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Recently in Salon Technology

Technology: View from the top
Hold the phone
Robert Tercek and PacketVideo think media convergence is headed for your cell phone.
By John Geirland
[12/20/99]

Something for nothing?
On freebie sites you can't always get what you want, but if you try real hard you just might get something free.
By Lydia Lee
[12/17/99]

Books
Legends in their own minds
Two new books try to lionize warrior-entrepreneurs battling in Microsoft's shadow, but leave us wondering where high tech's heroes are.
By Thomas Scoville
[12/16/99]

Microsoft, Mahir and money, money, money
A software superpower is declared a monopoly, free software rakes in billions and money makes the world go round: The year in tech.
By Janelle Brown, Mark Gimein, Andrew Leonard and Kaitlin Quistgaard
[12/15/99]

Review
MP3: Here, there, everywhere
The latest digital music players let you play MP3s on your home stereo, in your car or on the run -- but are they any good?
By Janelle Brown
[12/14/99]

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The really striking thing, however, for those who have been following the gyrations of the tech stock market over the last few years, is how familiar this scenario was. Because, in fact, this was the second time in recent memory that Zitel had shot up in the midst of a speculative mania.

In 1995, consultants had begun talking about the Year 2000 problem as the pressing issue in the information technology business. Fixing date problems in old computer programs, the consultants said, would cost U.S. companies hundreds of billions of dollars. Who would that money go to? Naturally, to computer services companies specializing in Year 2000 solutions like, you guessed it, Zitel.

In early 1997, Zitel's stock, which had hovered below $10 a share for several years, briefly hit $60 as speculators jumped at anything with the Year 2000 label. Speculators hoped that a little company like Zitel might come up with a "silver bullet" software solution. In fact, none was forthcoming. Zitel's revenues stayed stagnant. In its 1996 fiscal year, Zitel had revenues of $23 million; the next year its revenue dropped to $18 million, and in its 1998 fiscal year the company took in $21.7 million. The Year 2000 services unit added little to Zitel's bottom line (in fact, until late 1998 the much-hyped Y2K consulting practices added nothing to the bottom line). As big revenue failed to materialize, Zitel's stock plunged back down to $10 a share in early 1998 and to just $1 a share by December 1999, before rising on the Linux announcement.

In fact, Zitel was only one of many companies whose stock shot up on promises of vast profits to be mined from the Year 2000 problem. A mainframe software developer called Viasoft also saw its stock climb above $50 a share in mid-1997 on big hopes for its Year 2000 practice. It now trades at just $6 a share. Another company, Data Dimensions, presented itself as pure Year 2000 play, because since 1993, the technology consulting firm had turned its attention exclusively to Y2K solutions. By May 1997, its stock, too, was trading at more than $40 a share; it's now trading at less than $4. Meanwhile, multibillion-dollar computer services giants like EDS (Electronic Data Systems) and the Computer Sciences Corp. also talked up the possibilities for their Year 2000 business. EDS, the biggest player in managing corporate computer systems and software, regularly sent out press releases announcing its new contracts for Year 2000 work.

Next page | "Wayne and Garth's Excellent Aluminum Siding and Year 2000 Services"