So much for dire predictions that the Y2K bug
would throw the U.S. economy into a tailspin. A subtle economic
boost may instead be the result.
Following a dearth of major computer problems from the date
changeover to 2000, many U.S. businesses are lifting freezes on
buying new technology some earlier than planned to install
computers and software key to building Web sites and speeding
communication with suppliers and customers.
Other companies are reaping an unexpected benefit of scouring
for Y2K glitches the elimination of outdated technology that had
bogged down networks with a hodge-podge of software applications
That's welcome news for tech companies, who have faced a
harrowing plunge in their shares this week as investors cash in on
the industry's remarkable rally during 1999. The selloff has sent
the technology bellwether Nasdaq composite index down almost 10
percent in just three days.
Predictions now being made of a tech-related boost to the
economy contrast with those of last year when many economists
warned computer disruptions from Y2K would curb growth.
"The warnings were very widespread," said First Union Corp.
economic Mark Vitner. He predicts 3.4 percent economic growth this
year, down slightly from 4.2 percent in 1999 due to higher interest
rates crimping new home sales.
The downside of Y2K was scarcely noticeable some hotels and
other travel-related industries reported weak bookings as fears of
disruptions kept people close to home.
But the emerging upside a burst of tech spending could help
turn around prospects for sellers ranging from IBM to PC maker
Gateway to the PeopleSoft software company, invigorating a key U.S.
"A lot of people were holding back," said John Gantz, an
analyst with researcher International Data Corp. IDC found that 37
percent of 2,100 North American companies it surveyed deferred
spending last year on non-essential technology projects unrelated
to the Y2K glitch.
"We're talking about billions of dollars of spending that was
withheld," Gantz said.
Overall U.S. technology spending is expected to increase by a
robust 8.3 percent to $417 billion this year, IDC says, slightly
lower than last year's 9.5 percent growth largely due to price
drops in computers.
Other factors will aid technology spending this year. Many
companies are expected to buy Microsoft's newest operating system
software, the Windows 2000 program for business computers, which
comes out in February. But a lot of money will shift from fixing
Y2K bugs to buying computers and software key to running Web sites
and online connections with customers and suppliers.
Typical is American Re Corp. The Princeton, N.J.-based insurer
had frozen spending Oct. 1 on technology not needed to fix
glitches. Instead of lifting in March, as planned, the freeze will
thaw in the next two weeks amid a lack of any problems, said
Douglas Paige, vice president of information technology.
The funds will go to creating and buying applications to help
American Re exchange information and conduct transactions with
other insurers and agencies, replacing a patchquilt of less
efficient methods such as sending faxes and making telephone calls.
The insurer also will lease 1,400 new desktop and laptop computers.
Merrill Lynch & Co. had limited spending since mid-October.
While the company launched an online trading Web site last month,
it held back from new mainframes and software for its own traders
and for some back-office systems, said Merrill Lynch chief
technology officer John McKinley.
Starting next month, Merrill Lynch will renew development to
expand online trading to customers in Europe and Asia and to update
capabilities for its financial traders.
Sears, Roebuck & Co. says it is releasing high-tech money sooner
than expected. Last year, the big Chicago-based retailer suspended
installing most new applications and hardware as it eradicated
date-related computer bugs. But Sears will lift the freeze earlier
than expected after a glitch-free first week of 2000, Sears
spokeswoman Peggy Palter said.
Big sellers of technology could reap the benefit.
Gateway, which warned late Wednesday that business computer
sales suffered in the fourth quarter, saw its stock soar 9 percent
to $59.68 3/4 in late Thursday trading on the New York Stock Exchange
after two major brokerages said the downturn was a one-quarter