MILLENNIUM - 2000

First-quarter results were enough to convince many resellers that the boom in sales related to the year 2000 has shifted. Now the challenge is to pinpoint the next growth sector to offset this dip.

The rush to complete year 2000 compliance projects is being blamedthe boom in sales related to the year 2000 has shifted. Now the challenge is to pinpoint the next growth sector to offset this dip. for a slackening in demand for other IT projects and skills. But is this a genuine slump or just a handy excuse for poor performance on the part of some industry players?

There's no doubt that some sectors have been hit hard by year 2000 projects coming to maturity. In the past couple of years, key enterprise resource planning (ERP) vendors have enjoyed an unprecedented boom as organisations - fazed by the prospect of converting their creaky legacy systems - have decided to replace them instead. And the implementation of all these ERP systems has generated so much work that there haven't been enough well-qualified consultants to go around.

But the wave of system replacements has peaked, followed by a succession of dismal first-quarter results from ERP vendors such as Baan and PeopleSoft.

Mark Nittler, vice president of application strategy at PeopleSoft, says: 'ERP vendors were robbing Peter to pay Paul - and now we're paying Peter.'

Following a $171 million loss, and revenue up just 10 per cent in its first quarter, PeopleSoft is shedding 430 administration, sales and marketing staff - six per cent of its workforce.

According to David Flack, group marketing manager of distributor Memory Corporation, the millennium is having an impact on big hardware replacement projects. 'All indications are that replacement won't happen until after the dreaded day, with people deciding to wait until after the New Year holiday and then review the situation,' he says.

'Also, those in the know on the technical front could possibly be holding out for the Intel Camino motherboard and the higher performance Rambus memory technology,' Flack adds.

But he points out that purchasing has by no means ground to a standstill and there's still plenty of demand for day-to-day upgrade work: 'Corporates are still upgrading hardware to cope with existing and future software demands.'

Phil Brooks, managing director of software company Systems Management International (SMI), says the year 2000 isn't affecting business - yet.

'We see no indication of a downturn in products and services. In fact, many of our resellers are experiencing their best trading results for some years. Whether this is sustainable beyond the year 2000 will depend very much on what happens during the transition to the next millennium.'

The fear and uncertainty surrounding the run-up to the year 2000 could have had an impact on some suppliers, but for others, arguably, it acts as a handy smoke screen, disguising problems that have nothing to do with it.

Four companies in the security software market recently announced their first-quarter results. Three of them - Network Associates, Axent and Secure Computing - complained of an inability to close large deals and a slowdown in spending as the millennium approached. The fourth, Internet Security Systems (ISS), experienced a strong quarter in which it reported continuing demand and closed its largest ever deal.

An analyst at investment bank Warburg Dillon Read said of the results: 'While we agree that some software categories may be affected by a year 2000-induced slowdown, including ERP and systems management frameworks, we expect little significant slowdown in information security software sales, given the technology's shorter implementation time cycle and critical nature. In fact, we believe that Axent, Network Associates and Secure Computing are encountering company-specific problems rather than year 2000 ones, and there may be a more fundamental reason why these companies are experiencing earnings problems.'

Resellers that offer a wide portfolio of products and services are well placed to avoid the year 2000 effect, since they can offset a dip in sales in one area with growth elsewhere in the operation. Certainly, for some companies it's not just business as usual, but business that's slightly better than usual.

Computacenter, for example, turned in strong preliminary results for 1988, with turnover and profit both up by nearly 40 per cent. According to Mike Norris, chief executive of Computacenter, its focus is still to build on its existing customer relationships. The group generated a lot of business in two key areas - onsite support services and e-commerce.

It also did well abroad: the turnover of Computacenter France alone rose by more than 70 per cent.

PNC is another reseller seeing healthy growth despite the millennium.

'We've never been busier,' says business development manager Andrew Robins.

'Work has been building up gradually for months. We're taking on another 10 people on the service side - we have 30 at the moment - and they are all recently created positions.'

He believes that a millennium-related slackening in demand for IT skills will mainly affect contractors, rather than permanent staff. 'People and companies will want to gear themselves up for after the millennium and, given that recruitment cycles take between three and four months, they'll need to start thinking about that soon.'

Robins also detects a small increase in demand from companies that still have some millennium budget outstanding, for related projects such as disaster recovery and secondary back-up plans. 'Firms that were given £2 million to spend on year 2000 compliance and didn't use it all aren't about to hand the rest back, so they're spending it on trying to batten down the hatches, making sure they have everything covered.'

