Share this article

print logo

WNY'S PUBLICLY TRADED COMPANIES HAVE SPENT MILLIONS TO PREPARE FOR Y2K

The Y2K bug's bite hasn't knocked the U.S. economy off its feet.

But that's not to say it hasn't been costly. The price tag for trying to keep the Millennium Bug from crashing computer systems in the New Year is approaching $100 billion, according to a recent study by the U.S. Commerce Department. That's $365 for every man, woman and child in America.

And other economists say the price tag could grow, depending on how many unexpected problems pop up once the clock strikes midnight on Jan. 1. If just moderate problems develop, U.S. companies could lose another $5.4 billion in revenues next year, research firm International Data Corp. predicts.

That $100 billion price tag, which is about a third of early, widely-cited estimates from Gartner Group consultants that predicted Year 2000 costs would reach $300 billion, still would make the Millennium Bug the most expensive peacetime disaster in modern history.

While that's a lot of money, economists say the Y2K bug likely won't bite the U.S. economy hard enough to derail it from an expansion that is on track to become the longest growth spurt in the nation's history in February.

"Any glitches that pop up next year should not hurt our economic growth," Commerce Secretary William M. Daley said last month in releasing the government report. "Is that a lot of money? Absolutely. But the potential cost of not doing anything was far greater."

As a result, companies in Buffalo and elsewhere have been shelling out big bucks to make sure their computer systems are up-to-date. M&T Bank Corp. has the biggest Y2K repair bill locally, with the banking company spending well over $8 million to make sure its systems can handle the switch to the year 2000.

Mark IV Industries Inc., which has the second-highest Y2K bill among Buffalo-based companies, spent $6.8 million through August to get its computer systems ready for the Millennium. Of that, $1.9 million is going for new equipment, while $4.9 million is for operating expenses from its efforts to make the required modifications to its systems.

Of the 20 publicly traded companies based in the Buffalo area that have disclosed their Y2K costs, 70 percent have spent less than $1 million on repairs and updates to their systems, according to filings the firms have made with the Securities and Exchange Commission. The median Y2K cost among those companies, which means half spent more and half spent less, is $500,000.

Still, Gibraltar Steel Corp. isn't viewing the $500,000 that it has spent on Y2K repairs and upgrades as money wasted, said Kenneth Houseknecht, a spokesman for the Hamburg-based steel processor.

"We expect there's going to be residual benefits from this going forward," he said. "We were compelled to look at our information-technology system more thoroughly and comprehensively than we otherwise would have."

As a result, Gibraltar executives believe the company is emerging from its three-year effort to get ready for the Year 2000 with computer systems and equipment that are more efficient and productive than ever.

"We have definitely got a stronger information-technology system," Houseknecht said. "We're definitely now in a stronger, more competitive position because of the investment that we've made."

Steve Wojciechowski, M&T Bank Corp.'s administrative vice president, takes a similar view of the nearly $9 million that the Buffalo-based banking company spent to get ready for the Year 2000 problem.

Some of that spending merely accelerated technology improvements that would have been made in the near future anyway, he said. For instance, the Y2K push caused M&T to upgrade its automatic teller machines, which added new functions that allow customers to print out mini-statements and cash checks.

Some economists, however, say the benefits of the Y2K spending will be limited. They believe those Y2K costs have been a drag on the economy because they forced companies to divert resources from more productive endeavors, like developing new products or improving productivity, into upgrading computer systems.

Instead, Y2K spending is more like a homeowner fixing a broken window. It's a necessary expense that doesn't add to the value of the home, but it may have a modest long-term benefit by lowering heating costs if the replacement is more energy-efficient than the original.

For instance, most of the money M&T Bank Corp. spent on the Year 2000 problem has gone to test and evaluate its systems and make sure that its vendors were on top of the issue, as well, Wojciechowski said.

In addition, some companies may be building up unusually large inventories just in case the Y2K bug disrupts production at some of their suppliers, according to a report by analysts at WEFA, an economics consulting group.

That likely has added to economic growth during the second half of this year, but could cause the pace to slow during the first six months of next year if the disruptions aren't as severe as expected and the companies draw their inventories down to more normal levels, WEFA said.

Indeed, the fallout from the Y2K repair bills are causing companies to keep a tight grip on their wallets next year when it comes to spending money on computers and technology -- a trend that has cut into the earnings of Computer Task Group Inc., a Buffalo information-technology company.

"For the large businesses, Y2K has been a major preoccupation for the past two years," said Paul E. Weaver, a technology consultant for PricewaterhouseCoopers, which released a study this month that found that fewer companies plan to increase their information-technology spending than a year ago. "It's only natural to expect some slowing of spending."

Most economists and government officials say most computer systems should weather the dawn of the new Millennium with few problems, thanks to the extensive and long-anticipated preparations that have been made.

But if the Y2K problems are worse than expected, the aftermath could deliver a major blow to the economy, possibly sending it into a recession, said Edward Yardeni, the chief economist at Deutsche Banc Alex. Brown and one of the more pessimistic analysts who has studied the Y2K issue.

In fact, Yardeni thinks there is a 70 percent chance that Y2K-related problems will push the economy into a recession.

His scenario: Y2K problems disrupt the just-in-time supply chains that manufacturers and oil producers depend upon. Those supply woes quickly will lead to a series of announcements from publicly traded companies that their earnings will fall short of estimates. Those "preannouncements," which Yardeni says could come as early as January or February, would depress stock prices and reduce consumer confidence. That, in turn, would cause consumers to reduce their spending.

Yardeni, however, is in the minority with his pessimistic outlook. Daley, the commerce secretary, thinks there could be a sort of "Y2K dividend" next year, as companies once again are able to use their money and technology specialists to work on new products or initiatives.

There are no comments - be the first to comment