The Sky Is Falling! Wanna Buy Our Umbrella?

The pitch sounded so good.

Three young programmers from India stood anxiously in front of Sushil Garg, chief executive of GDI, a Newport Beach-based computer systems integrator for DreamWorks SKG, Fox Broadcasting and Ingram Micro.

They promised Garg that 200 unemployed computer programmers in New Delhi could solve his clients’ year 2000 computer problems--for about 10% the cost of their American counterparts.

A tempting offer, but Garg said no. After all, he had heard--and turned down--similar pitches before.

“I don’t know who these people are, how they’ve been trained or what they’re going to do to the code,” Garg said.

The same play for corporate bucks is being staged in businesses across the country. It’s getting to be a regular thing, say company officials, these cold calls from eager salespeople hawking the latest solution to technology’s most-hyped wraith: the year 2000 computer flaw.

As the millennium creeps ever closer, as a decades-old programming shortcut spurs dark--and largely exaggerated--predictions of a global computer shutdown, thousands of people are joining what’s become a moneymaking free-for-all.

A burgeoning industry of year 2000 players now exists, hungry for a share of a business that many believe is worth as much as $200 billion worldwide--and that some doomsayers say could be worth $600 billion.

Experts estimate that nearly 3,000 firms nationwide have joined the frenzy--individual software brokers, attorney teams specializing in fallout litigation, the major accounting firms and others.

This millennium fever even transforms struggling outfits into prosperous enterprises. Take Germantown, Md.-based Zmax, an unsuccessful gold company, which became an unsuccessful oil company, before announcing last year it was in the year 2000 game. The stock soared from $2 to $20 and remains around $12.

“There’s no doubt that this is a problem. But unless you’re working with established and legitimate companies, anything’s fair game,” said Rich Evans, an analyst with the Stamford, Conn.-based research firm Meta Group. “For a lot of people profiting from the year 2000 issue, greed makes good business.”

The trouble--often referred to as Y2K or the “millennium bug”--stems from a computing trick implemented years ago to save precious memory space: In dates, programmers dropped the first two digits of the year. For Jan. 1, 1997, the date would be recorded as 01/01/97.

Firms that rely on date-sensitive data run the gamut from the corner burger joint with one cash register to phone companies with a portfolio of hundreds of millions of programs.

When the millennium comes, and dates are recorded as “00,” computers could interpret the double zeros to mean 1900 instead of 2000. No one knows exactly what will happen then. What is known is that a universal fix for every system does not exist.

“Right now most people in the business world are in a great state of panic,” said Ellen S. Kitzis, vice president of information technology services at San Jose research firm Dataquest. “The reality is, this is a fairly serious problem. But it’s not like we’re searching for a cure to a new disease. The country will not come to a grinding halt, because the computer industry can solve it. It’s a matter of spending the money to find the staff, pay for the time and buy a solution.”

Hence the hordes rushing forward to offer their services, each promising an answer to the problem. Independent brokers solicit new clients on the Internet, launching glossy sites on the Web and flooding computer-oriented newsgroups with advertisements.

In fact, about 70% of the more than 5,000 Web addresses containing the number “2000” were registered this year, according to Network Solutions, the Herndon, Va., firm that has exclusive rights to assign most Internet addresses.

Many ventures come from established firms such as IBM and Ernst & Young, which have long used the Internet to hire computer programmers and advertise their software solutions.

But others appear less certain. One posting to the Usenet newsgroup comp.year-2000.com promised free systems analysis by e-mail: “If you afriad [sic] from what the year 2000 do to your computer or wont do, [sic] you can check it (!!!) . . . From here I am your rescue, so what do you wait for . . . “

Another company, Silver Bullet Solutions in New York, posted a news release promoting its solution on several Internet newsgroups. The release added an endorsement, supposedly from IBM, saying, “It sounds like you guys have the Silver Bullet.”

An IBM spokeswoman said the company hadn’t heard of the firm.

SBS co-founder John Foehl declined to talk about the IBM quote or name his contact at the company. He also would not say who SBS’ potential clients are. He acknowledged that Silver Bullet has not tested its idea on a millennium project, but rather had drawn its theory from previous work it did on older computer databases.

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Like the wave of neophyte companies whose stars rose rapidly on Internet hype, the ballyhooed year 2000 problem inflates the stock value of many companies that say they have solutions to the glitch. Such confidence is curious considering that the industry’s main business, no matter how fast it grows, should end in about two years.

Even experienced investors are climbing aboard. In April, the American Stock Exchange, capitalizing on the boom, pulled together a collection of companies for its de Jager Year 2000 Index. The index--named for industry guru Peter de Jager, who helped compile it-- lists consultants, integrators and software providers who could benefit from the problem. Investors can trade options on the index, or make equally speculative bets on a similar index developed by Morgan Stanley.

“You saw this boom in multimedia, then in biotech,” said Michael Murphy, editor of the California Technology Stock Letter. “People are fascinated by this problem. It’s very mysterious and Hollywood sexy at the same time.”

