Y2K's revenge: Preparation for bug may be behind today's soft market Lack of innovative software may also be stalling sales Amanda Gillooly

Remember Y2K? The date field computer flaw that was to threaten humanity on the night of Dec. 31, 1999. Well, 2000 came and went without any major technological hitches, but Y2K may still be having an impact.

For instance, Austin, Texas-based Dell Computing Corp. announced May 7 that over the next two quarters it plans to lay off as many as 4,000 employees to combat the "soft overall demand for computer systems and services."

"I think we're in a valley of demand," said Lee Taddonio, vice president of SMC Business Councils, a Churchill-based nonprofit trade organization that meets the needs of small businesses in the region. SMC both surveys clients on computer use and advises them on purchasing.

Mr. Taddonio said declining demand nationwide may stem from a number of sources, not the least of which is the Y2K panic. The scare caused computer-related purchases to spike, and forced businesses -- large and small -- to upgrade or replace noncompliant equipment, he said.

"Everyone did their purchasing sooner than they maybe would have," he said. "I know (SMC) upgraded sooner so we wouldn't get caught with our pants down." The nonprofit purchased more than $5,000 worth of equipment -- updating network and management software -- perhaps a year earlier than it otherwise would have done so.

"In my experience there was a vacuum created by Y2K," said Peter Briden, owner of PC Network Services, Robinson. "Last year we saw a very large slowdown in sales." Mr. Briden said the market has rebounded since then, and, unlike Dell, his store has seen an increase in sales over the past five months.

Without a Y2K deadline looming, company computer purchases have been conducted at a more thoughtful pace, said John Stafford, a consulting shareholder with Schneider Downs & Co. Inc., an accounting, tax and business consulting firm, Downtown.

Spending for Y2K preparation was estimated at between $50 billion and $600 billion nationwide.

"Companies are just digesting that -- it was very traumatic," he said.

Extensive computer purchases made in preparation for the year 2000 lessens the necessity for new equipment now.

"They aren't replacing systems or making significant upgrades," he added.

Mr. Stafford said that while the volume of computer purchases by his clients is similar to last year, many businesses just are not in the market for large orders.

"With the economy slowing, companies aren't growing -- they aren't feeling the need to expand their network," Mr. Stafford said.

However, he expects growth in the industry to pick up soon, as Y2K-aged equipment becomes outdated. "I think there's going to be another cycle in 2002-2003. Those clients are going to be in the marketplace to replace the obsolete."

As for now, Don Linzer, a Schneider Downs' shareholder and chair of its specialty tax department, said he is advising clients to carefully consider their purchases and to "focus on business intelligence." Business intelligence programs produced by companies such as Cognos Inc., whose U.S. headquarters is in Burlington, Mass., enable companies to take a look at their software database, allowing them to spot trends and more efficiently use their existing systems.

Mr. Taddonio said he believes the software and hardware now available is another reason for slower industry growth. He said the life expectancy of today's hardware allows businesses to put off replacement. High computer speeds allow models that are a few years old to effectively run software applications.

On the flipside, he said, a lack of new and innovative software may be a drawback. "The software applications haven't created a demand for hardware," Mr. Taddonio said.

Mr. Linzer agreed. "They're saying that if we can show them a value proposition that can impact their bottom line immediately, they're interested. If not, they're not."

Mr. Linzer said he hopes lower interest rates will spur the market. "We need some stimulus in the economy," he said.

For now, Mr. Taddonio is advising clients to look at where they are and where they want to be.

He said replacing equipment in a workplace that is functional isn't effective. "If (companies) find that they need to improve their systems, they should go ahead and do it," he said. "Don't fix something that's not broken."

In the meantime, computer companies will have to wait out the valley.

"I think there's going to be a natural demand in place," Mr. Stafford said.

MS. GILLOOLY is an intern with the Business Times. Contact her at agillooly@bizjournals.com.

http://pittsburgh.bcentral.com/pittsburgh/stories/2001/05/21/story8.html

-- Martin Thompson (mthom1927@aol.com), May 21, 2001