Y2K Worries Spoil Hi-Tech Stock Party

One thing Wall Street hates is uncertainty. So last week, when companies such as IBM and Microsoft put a damper on their spectacular earnings — by making statements that they couldn’t predict what impact Y2K would have on the rest of the year’s earnings — the stock market nose-dived.

Particularly hard hit was the Nasdaq, which tumbled 98 points, or 3.47 percent. The Dow Jones Industrial Average — not as technology-heavy — fell 191 points, or 1.71 percent. To make matters worse, Lucent, the No. 1 maker of telephone equipment, also warned against possible weakness at the end of this year — after just posting strong earnings. Even though the market recovered later in the week, the big one-day dip proved that the fear surrounding the Y2K glitch is alive and well.

One of the problems facing giant software makers is that money that would have been spent on expensive enterprise resource planning software programs is being diverted to fix Y2K glitches. In addition, some analysts say that even Y2K compliant companies seem reluctant to spend money on such programs, until they see what actually happens when the clock strikes 12 a.m., the last day of the year.

Mixed Signals

Another factor stoking the Y2K paranoia is the plethora of mixed signals emanating from companies and institutions. For instance, Germany-based software titan SAP said earlier this year that Y2K had slowed down its enterprise software sales, forcing it to focus more on the Internet and e-commerce. Yet, last week Michael Ruettgers, the chief executive of EMC Corp., the No. 1 maker of mainframe computer disk memory hardware and software, predicted strong growth for the Hopkinton, Massachusetts company for the end of the year, shrugging off Y2K.

At the same time that analysts are saying smaller companies are strapped for cash because of their Y2K repairs, the 90 percent guaranteed loans made available by the Small Business Administration for such repairs are not being used. The SBA reported last week that small companies have used only $1.4 million of the $500 million Y2K loan program in the first two months.

Perception Becomes Reality

So it seems that Wall Street is reacting more to perception than reality. But therein lies the danger. Psychologists have preached for years that patients who fear certain illnesses can actually cause themselves to develop real symptoms — even though they’re perfectly healthy.

If companies and institutions keep sending out mixed signals that continue to feed Y2K fears, by the end of the year we could find ourselves looking at a perfectly healthy — but collapsed — stock market.

What do you think? Let’s talk about it.