Mixed Picture Emerges for the Impending Y2K Lockdown

Nobody is certain how badly the dreaded "Y2K lockdown," predicted for the second half of 1999, will dry up the AS/400 or IT market in general. It is clear, however, that many companies are holding off on installations of core processing systems, and the sting of the lockdown has already hit ERP vendors.

Ongoing internal surveys by Gartner Group (Stamford, Conn.) find that the lockdown scenario -- in which companies hold off on new system purchases or installation until the millennium passes--is breaking out roughly into thirds. "Some companies are definitely locked down either in the second half or the fourth quarter, period," says Tom Bittman, VP and research director with Gartner Group. "They're going to wait out that time period, and they're not spending money."

A second set of companies, however, while locking down some key systems, are continuing to spend money on new initiatives, such as e-commerce. A third group says they've completely worked the Y2K kinks out of their systems, and are moving ahead full steam with new projects. "There's going to be a slowdown in sales, but it's not going to be as dramatic as a lot of people think," Bittman concludes.

IBM, for one, was reportedly bracing for a surge in pre-lockdown sales early in 1999 which didn't materialize. "We really saw no significant evidence in the first quarter of changes in customer buying patterns," says Hervey Parke, manager of investor relations for IBM. "For the rest of the year, a variety of research we have from customers and from surveys and also from industry consultants is really inconclusive. Some say that there could be a reprioritization of IT spending this year. But others say that year 2000 expenses already have been factored into overall budget, so the incremental impact will be minimal. So far the picture is pretty mixed and I think that's the best I can convey on year 2000."

In its most recent annual report, IBM warned that Y2K may "soften demand" for its applications and systems. "Efforts by customers to address Year 2000 issues may absorb a substantial part of their information technology budgets in the near term," the company predicts. Other analysts predict it will be slow-going for sellers of larger general-purpose systems and software, such as IBM and Compaq.

Vendors of core systems, such as ERP systems, are already feeling the brunt of the Y2K drought, Bittman says. "For ERP vendors, it's going to be pretty darn dry. You won't see people changing their core business applications dramatically this year." More peripheral systems, such as data warehousing or Web servers, should not be as deeply affected by Y2K concerns, he adds.

The bad news is the dry spell for new purchases of ERP and other core systems may not end in early 2000, but last through the coming year, Bittman says. After a flurry of upgrades and migrations in the late 1990s to prepare for Year 2000, "fiscally responsible companies don't make another major change rapidly," he predicts. "They're going live with what they move to for a couple of years. Then, in 2001, 2002 and 2003, we'll start to see another wave of new packages and new platforms. That will be another test of the AS/400."