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Businesses to Boost Computer Spending With Y2K Fears Gone
Associated Press
NEW YORK — 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Other companies are reaping an unexpected benefit of scouring for Y2K glitches — the elimination of outdated technology that had bogged down networks with a hodge-podge of software applications and machines.

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. economic engine.

"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 aberration.

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