July 29, 1998

 

Merrill Lynch: It's No Armageddon

 

A two-year head start is enough to assure compliance, Merrill Lynch announced in its recently released report, "Y2K: Implications for Investors." After surveying corporations worldwide, the investment firm found that while there may be minor inconveniences, the world will not come to an end from the computer date problem.

 

"Most companies have been working on the Y2K projects for two years and there are one and a half years left," reads the report. "Microsoft, Latin America and Communism all changed radically in a lot less time."

 

In the United States, most companies report they expect to be Y2K compliant by the end of 1998. Seventy-two percent of Asian respondents expect Y2K compliance. India expects 97 percent and the Philippines 86 percent.

 

"We do not see Armageddon," says the report. "But like every space flight so far, there is an element of the unforeseen. If there are glitches, and there always are, companies expect to manage their way through them as they do in power blackouts, and as they did when AT&T and AOL networks have occasionally shut down."

 

The biggest foreseen problem comes from China, according to Merrill Lynch. Most of China's big industries are looking to the government for Y2K guidance, but it is not a governmental priority. Fewer than half the Chinese companies surveyed expect to be Y2K compliant in time. Merrill Lynch believes many Chinese industries, including the airline industry, will be left vulnerable.

 

Japanese businesses, on the other hand, will benefit from their Y2K projects. Merrill Lynch's Japan team found that in the past many Japanese companies relied on custom-made software. Upgrading for compliance will mean more standardization of software and open systems which will, in turn, increase efficiencies.

 

Overall, most companies surveyed are optimistic about their own Y2K compliance but are worried about their supply chain. "One of the greatest ironies of the Y2K issue, which is about one of the simplest things--the ability to write the correct date--is that it is exacerbated by virtually every modern management practice," says Jeanne G. Terrile, author of the report's overview.

 

Terrile points to just-in-time inventory practices and outsourcing as vulnerabilities in corporate infrastructure. Global markets and decentralization mean different levels of sophistication in different markets, and that's a risk, says Terrile.

 

While many see the business world's global reliance on networking and interfacing systems as potentially catastrophic, Terrile sees as them in a positive light. "Our view is that the very complexity and dispersion of these systems is, in fact, insurance against a complete shutdown of commerce when the millennium starts," she says. "There won't be a domino effect, because there are lots of switches throughout the system that will put on the brakes."

 

The bottom line, according to Merrill Lynch, is that if earnings are affected by the Year 2000 it will be due to systems affecting a company's operations and the company's inability to bring costs down quickly. On the positive side, they predict it to be a short-lived loss.

 

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