Thursday 30 December 1999

Y2K bug didn't spook investors

Even under the staggering costs of fixing potential computer glitches, high-tech firms hit all-time highs in 1999. Michael MacDonald reports.

Michael MacDonald
The Canadian Press

PHOTO: Nick Procaylo, The Canadian Press / Gaylen Duncan, president and CEO of the Information Technology Association of Canada, insists the vast amount of resources devoted to finding Y2K remedies was a wise investment. But he also admits the big story in 2000 could be: What was all the hullabaloo about?

TORONTO - The worldwide campaign to eradicate the Y2K bug was easily the biggest high-tech story of 1999. And if the doomsayers are right, it could be the biggest story of 2000 as well. [and that, interestingly enough, is the last mention of that aspect of Y2K!]

Amid warnings of a digital apocalypse, companies and governments on every continent scrambled to fix programs and microprocessors prone to misreading dates past 1999. The total cost could top a staggering $1 trillion U.S., according to some estimates.

The fear is that many older computers and automated devices, that use only two digits to record the year, will crash Jan. 1 because the rollover to 00 might trigger confusion as to whether the year is 2000 or 1900.

At worst, the Y2K bug could prompt a cascade of interconnected snafus, toppling the world's power, communications and financial grids. The result would be widespread chaos.

But by most accounts, the bug is on the run. Few experts or government officials in North America expected much more than a batch of isolated glitches as the big day approached.

Indeed, the threat posed by the Y2K bug will likely fizzle faster than bad champagne on New Year's Day.

Prime Minister Jean Chretien has said the country is "99-per-cent" ready. In the United States, the final report on Y2K repairs from the White House reassured Americans the lights won't go out, phones will ring and nuclear bombs won't accidentally detonate.

So it stands to reason that many critics will soon be wondering if it was all worth it. Some have already suggested the Y2K bug was an epic hoax aimed at boosting computer sales and masking poor earnings.

"The big story in 2000 could be: What was all the hullabaloo (about Y2K) if nothing happens?" said Gaylen Duncan, president of the Information Technology Association of Canada.

But Mr. Duncan insists the vast amount of resources devoted to finding Y2K remedies was a wise investment.

"It was absolutely necessary because otherwise we would have ground to a halt."

Andrew Martyn, another high-tech industry observer, agreed.

"It's sort of like buying fire insurance for your house -- if it catches fire, it's worth it," said Mr. Martyn, a portfolio strategist at Davis-Rea Ltd. Investment Counsel in Toronto.

The latest polls suggest most Canadians are convinced Y2K will be a big yawn. A recent national poll found only six per cent of 2,054 adults surveyed said they were "very concerned" about a Y2K meltdown.

"There was a fair amount of nervousness in the spring, but as the rollover tests worked and the earlier problem dates passed without incident, people were pleasantly surprised," said Michael O'Neill, a senior executive at International Data Corp., an independent research firm in Toronto.

"The countries that had a lot to risk took action to ensure their core systems wouldn't collapse."

This week, IDC said Canada should breeze into 2000 with little trouble after spending up to $20 billion U.S. to guard against Y2K problems. IDC pegged global spending at about $280 billion U.S., with the United States accounting for 40 per cent of the total.

Zapping the Y2K bug took a bite out of the global economy. Mr. O'Neill said IDC estimates about $16 billion U.S. in potential business revenue will be wiped out worldwide as a result of computer downtime linked to Y2K preparation.

Canadian businesses are expected to lose $400 million U.S. while their American counterparts will give up about $4.9 billion U.S., Mr. O'Neill said.

But economic growth is expected to remain strong in North America. Earlier this month, the jobless rate in Canada hit an 18-year low at 6.9 per cent while the U.S. rate remained steady at 4.1 per cent.

Elsewhere in the world, gauging the economic impact of the millennium bug has become a crude guessing game, Mr. O'Neill said.

Countries like Mexico, China, Vietnam, South Africa, Saudi Arabia, Poland, Portugal and the Czech Republic are all struggling to meet their Y2K deadlines. In Russia, for example, only about half the work has been completed to ensure its air traffic control computer systems are safe.