Tony Westray, marketing director of software reseller and developer Total Computer Systems (TCS), doesn't anticipate a huge pre-millennium slowdown either. 'From conversations we've had with our customers, we don't expect the year 2000 to have any substantial effect on the planned purchase of our applications software,' he says. 'In fact, it will probably be quite the reverse. Many companies see a moratorium period on hardware or operating system software either side of the millennium as the ideal time to carry out all those pilot programmes that have been put off time and again.'

Westray adds that while large systems implementations will be hit by the year 2000 factor, companies such as TCS that sell small-scale applications systems are less likely to feel the pinch. 'It will have less impact on us than on a company that sells operating systems software,' he says.

'Most of our systems can be implemented in a matter of days - they don't require a big time commitment.'

Teamwork Solutions, a reseller specialising in applications for the travel and retail sectors, claims business is particularly healthy and only one customer has delayed a purchasing decision until after January due to millennium issues.

The reseller is still doing some late compliance work, but it is seeing strong demand from two other areas. One is legacy systems connection projects, from customers looking to bring their existing systems into a distributed IT architecture. Justin Morshead, commercial director at Teamwork, says: 'There is a real revenue stream from customers wishing either to add fresh applications running on different platforms or to implement a middle-ware strategy.'

The second area is internet-related projects. 'The build-up to transactional processing on the internet, which started in 1998, has become more intense.

Again, this revenue stream is strong and substantial for companies that provide transaction processing on the Web and there is absolutely no sign of a slowdown here as the millennium approaches.'

So, while some areas experience a temporary lull, life goes on and the industry is already looking ahead to the next big thing. 'The euro, the growth of e-commerce applications and the approach of Windows 2000 will all be increasingly important growth drivers for our business over the coming year,' predicts Norris.

Brooks adds: 'Our customers are taking the view that there isn't much you can do about the millennium problem on a wider scale. They feel the best use of the next nine months is to continue to implement technologies designed to make their organisations more efficient and effective and help them compete in the global markets of the 21st century. For now, they're focusing on implementing lean infrastructures based on thin client and business systems, such as e-commerce and customer relationship management.'

European monetary union and Windows 2000 could only generate a temporary surge, but ideas such as e-commerce are likely to generate long-term opportunities - not only for software and hardware products, but also for consultancy and implementation services to help customers get to grips with what e-commerce means to their business. 'E-commerce is going crazy right now but it's here to stay - it's not just a passing fad,' says Robins. 'We're seeing a lot of demand in the business-to-business sector and some in business-to-consumer too.'

These systems architectures will require a whole set of skilled people to implement them, ranging from technologists with networking, internet and Java know-how, to consultants with the vision to see how e-commerce can be made to work for a specific business. While agencies report a slowdown in demand for mainframe programming experience, demand for these leading-edge skills is growing fast.

In the medium term, analysts predict that the limiting factor in the growth of e-commerce will be a shortage of skilled people, not a slump in demand. According to recent European Commission research, businesses in Europe are already being held back by a lack of IT skills. The EC estimates there are more than half a million unfilled jobs in the IT sector throughout Europe, and the number is expected to grow to 1.2 million in three years' time. It also predicts a shortage of 600,000 internet experts in the UK by 2002.

SMI has more than 100 permanent service staff, plus contractors and overseas developers. According to Brooks: 'Recruiting quality staff in both the technical and general consultancy sector is becoming harder by the day.

We are having to invest huge amounts of money in recruitment drives and in improving our remuneration and benefits package to attract quality staff.'

Morshead adds: 'We're not looking for a skillset so much as a mindset.

You can teach someone to program, but you can't teach the ability to solve a business problem. There are plenty of staff about, but people of the quality we need are hard to find.'

Robins believes the long-term need will be for those with business training rather than the technical skills that were so much in demand for year 2000 projects. By way of illustration, he points to Microsoft's reorganisation of its support services in April into business-led rather than product-led groups.

'If you look at what's been happening in the market over the past two years, the emphasis has moved from basic hardware knowledge to business consulting,' he says. 'For a long time, the industry could justifiably have been accused of following its technological nose. Now we're finally seeing a recognition that business needs come first.'

In a year's time, the dust will have settled over a few computer disasters, a lot of Cobol programmers will be considerably richer, and the hype about year 2000 compliance will be history. Those who know what's good for them will already be getting to grips with the next challenge - how to make money out of the internet. Now is the time for resellers to start gearing up with the skills they need to do business in the 21st century.