figure increases more dramatically, to $296.74 billion. This is attributed in large measure to the European continent, where many firms are faced with the dual challenge of the euro and the Y2K remediation......
The United States
Hardware spending in the United States from 1995-1997 was largely mainframe oriented. Spending from 1998-2000 will be mainly desktop and server oriented.....
Some companies will wait until 2000 to see if they actually need to replace desktop hardware and related software.
Europe
European technology is older than technology in the United States, and therefore there will be a higher percentage of software and hardware replacements there than in the United States....
Asia/Pacific
The Asia/Pacific region covers India, Australia, and Japan.
Japan accounts for about half of Asia/Pacific IT spending.
A certain number of Y2K fixes in Japan were associated with the date changes that took place when the new emperor ascended to the throne. That money is combined with 1995 figures.
A large proportion of Japanese applications are mainframe centric, with little networking between systems. Distributed processing is not common throughout the region. Japan has few distributed processing applications.
India has a high percentage of Unix applications and fewer Y2K date problems.
Australia and New Zealand are slightly ahead of Europe in their Y2K readiness — more like the United Kingdom.
The Rest of the World, (ROW)
ROW represents Eastern Europe, the Near East, Latin America, Africa, and Canada.
Y2K spending as a percentage of total IT spending in the ROW will be proportionally the same as spending in the United States, Europe, and Asia/Pacific combined.
Spending in the ROW adds up to only about 6% of the combined United States, European, and Asia/Pacific spending.
The ROW segment is a small part of the total spending on Y2K because, with the exception of Canada, technology has not penetrated society to the same extent as in other regions.
Worldwide
For the United States
United States Spending on year 2000 activities will peak in 1998.
The year 2000 will see significant activity from bug fixes in the first quarter and then trail off rapidly. In 2001, we will see some fixes in the early months for bugs in year 2000 annual reports and an occasional bug in logic not referenced in 2000.
External services spending and software spending for Y2K are a larger percentage of the Y2K budget than they are of total IT spending, running between 35% and 36% ahead of IT spending as a whole in the same categories.Hardware spending for Y2K is 61.2% less than IT hardware spending overall..
For Europe
Europe's 1997 Y2K efforts in large companies were slow to start and were well behind the United States. Their efforts will peak in 1998, a few months behind the United States, but continue into 1999 at a faster pace than in the United States.
IDC research has depicted a significant increase in Y2K project funding in Europe during 1998.
Europe is more dependent on packaged software than is the United States, so the overall percentage spent on Y2K software (17.3%) is greater than in the United States (15.5%).
IDC research has shown that European companies prefer to do much of their Y2K work in-house rather than use a services provider. This results in a lower percentage of Y2K spending being dedicated to outside services than in all other segments of the world.
In 1998, Y2K spending in Europe is greater than the Y2K spending in the United States by $1.4 billion because of the combined effort on financial applications with the euro project that must be ready by January 1999.
For Asia/Pacific
At the end of 1997, Asia/Pacific led Europe in total percentage of spending. However, the economic downturn in the Far East will slow its completion rate, and Europe will catch up in 1998.
Low salaries in Asia/Pacific compared with Europe and the United States make hardware and software look more expensive as a percentage of total Y2K costs; normalizing salaries would bring hardware and software percentages closer to those of Europe and the United States.
For ROW
The ROW segment is a small part of the total spending on Y2K because, with the exception of Canada, technology has not penetrated society to the same extent as in other regions.
The ROW Y2K spending pattern shows that the ROW sector is behind all other sectors in its project efforts.
The awareness of Y2K issues, particularly in Latin America, trails all other sectors.
Worldwide
World spending will peak in 1998 and continue at a high level in 1999. The year 2000 will see significant spending continue.
External services will peak in 1998 as emphasis shifts from large mainframe renovation to desktop and client/server applications in 1999. Mainframe testing involving external services will continue into 2000.
Hardware and software spending in 2000 will reflect companies that took a wait-and-see attitude.
Implications for IDC Near-Term Predictions
The 1998 Y2K survey results were shared with all key IDC analysts early on, and they have contributed their knowledge of the markets they follow. In some cases, increases were created by the Y2K projects, but these are largely offset by the reductions companies have made in other areas. Given these spending reductions that offset Y2K spending (see Table 2), IDC believes that the Y2K projects have not affected overall IT spending in U.S. companies.
Install/upgrade major software application 30.9 31.0
Install/upgrade systems S/W like NT or MVS 30.9 21.7
Install/upgrade development tools 26.5 17.6
Install/upgrade server or host hardware 24.5 19.9
Purchase/upgrade end-user hardware 23.2 22.8
Install/upgrade Internet/intranet applications 20.0 14.1
Install/upgrade networks 19.4 18.8
Source: International Data Corporation, 1998
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Beyond the Y2K Crisis
From survey results, IDC has determined that the year 2000 expenses were centralized in information services organizations' operating budgets, which have increased over the past three years by an annual CAGR of about 14%. While a number of projects have been deferred in order to fund the Y2K project, we do not predict even level funding for the IT organization in 2000 and 2001.
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... However, it is important to note that total spending on technology will still increase because a very large percentage of total technology spending occurs outside the centralized IS organization. In large companies within the United States, business unit spending represents 47% of total IT spending.
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In the aggregate, large companies' central IT budgets may well settle back to a level below the 2% of corporate revenues that had been average for 1997 and 1998. We expect small companies, with IT spending currently at 4.8% of revenues, will also slip back to between 3% and 4%.
Finally, IDC predicts that corporate IS budgets going into the next century will return to near-1996 levels when measured as a percentage of corporate revenue, while direct technology spending by business units will increase....
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