Status reports from most developing countries remain vague and incomplete. There's a remote possibility that computer shutdowns in other countries could spread across international boundaries. But there's little evidence that will happen, the experts say.

Meanwhile, high-tech investors continue to show no fear of the Y2K menace. Internet and other computer-related stocks made amazing gains throughout 1999, lifting the Canadian and American stock markets to all-time highs.

Indeed, the big high-tech stocks have performed so well that they've masked the widespread wealth destruction that has occurred elsewhere in financial markets.

Among those suffering the most are smaller software companies, which were stung when their big clients decided to put major software purchases on hold until Y2K had come and gone.

"They got bludgeoned this year," said Mr. Martyn at Davis-Rea. "But who cares? They're going to get the orders in a few weeks anyway."

More importantly, the world's largest high-tech titans continue to enjoy an enduring love affair with their customers and the stock markets.

"The big boys didn't get hit," said Mr. Martyn. "Microsoft, Cisco, Intel, Dell, Lucent, Nortel -- they just continued to take off."

Even IBM, which saw its stock plummet after blaming a poor earnings forecast on the Y2K bug, has regained much of the ground it lost earlier this year.

In Canada, Nortel Networks Corp. continued to reap big rewards from the explosive growth of the Internet, electronic commerce and wireless communications.

"Everyone I've spoken to plans to put their business on the Web," Nortel chief executive John Roth said in an interview. "We're looking forward to ... about a 700-per-cent increase in demand for capacity."

Nortel, which employs about 70,000 worldwide, is a world leader in so-called optical networking, a technology that uses glass-fibre wires to carry huge volumes of voice, data and video signals at the speed of light.

The company, based in Brampton, Ont., recently reported that third-quarter sales of its fibre-optic gear and software jumped by more than 100 per cent.

Nortel's goal is to make the Internet as user-friendly and reliable -- 99.999 per cent -- as the telephone.

But Mr. Roth has insisted Nortel will have trouble reaching that goal unless the Canadian government introduces tax breaks for stock options, which are used as incentives to keep Nortel's brightest employees in Canada.

Mr. Roth has said the most talented Canadian engineers and software designers are being lured to the United States where income tax is less of a burden for those pulling in big money.

In April, Mr. Roth said high taxes in Canada are "testing the allegiance of some of Canada's best and brightest."

However, a study released earlier this year suggested reports of a massive brain drain had been exaggerated. The 30,000-member Canadian Association of University Teachers said the fear-mongering was aimed at winning lower taxes, not retaining top talent.

While Nortel was complaining about losing knowledge workers, it was also shedding manufacturing jobs as part of a three-year restructuring that would affect about 8,000 employees worldwide.

Nortel has said it will focus on creating software instead of expanding its traditional role as a builder of network hardware. That new approach led to a recent hiring spree in the Ottawa area.

To a large extent, the phenomenal growth of the Internet has been driven by the widespread acceptance of electronic commerce, which includes electronic banking and online shopping.

The annoying hype surrounding e-commerce will only get worse.

The latest figures from International Data Corp. suggest that, as of December, more than half of all adult Canadians had access to the Internet. In 1998, that figure was only about one-third.

As a result, online sales in Canada are expected to jump to $1.14 billion for 1999, up from $690 million in 1998. In the United States, online sales could balloon to $53 billion, more than double the volume in 1998.

"In terms of a trend, it's certainly been huge," said Mr. Martyn, who noted that online investing and day trading took off in 1999.

About 5,000 people in North America could describe themselves as full-time day traders: people who quickly buy and sell stocks -- up to 100 times a day -- seeking profits on sudden price gains or losses.

There are at least five million other investors who use online brokerages to manage portfolios at a much slower pace.

The exponential growth of online investing, e-commerce and the proliferation of technology in general was the biggest story in 1999 for Mr. Duncan at ITAC.

"People are talking about getting too much junk e-mail now. A few years ago, most of us didn't have e-mail."

In coming years, "Internet appliances" are expected to replace the personal computer as the most popular method of using the Internet. These devices include hand-held computers -- sometimes called personal digital assistants -- and "smart" digital phones with tiny video screens.

[ENDS]

-- John Whitley (jwhitley@inforamp.net), December 30, 1999