03/23 20:18 FOCUS-IBM to spend $575 million on Year 2000 fixes

(New throughout, adds byline) By Eric Auchard

NEW YORK, March 23 (Reuters) - International Business Machines Corp. plans to spend $575 million to fix Year 2000 problems in its computers, the unintended consequence of a practice the company introduced a century ago to save space on punch-card machines.

The world's largest computer maker revealed the cost of fixing the so-called "Y2K" problems in its annual report, released on Tuesday.

The repair budget covers spending from 1997 through 1999, including software code conversion, testing and contingency planning in the event of computer failures, IBM spokesman Rob Wilson said. He said the Armonk, N.Y. company plans no charge against earnings to cover the costs, which it will absorb as part of its normal budgeting.

IBM's Year 2000 spending is more than covered by the $82 billion in revenues the company reported for 1998 alone. A third of those revenues came from computer services, which included repairing Year 2000 problems for clients.

Industry analysts have estimated that companies around the world will spend $200 billion to $300 billion to fix computer systems so they can recognize dates beginning in the Year 2000.

The so-called millennium bug, in which computer software signify a year by using only the last two digits of the date -- sprang from a space-saving practice developed in the 1890s for tabulating machines by a company that came to be known as IBM.

The mainframe computers IBM has sold for decades now serve as the host for an estimated 70 percent of the world's corporate data. Meanwhile, demand for Year 2000 repair experts among corporate customers has fueled growth at IBM Global Services, the world's No. 1 computer services supplier.

In its annual report, IBM said the impact of Year 2000 repair efforts on customer computer spending remains one of the major uncertainties clouding its 1999 results.

The report notes that experts are divided over how the Year 2000 will play out, stating "It is not possible to predict what the actual impact may be."

While some legal experts have predicted a wave of litigation against computer makers to arise from companies who are harmed by Year 2000 computer systems failures, IBM said it continues to believe it has good defenses against any claims.

Some of the biggest spenders on Year 2000 repairs are not computer technology suppliers themselves, but financial services and telecommunications firm, who use computers to keep track of data on millions of customers.

Financial services company Citigroup Inc. has said it expects to spend as much as $900 million, while telephone and cable television giant AT&T Corp. has estimated it will spend $650 million through 1999 to address the issue.

The U.S. government has estimated it will spend $6.8 billion to ready its computers for the year 2000.

IBM stock, a component of the Dow Jones Industrial Index, sank $1.62 to $165.37 in composite U.S. stock market trading Tuesday, pulled down by a wave of selling that sent the Dow index down 218.68 points to 9671.83, a fall of 2.2 percent.

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Ray

-- Ray (ray@totacc.com), March 23, 1999