The lack of attention or resources paid to Y2K preparedness means developing countries and small companies risk significant failures in their basic infrastructure, Marcoccio said, speaking at the Gartner Group Predicts conference in San Diego on Monday (March 22). Countries such as Afghanistan and Bahrain are among those likely to suffer Y2K-related infrastructure breakdowns and mission-critical failures.

Overall, Marcoccio said, global Y2K issues have gained more attention in the last three months as spending on Y2K modifications climbed. He noted that corporate Information Technology spending for Y2K fixes rose from 5 percent of corporate IT budgets in 1997, to 15 to 30 percent of IT budgets in 1998.

Companies also spent more money on Y2K preparedness activities outside of IT, Marcoccio said. In calendar 1998, large companies with more than 20,000 employees pumped 50 percent of their Y2K money into projects that fall outside of IT, such as risk management, contingency planning and implementation. These same companies allocated nothing for these projects the previous year. By the end of 1999, Marcoccio predicted, those companies will spend 2.5 to 3 times more on non-IT Y2K activities than on IT spending itself.

Increased IT spending for Y2K readiness translated into a slight uptick in hardware and software sales in late 1998 and early 1999, Marcoccio said, but the hardware and software industries will see a slight decline in sales during the third and fourth quarter of 1999 as companies focus attention on implementing Y2K plans.

"Large companies can't roll out new PCs during the third and fourth quarter of this year, because they'll be too busy working on Y2K readiness and other issues, so we expect to see softening of large purchases," Marcoccio said.

Storage product sales, however, will continue to grow as businesses plunk down the bucks to acquire additional back-up storage to prevent data losses that might occur from Y2K failures, Marcoccio said.

Globally, the Gartner Group report indicated that developing nations have made only a modest effort to address Y2K problems, despite urgent attention given this issue by the World Bank and the United Nations.

Countries with a high gross domestic product and extensive industrialization have had more success in addressing Y2K issues than poorer nations, largely because the wealthier, more powerful countries were able to accelerate their spending for Y2K fixes. Poorer developing nations have spent less, and the gap between the two is widening, the Gartner Group reported.

Some nations have made progress since Marcoccio first studied the issue, including Japan and France. Mexican banks have also increased Y2K-related activities, Marcoccio said.

The United States leads the pack in in Y2K preparedness, Marcoccio said, noting that 75 percent to 80 percent of U.S. government agency systems have already been altered to comply with Y2K needs. Taking the United States and Canada together, the two governments are 50 percent ahead of the rest of the world, he said.

In the private sector, critical industries such as pharmaceuticals, discrete manufacturing, food processing companies (especially in the United States) and utilities all have made progress in eliminating the Y2K bug. The only utilities that lag behind on the Y2K curve are local city and town municipalities which run their own power and natural gas companies.

One misunderstood aspect of the Y2K bug has led to inordinate attention to potential system failures on a particular date, Marcoccio said. Focusing Y2K contingency plans around a single date, which is what many companies are doing, Maroccio said, is the wrong strategy.

Only 8 percent to 10 percent of any system failures will occur in the two- week period after January 1, 2000, Marcoccio said. Five percent of the predicted failures have already happened and 25 percent will occur in 1999, with most coming in the second half of the year. That's because many corporate fiscal years end in July or in October. Moreover, there are many six-month forecasting systems in play and even more one-month forecasting systems. Overall, only 55 percent of the anticipated failures will occur during 2000, Marcoccio estimated, with the number of failures trailing off by the fourth quarter of that year. In 2001, failures will trickle off to 15 percent of the total.

To avoid breakdowns and protect their systems, some businesses are relocating their entire operations, Marcoccio said. He described one company that is moving its factory operation out of a high-risk country to another site to avoid the Y2K bug. Other companies are scrambling to put in place marketing activities, product strategies and revenue forecasts that will shift their focus from high-risk areas in Asia, Southeast Asia, parts of Europe and South America, he said.

Meanwhile, Marcoccio said, as concerns escalate about possible Y2K-related failures in business and banking operations, power, the food supply, medical help and telephone and other communication services, Y2K litigation has increased. He said he has heard estimates that litigation involving Y2K issues could top out at between $3 trillion and $5 trillion.

As of March, Marcoccio said, just under 797 legal cases had reached the "demand letter" stage, where one party sends a letter to another demanding a response on Y2K preparedness, and 80 lawsuits have been filed. The majority of the suits have been filed by end-user companies suing software companies, Marcoccio said.

Marcoccio predicted more lawsuits will be brought against hardware vendors and insurance companies in 1999. Suits have already been filed against AT&T-Lucent Technologies and against a retail chain that sells PCs, he said.

Exacerbating the litigation issue is the fact that 46 U.S. states have granted exclusions to Y2K-specific claims payments, and insurance companies want to expand this exclusion from claims related to business interruptions to accident and death and dismemberment insurance claims.