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Y2K Complacency is About to End

May 8, 1998

As the threat of a global computer meltdown in the new millennium bears down on us, one should expect to see growing signs of nervousness in corporate board rooms and on Wall Street.

Yet in both places, optimism and cool confidence evidently still prevail. With 607 days to go, business executives are saying they will be well prepared, come hell or high water. And investors have largely ignored warnings of disaster to plunder the shares of companies touting a quick fix.

Just last week a doctor friend of mine called with a hot tip about a publicly traded firm called Egan Systems. He said he'd heard their software can reduce the so-called millennium bug to a harmless pest in scant hours.

I cautioned him that there are dozens of Egans out there, each with an enticing story to tell investors. Hardly a week goes by that I don't hear about some new ones.

But if any has a cheap, easy cure, it is unknown to the approximately 300 corporate systems managers and CIOs I have spoken with over the last two years concerning Year 2000 (Y2K) issues.

Most have either been replacing entire hardware and software systems, or using tools developed in-house to painstakingly root out the faulty lines of code that will trip computers into thinking the year 2000 is actually 1900.

The mayhem this is certain to cause was all but ordained forty years ago by programmers who sought to save then-precious data-storage space and speed up mainframes by stripping two digits from the date in their operating systems.

Neither they nor their successors evidently cared much that the computers' internal clocks would revert to 1900 after midnight on Friday, December 31, 1999.

Now, some consultants believe that when the new millennium dawns, this seemingly innocuous oversight could trigger massive failures in America's power grid and water supply, disrupt manufacturing and distribution of goods, shut down stock markets all around the world, and bring chaos to our banking, transportation and communication systems.

One of those who is convinced this scenario is not just possible but likely is Larry McCarthy, CEO of San Jose-based Ascent Logic, a systems-engineering company that is working with some of the country's largest firms to prepare them for the worst.

For McCarthy, rewriting faulty code, an approach being taken by many companies, is destined to fail. A Ford or a General Motors might just as well attempt to eliminate ants from all of their lunch rooms. assembly plants and employee parking lots.

Instead, McCarthy is advising such corporate clients to decide which parts of their business they want to keep operational no matter what. For some vehicle manufacturers, to take one example, this might mean producing and distributing only trucks -- which yield the fattest profit margins -- when auto production lines have been hobbled or shut down.

A major player in risk-management technology, Ascent has long worked with aerospace contractors and the military on non-Y2K issues. More recently, the company was retained by two large insurers, Marsh & McClennan and Lloyd's of London, to evaluate applications for Y2K policies.

Some of the biggest and most reputable companies in America have thus far failed to qualify, according to McCarthy, because they still lack a credible Y2K remediation strategy. Moreover, within two or three years it's possible that a few such companies will fail, he says.

Why believe McCarthy, who stands to benefit financially from the spread of fear, when hundreds of corporate managers say they've got everything under control?

There are a few reasons. First, it is becoming clearer with each passing month that businesses have greatly underestimated the glitches that will likely bedevil them when they start testing their supposedly debugged systems between now and early 1999.

Most seem to think this will be a romp down the home stretch. But according to McCarthy and some others, including a famously alarmist professor named Gary North, testing will be the most challenging, costly and time-consuming part of the work.

From here on out, predicts McCarthy, most companies will be so deeply immersed in unanticipated Y2K problems that spending on new software and hardware will practically cease.

If so, the trend should show up first in the Nasdaq 100 Index, which contains many of the technology stocks that have led the bull market for most of this decade. The index has been moving steadily higher since early January and recently notched a record high near 1295. It closed Friday at 1251.53; after a 30.09 drop Monday, the Nasdaq clawed its way back over the next four sessions to end the week with a 1.39-point gain.

Here are a some other reasons not to be complacent:

  • The embedded microprocessors that run most of our machines are not just hard to find, they're too poorly documented to fix.
  • Some utility companies estimate that 10 to 15 percent of their generators will blow in the early days of the new millennium, all but assuring triage among business and residential customers.
  • Corporate executives really are getting nervous. But with 20 months to go, why risk spooking shareholders by going public so early with their fears?
  • Asia and Europe have barely started to address Y2K problems and risk being "locked out" of compliant systems elsewhere -- or contaminating them.
  • Government lags well behind industry in replacing antiquated mainframes, which harbor most of the buggy code.
  • Every law firm in the America of any size has organized a Y2K team in anticipation of legal settlements that estimates put as high as $1.3 trillion.
  • Rocket scientists were using two-digit dates in navigation and communications satellites launched as recently as six years ago.
  • Software "repair" factories are dying for lack of business. For all their talk about spending hundred of billions of dollars to fix Y2K glitches, companies that are planning to rewrite code evidently have barely gotten started.

Of course, no one can predict with certainty what will happen in 20 months to something so complex as the global "cyberecology." But it is hardly reassuring that the chances for a happy outcome rest on the assumption, as one optimist put it, that "if everyone diligently does the work, the significant and high risk will not be felt."

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