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Technology: View from the top
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Despite having allowed his name to be put on the index, de Jager himself now beats a hasty retreat when asked about Year 2000 stocks. "The index was designed to represent what was happening," de Jager now says. "It wasn't designed to beat the market. Everybody was looking for the silver bullet. People buying into these stocks didn't do any research."

De Jager says that despite having identified many of the companies in the index when their stock was trading as low as $2 or $3 a share, he never made any money in the run-up. "I stayed out of it very simply to keep my nose clean and avoid accusations that I was profiting from this." De Jager says that he consented to putting his name on the American Stock Exchange index only to increase awareness of the Year 2000 problem. It probably didn't hurt, of course, that it also increased awareness of Peter de Jager.

De Jager now speaks dismissively of companies, like Zitel, that that tried to make an instant killing by selling Year 2000 solutions, even though he consulted for some of them and advertised them on his heavily trafficked Year 2000 Web site.

"I call companies like that 'Wayne and Garth's Excellent Aluminum Siding and Year 2000 Services' companies," he says.

In all fairness, the De Jager index has done tolerably well. It lost over a quarter of its value when the Year 2000 stock frenzy ebbed in mid-1998, but has recently risen substantially. But don't thank the Year 2000 problem for that. Nobody, big or small, came up with an easy fix for the millennium bug; instead, legions of programmers spent millions of hours debugging code. Smaller companies like Zitel, Viasoft and Data Dimensions that were pegged as "pure" Year 2000 plays watched their stock drop as much as 90 percent, while some of the other more versatile companies included in the index have done well. But their stock has risen in lockstep with the rest of the technology industry, with little of the gain attributable to the Y2K problem.

For instance, EDS, the Goliath of the bunch, has seen major revenue increases. But while its revenue for the first nine months of this year was more than $1 billion higher than for the comparable period last year, $475 million of the increase comes from a huge deal with MCI that is unrelated to Year 2000 work. In fact, having hired hundreds of programmers over the last three years to deal with Y2K demands, EDS has now announced an expensive restructuring -- unrelated to Year 2000 issues -- in which it will cut staff and pay out big severance packages.

EDS spokesman Reed Byron says that EDS did get a total of about a billion dollars' worth of Y2K-related business. But Y2K worries also slowed down installations of major software systems. "You wouldn't want to start an ERP [enterprise resource planning, the trade name for huge software projects that tie together a major company's computer systems] project before you're finished with the Y2K remediation and testing," said Byron.

Or look at Computer Sciences Corp., the next-biggest company that works on maintaining big corporate computer systems. One might have expected that as U.S. companies spent more and more money furiously testing and modifying their systems to reach the Nirvana of being "Y2K compliant," the revenues of companies like CSC would grow at an increasing rate. In fact, while CSC has indeed grown very quickly, the opposite has been the case. The company's revenue growth has actually slowed substantially, from 25 percent a year four years ago, when few companies were devoting substantial sums to Y2K fixes, to 16 percent in the last fiscal year.

Some of the very same companies expected to profit most from selling solutions for the Year 2000 problem are now feeling the pinch of corporate belt-tightening as companies that spent loads of cash to become Y2K compliant find little money left in their technology budgets for anything else. The Gartner Group, a research and consulting company that rose to prominence largely on the strength of a series of reports that drew attention to the vast sums of money that would have to be spent on Y2K bug fixes, now says that big companies are postponing spending on Internet initiatives because of Y2K costs. De Jager himself points out a "lockdown" in effect at many corporations that, having painstakingly modified their computer software, are now unwilling to make any big changes until well after the date change.

In a press release announcing the results of Data Dimension's dismal last quarter, the company presented a tellingly dour and, as management analyses go, fairly trenchant description of the unfortunate situation that hopeful Year 2000 solutions providers now find themselves in:

"Clearly we are disappointed with our financial results for the third quarter. We, along with the broader IT services market, are seeing a general reluctance on the part of clients to commit to new technology spending prior to the Year 2000 date change."

Ironically, even a company like Data Dimensions, which pegged its future to Year 2000 work has found that the Year 2000 problem has merely come back to bite it. For investors who bought stock in the company and saw it lose over nine-tenths of its value, of course, the clear-eyed analysis comes much too late.

For Data Dimensions and its brethren, however, there's always Linux, or perhaps whatever stock craze comes along next.
salon.com | Dec. 21, 1999

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