STORY:
S&P firms ready to fight Y2K

A report released recently by Morgan Stanley should relieve the fears of many investors afraid the Y2K bug will hit their favorite companies.

After analyzing Year 2000 progress reports that public companies are submitting to the Securities and Exchange Commission, Morgan Stanley Dean Witter analysts expect 95 percent of the companies in the Standard & Poor's 500 index to have antidotes to technology problems in place before computers choke on the date Jan. 1, 2000. Information for this story comes from a report written by Knight-Ridder.

Unlike doom-and-gloomers, Morgan Stanley analysts Peter Canelo and Lorraine Wang do not expect Y2K problems to set off either a bear market or a recession. Moreover, they said they think the cost of fixing computer systems will be a lot lower than some have calculated.

Rather than costing U.S. businesses and governments $150 billion to $235 billion, as forecast by the Gartner Group, Morgan Stanley thinks the cost of fixing Y2K problems will be only $78 billion to $89 billion. That represents 16 percent to 18 percent of total U.S. corporate profits, which total about $477 billion a year. In other words, the Y2K fixes will reduce profits but not wipe them out.

For the 6,812 publicly traded U.S. companies, the analysts expect the cost to be $48 billion to $50 billion.

In other words, their conclusion was that investors probably do not need to make their investment decisions based on concerns that the Y2K bug will seriously harm most companies' profits -- and, thus, their stock prices.

Morgan Stanley analysts devised their estimates after looking at 1998 third-quarter reports from 377 companies in the S&P 500, and 146 other companies in such critical industries as transportation, telecommunications, finance and utilities. Because of concerns about Y2K problems, the SEC last year began requiring publicly traded corporations to report their preparation for Year 2000 technology glitches.

Checking companies in critical industries is especially important because even a Standard & Poor's company that has its own house in order could face trouble if it can't get the power or supplies it needs for production or the loans necessary to make purchases.

Morgan Stanley analysts said only 19 companies they evaluated fell short of being rated "under way" with Y2K changes.

Because most companies seem to be prepared and costs are manageable, Canelo and Wang conclude that experts may have overestimated the size of the problem and aftershocks: "We believe a crippling shutdown of major infrastructure networks will probably be avoided."

Source: Knight-Ridder News Service

DATE: 2/15/99

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