http://www.usatoday.com/life/cyber/tech/ctf238.htm

05/24/99- Updated 11:46 AM ET

U.S. worries about Y2K bug overseas Close won't count when Asian Y2K dominos fall

By Julie Schmit, USA TODAY

HONG KONG -- Robert Kushner's export office here is Y2K ready.

Robert Kushner of Pacific China Industries says his export office in Hong Kong is Y2K-ready, but he's concerned about the computers at businesses his company depends on. (AP) The Los Angeles native runs Pacific China, which exports Chinese goods to U.S. and European stores. His office computers are prepared to read the Jan. 1, 2000, date and not malfunction by reading it as 1900.

But Kushner buys goods from 500 suppliers in China. They buy supplies from hundreds of other Chinese companies. They all move goods by truck, rail and airline. They all need power and phone service.

In short, Kushner's business depends on hundreds of computers over which he has no control. "There is no way they will be ready," he says.

While the USA appears poised to pass the Y2K milestone with minimal problems, Asia is another matter. Analysts say China and Indonesia, two of the world's most populated countries, are two of the world's least-prepared.

Widespread disruptions in air travel and social services are expected, as are a moderate number of power and telephone service outages. The Philippines, Cambodia, Vietnam and Laos are in the same position. Japan, the world's No. 2 economy, is months behind the USA, the experts say.

If disruptions in Asia are severe enough, they could undermine tenuous economic recoveries and set off civil unrest, U.S. officials warn.

They could also hurt the hundreds of U.S. businesses with outposts in Asia. The region is a manufacturing hub for everything from athletic shoes to toys. It is at the heart of the computing industry: Memory chips come from South Korea and Japan; motherboards from Taiwan; PCs are assembled throughout the region.

"A break in the supply chain in China could have a domino effect," says Tim Janes, a senior manager for PricewaterhouseCoopers in Hong Kong.

That's what scares U.S. companies. Computer chipmaker Intel, with plants in China, Malaysia, the Philippines, Latin America, Ireland and Israel, is most worried about Asia. Last fall, a vast majority of its Japanese suppliers were at "very high risk" for Y2K problems, it says. In other Asian countries, "we found major discrepancies in their ability to operate," says Don Rose, head of Intel's Y2K program. Worried, Intel dispatched trainers to help companies and agencies. Rose's current assessment? "They have a good chance of finishing on time, but there will be little margin for error." The Y2K problem occurs when software programs fail to read the year 2000 because they read dates based on two digits. Confused by "00," computers could fail or produce inaccurate data. One messed up computer could foul up others on a network.

Y2K fixes are not technically hard. But they are costly and time-consuming. GartnerGroup, a leading Y2K consulting company, expects $300 billion to $600 billion to be spent on Y2K fixes.

Even then, Gartner expects 15% of companies and government agencies in the USA -- one of the most prepared countries -- to have at least one failure that results in a shutdown, loss of production or considerable revenue loss. About 10% of failures will last three days or more. In Japan, Korea, Singapore and Taiwan, the expected rate of such failures goes up to 33%. In China, Indonesia and others, it goes up to 66%.

The State Department considers the risks so great that U.S. embassies will stock 30 days of supplies. Because air traffic control systems are highly computerized, Gartner has recommended that travel be deferred if possible.

Intel is beefing up its own power supplies at its Asian plants. It is identifying alternate suppliers should existing ones run into Y2K problems. Computer giant Hewlett-Packard is weighing whether to deploy microwave communication systems in Asia. Dell Computer is prepared to shift capacity from troubled plants. Depending on the progress its suppliers make on Y2K, it may ask some to stock extra parts. "The next couple of months will be critical," says Dave Cunningham, head of Dell's Y2K program.

Many Asian countries are stepping up their Y2K efforts. Japan has made significant progress since last fall, Gartner says. Malaysia recently secured a $100 million Y2K loan from the World Bank. The Chinese government has reportedly ordered the CEOs of China's airlines to fly on Jan. 1 to show confidence. "This time last year, there was a deafening silence from Asian governments on Y2K," says Janes.

Still, many have a long way to go. As of December, one-third of 139 developing countries surveyed by the World Bank had not even drafted a Y2K action plan. The USA has been working on it for years. While developing countries have fewer computers, even the poorest countries have computerized power, telephone, food and fuel systems.

By some estimates, 90% of China's software is pirated. That makes it harder to ask software companies for help. "China's late start in addressing Y2K issues suggests Beijing will solve some, but not many, of its Y2K problems," the CIA's Lawrence Gershwin told a U.S. Senate committee in March.

Many of Japan's larger companies have Y2K strategies, officials say. NTT, Japan's largest telephone company, began fixes in 1992. "I can guarantee that Japan is among the world's leaders," IBM Japan Chairman Takeo Shiina said in April. Yet a U.S. Senate Committee recently warned that Japan may have underestimated the problem, and that a lot of Japanese banks lacked plans. Any failure among Japanese banks could affect financial institutions elsewhere, says Jun Kataoka of the Itsubishi Research Institute, who expects the Y2K problem to have a negative effect on Japan's GDP.

Asia's Y2K efforts were hindered by the economic crisis, which diverted attention and funds. "Many companies were grappling with survival issues," says Keith Osborne, head of Asia sales for software maker Novell.

Denial also played a role. According to the Japanese calendar, this is not 1999 but Heisei 11, the eleventh year of the reign of Emperor Akihito. That's why some Japanese mistakenly think the Y2K problem does not apply.

Many Asian companies also maintained that software makers were responsible. "People are still arguing over who should pay for things," Janes says.

There are some reasons for optimism. Some Y2K problems will occur before and after Jan. 1. That creates a more staggered time frame for fixes.

Realizing they cannot do everything, many Asian governments are now focusing on critical areas, analysts say.

What's more, Asia isn't as dependent on technology as the United States. Fewer than 3% of Asian homes have PCs, Pyramid Research estimates. In India, companies are so accustomed to power outages that most big offices have their own generators.

Says Mas Iskandar, H-P's head of Y2K in Asia: "It won't be business as usual, but it won't be Doomsday, either."

Contributing: Peter Hadfield in Tokyo

-- Arlin H. Adams (ahadams@ix.netcom.com), May 24, 1999

Answers

Thanks Arlin. Dominoes

-- Mike Lang (webflier@erols.com), May 24, 1999.