Y2K BUG TAKING BIG BITE OUT OF SOFTWARE SALES: MONEY MANAGERS STOP NEW PROGRAM BUYING UNTIL AFTER 2000 STARTS

Millennium bug fears in the money management community might be leaving some investment software companies out in the cold.

Marketers at software firms such as Princeton Financial Systems, SS&C Technologies Inc., Barra Inc. and Capital Management Sciences have devised strategies to prepare for a bust in demand for software this year, as well as for the boom expected in the early months of 2000.

A Princeton Financial survey of clients’ Y2K in-house software upgrade policies shows that more than half have restrictions on software conversions or installations. The height of the restriction period is from October through January, according to the Princeton, N.J., firm.

Among those freezing software implementation effective Oct. 1 was Fidelity Investments in Boston. Bert E. McConnell, executive vice president for Fidelity’s Y2K initiative, says the freeze will be lifted Feb. 1. In a typical year, he says, software work usually stops Dec. 1 and resumes after the new year.

Vanguard moratorium

Fidelity rival Vanguard Group of Malvern, Pa., declared a Sept. 1-Jan. 17 moratorium on purchasing and implementing new software. Executives there anticipate reinstating the freeze between Feb. 25 and March 3 because of potential leap year problems.

David L. Babson & Co. Inc. of Cambridge, Mass., conducted its final software installation for this year in August and expects the next new software package to be in use sometime after Jan. 1, says Daniel T. Wright, senior vice president of the management information systems department.

In line with much of the rest of the money management industry, Putnam Investments Inc. is freezing software in the last quarter, says Gavan Taylor, chief information officer. Mr. Taylor says the Boston company decided not to install new software until after Jan. 1 to prevent any Y2K bugs from sneaking into the millions of lines of code that already had to be corrected.

Meanwhile, Princeton Financial’s survey results helped company executives scheduling software releases during the second half of this year.

A slowdown in demand ultimately will hit SS&C’s bottom line in 1999, but the company expects business to pick up before the year’s end, says Gerry Wisz, a spokesman for the Windsor, Conn., company.

Serious infection

The company’s second-quarter net loss of $2.5 million was significantly higher than expected.

“In the last five days of the quarter, SS&C experienced a fallout of expected license revenue. SS&C believes a large percentage of this fallout is due to prospects’ deferrals of purchases while resolving their Y2K issues. . . . License revenue for the quarter was $4.4 million, down 51% from the prior year’s quarter and off 60% from our expected results,” executives report in the earnings statement.

President and chief executive William C. Stone says in the statement, “We have experienced a deferral of license purchases because of Y2K, especially among some of SS&C’s large enterprise client prospects (those that would use an array of SSC software). We have been reviewing our pipeline and we are hopeful these larger, enterprise deals will close in future quarters.”

SS&C is not alone in hoping the upswing in sales and demand will come sooner rather than later.

Kevan Moretti, director of CWB System Services Ltd., a London-based investment software consulting firm, has seen money managers delay buying software.

He also has seen sales people from software companies move over to consult at CWB, and suspects those moves were made because of slow sales leading up to Jan. 1.

But Lisa Stanton, director of equity services at Barra in Berkeley, Calif., says there hasn’t been a noticeable slowdown at her firm yet.

Barra executives budgeted for a dip in software sales beginning in October and lasting through December, with a pickup in the first and second quarters of next year, she says.

In the company’s 10-Q report, the concern over Y2K is evident:

“Because Year 2000-related impacts on client purchasing decisions are unprecedented, our ability to forecast the impact of the Year 2000 issue on our quarter-to-quarter revenue is limited. However, we currently anticipate that sales of new products will slow or halt during the last half of calendar 1999,” the company’s report states.

Barra still expects to install risk-analysis, optimization and performance-analysis software, but anticipates business from banks and their investment management arms to slow because of strict government Y2K preparedness regulations.

In the Princeton study, 67.5% of those surveyed for securities/mutual funds clients say they would install general fixes during the restriction period, while 82% for mortgages/real estate clients say they would.

Roughly the same proportion say they would install releases needed for regulatory compliance during the fourth quarter. The PAM for securities/mutual funds 5.20 Service Pack 7 with regulatory changes will be released Oct. 15, while a new release from the PFS’ Mortgages Group will come in mid-November.

Overall, clients are taking a wait-and-see attitude, says Gordon Gacek, director of marketing services at Princeton. Interest is there, he says, but “people are gun-shy.”

Laurie Adami, president of Capital Management Sciences, has seen moratoriums on new software purchases begin as early as June 30, with others starting Oct. 1.

Few held back

When the company released a new version of BondEdge in July, only five or six clients out of 500 could not upgrade because of Y2K restrictions.

“I’ve been concerned we would see a slowdown in sales,” she says.

But thanks to Barra, that may not be the case. Since Barra has stopped providing single-country bond analytics to clients in the United States and Canada, CMS is expecting a rush of clients switching over to its BondEdge for Windows.

The firm has gained 30 customers so far since April, and expects it will continue with BondEdge installations in the next month, Ms. Adami says.

Another strategy for weathering Y2K at CMS will be allowing clients to use client service bureaus – an offsite area from which reports and information obtained from the software is sent to the client – rather than installing licensed software. The firm, expecting an increase in demand for client service bureau access, added three staffers to the area.

Ms. Adami expects the bigger companies will be more likely to enforce restrictions on new software, while small to medium-sized companies will install software in December.

Crain News Service