Viasoft, for example, has been selling its stock for more than 10 times the value of its actual revenue. When the U.S. stock market dropped last week, stock prices for the well-known Phoenix-based consulting and solutions firm fell by $3.56 a share. It hit a 52-week low of $35.94 a share.

But the next day, the stock rallied and closed at $40.13.

“The stock move is crazy, because you’re talking about a 25-month opportunity with markups that are huge,” Murphy said. “Still, you have to remember the software solutions are a small piece of this whole thing. A lot of the money is being spent to find programmers.”

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Tech-savvy workers are at a premium. High demand and low availability have spurred a global scramble for people willing to tackle the most boring programming task in the history of software.

Those with coders willingly pay to keep them away from corporate poachers.

Texas has implemented a year 2000 “critical employee” bonus program, in which state agencies--from the Department of Corrections to the Department of Agriculture--can hand out a $10,000 bonus per person as an incentive to stay.

“Look, we’re struggling to compete against the private sector. They’re stealing all of our best people,” said Jerry Johnson, Webmaster for Texas’ year 2000 working group.

“We need to do whatever we can to keep them,” Johnson added.

Many consulting firms and large technology companies work with offshore firms based in India and the Singapore-Malaysia-Indonesia high-tech triangle. Why? A highly educated populace, a cheap supply of manpower and a longer workday.

At Ernst & Young, a team of programmers in Costa Mesa spends each day sifting through hundreds of lines of code. As it wraps up and heads home, the Orange County staff hands the work off to more than 7,000 counterparts scattered throughout India who are just punching in.

Technology experts insist that even the lowliest year 2000 position, while simple compared with other computing tasks, requires a certain amount of expertise.

“You cannot have random people off the street tinkering with the programs,” said Edward Yourdon, software engineering consultant and author of “Time Bomb 2000: How the Year 2000 Software Crisis Will Affect You” (Prentice Hall, February).

“If they make a mistake, things could stop working. That’s when you have to start worrying about lawsuits.”

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The litigation wave broke earlier this year. Produce Palace International, based in Warren, Mich., filed a lawsuit against a hardware vendor and computer maintenance firm, claiming its cash registers freeze when customers use credit cards with year 2000 expiration dates.

The grocer alleged that Tec-America Corp. in Atlanta and All American Cash Register Inc. in Inkster, Mich., sold a defective computer system, knowing they couldn’t fix it.

The complaint seeks $100,000 in damages for the hardware and an unspecified amount for lost business. Meanwhile, store owners Mark Yasike and Sam Katz hand-process credit cards expiring in the millennium.

There’s even a legal brouhaha over who can sell millennium-bug merchandising. Two years ago, computer programmer David Bettinger joined a mailing list devoted to year 2000 technical issues. Over time, he and other list members joked about creating a T-shirt to commemorate the snafu.

Bettinger started distributing “Project 2000” shirts and ball caps until attorneys for Year 2000 Inc. of Montreal and Planet Marketing Inc. of New York told Bettinger to stop. The companies--which claim to own the trademark on the phrase “year 2000” for several U.S. and foreign applications--plan to sell their own millennium-themed shirts, attorneys said.

Legal tussles like these make most corporate executives extremely nervous, especially because they can be held personally liable for negligence caused by unchecked millennium problems.

Attorneys predict suits will be filed by shareholders who think the board didn’t act fast enough, by customers whose products don’t work, by lenders whose payments are delinquent and by employees whose paychecks don’t arrive on time.

The issue is more about accountability than product failure, said attorney Jeff Jinnett of Le Boeuf, Lamb, Greene & MacRay in New York. “When you talk to CEOs, you hear, ‘My shareholders read this doomsday article in “Newsweek” and they’re getting nervous,’ ” said Jinnett, who tackles year 2000 issues as president of Le Boeuf Computing Subsidiaries.

“They want something in writing that they can take it back and say: ‘See? We’re going to be just fine and so is the price of our stock.’ ”

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Though much of the insurance industry has shied away from covering year 2000 problems, a few firms are gambling on the risk.

New York-based American International Group, one of the world’s biggest insurers, began offering policies this year that charged an incredibly high upfront fee of 65% to 85% of the amount covered. If companies made it through the 2000 deadline unscathed, they could recoup part of their initial payment.

J&H; Marsh & McLennan, also in New York, takes a slightly different tack. Companies can apply for up to $200 million in liability coverage, with underwriters such as the Brockbank Group and Lloyds of London syndicates handling the financial risk.

Though the premium is lower--between 5% and 15% of the limit--the application process includes a detailed audit that can cost $150,000 to $500,000. This fee does not include the regular monitoring audits--another $50,000 a quarter.

So far, Marsh & McLennan hasn’t written any policies. But a dozen companies are going through preliminary audits now.

“If, by 1999, you think you have a problem, you’ll be too late,” said Miriam Goddard, Brockbank’s errors and omissions underwriter.

“For all of its complexity, the year 2000 problem has a simple underlying theme: Companies will spend money because they want to stay in business.”

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* AWASH IN HYPE

The Armageddon scenarios are overblown. A1