Recessionary economics, unsavoury scandals and lousy industry growth rates are just some of the reasons why many in IT might like to put 2002 behind them and hope that 2003 brings better fortune for all. But before we do that, it's worth reflecting on what was good about all the bad news: it reminded us that no matter how many "paradigm shifts" we endure, there are at least two rules that still apply: the truth will come out and the bills will come due.
Fiddle with your numbers, and eventually someone is going to scrutinise your account books and find the fraud. Write buggy software in your rush to get products out to monopolise a market, and one day you're going to have to face up to it and fix all that code. Use new-media funny-money to take over a profitable old-media company and your status as boardroom titan will be short-lived.
Of course, 2002 wasn't all about pigeons coming home to roost. It was also about telcos counting their bandwidth chickens before the customer-demand eggs had hatched; the Linux penguin waddling into government IT departments around the world, and HP CEO Carly Fiorina getting her proxy ducks in a row. Here's a bird's-eye view of the top stories of the past year:
- For sheer shock value, it's hard to find a headline this year to top the first news of the multibillion-dollar accounting fraud at WorldCom that had allowed a sick company to appear robust. Close to US$4 billion in improperly booked expenses were revealed in June, and more than $3 billion in additional accounting errors came to light in August. It may take some time before the dust settles around the now-bankrupt company and a clear picture emerges of its finances for the last several years. Meanwhile, former CFO Scott Sullivan faces criminal charges, but no-one has placed a smoking gun in the hand of former chief executive Bernard Ebbers, the architect of WorldCom's phenomenal rise who resigned almost two months before the massive fraud came to light. The scandal has kept the spotlight on the issue of corporate governance. Its repercussions on the technology industry have included a move toward expensing stock options, and new requirements that CEOs and CFOs personally certify the accuracy of their company's financial reports. As for WorldCom, as the operator of huge swathes of the global Internet backbone, it's probably too big to fail, and new CEO Michael Capellas is now charged with bringing the company out of the purgatory of bankruptcy and back into the light.
- It's no accident that legal scrutiny of the broad information technology industry centred on telecommunication -- besides WorldCom's troubles, now-bankrupt Global Crossing and Qwest Communications International faced federal probes into their accounting practices. Fact is, these providers promised their investors a bandwidth party, but nobody came. Wild predictions of growth in demand for Internet capacity resulted in build-outs that have yet to pay off. Meanwhile, European telcos' 3G wireless bets still haven't paid off, with heavy loads of debt still driving business decisions at the likes of France Telecom and Deutsche Telekom.
- Usually the phrase "merger subject to shareholder approval" indicates that there will be a quiet little coda to the more exciting news that big technology firms have decided to marry. Not in the case of Hewlett Packard and Compaq Computer, however. This one went down to the wire in a dramatic shareholder meeting in March where not only the merger, but CEO Carly Fiorina's credibility as its captain, were on the line. The company founders' heirs and their foundations, led by Walter Hewlett, opposed the merger on the grounds that it threatened the business; many HP employees were opposed as they feared jobs lost when the two companies consolidated operations. In the end, a steely Fiorina didn't blink and won the close proxy battle. Now she's faced with the more daunting task of making the merger work, without the help of former Compaq CEO Michael Capellas who last month jumped ship to lead WorldCom.
- The high drama of Microsoft's antitrust battles with authorities drew to a close this year (pending appeal, of course). Nine of the US states that had joined with the Federal Government in pressing suit against the software company refused to sign on to a settlement most observers saw as but a wrist slap for the monopolist, and this year they sought stiffer penalties from a Federal judge. In a decision being appealed by a couple of die-hard attorneys general, the judge essentially confirmed the remedies imposed by last year's settlement. Meanwhile, a private antitrust action brought by Sun Microsystems has begun in a Baltimore courtroom, and the Redmond, Washington, company is still under investigation by the European Commission.
- Meanwhile, a government movement that Microsoft may see as a bigger threat than monopoly-busting gained force: a call to use open-source software in public administrations. While some governments, for example in the UK and Norway, have looked to open-source software such as Linux-based systems as a way to avoid Microsoft licensing fees -- that company's new licensing agreements have met with unhappiness from users across many sectors -- others are seeking more secure software or simply to escape reliance on a single vendor. Governments in Germany, Finland and France have embraced open source, and the European Commission this year recommended that European government agencies should pool resources by sharing common open-source software. Linux has been adopted for use by governments in Hong Kong, the Philippines and China. In the US, Linux is running on government supercomputers while the open-source Apache Web server runs a significant percentage of government Web sites. Wall Street has already endorsed open-source with a number of major financial firms running Linux-based systems; its growing use in government should help buff its image further.
- Microsoft faced up to another threat this year. While it didn't actually acknowledge what many in the industry have charged for years, that its software is riddled with security flaws, Bill Gates in January plugged the "Trustworthy Computing" initiative in a memo to employees. He asked them to make ensuring the security of code a priority over adding new features in Microsoft products. The next month Microsoft appointed a chief security strategist, and the company also began to review its code looking for security flaws. Nonetheless, the exploits and subsequent patches for Microsoft's wares keep coming. Last month Microsoft CTO Craig Mundie pointed the finger of blame at companies and individuals who simply won't pay the piper and upgrade to new versions of his company's products, but even the company's latest offering, Windows XP, has required patches to security holes.
- One piece of the IT landscape that changed significantly this year was the services business, in which the Big Five accounting firms had played a major role with their IT consulting practices. As fallout from the mounting corporate scandals in the US, particularly that involving Enron and the criminal role played by its auditor, now-defunct Arthur Andersen, the conflict of interest between accountants conducting audits of a company's results, and consultants earning lucrative consulting fees from the same company, grew too stark. While some accounting firms had already spun off their IT consulting units, this process gained momentum in 2002. PricewaterhouseCoopers sold its consulting unit to IBM for $3.5 billion, and Deloitte Touche Tohmatsu announced plans to spin out its unit as an independent company. And suddenly even old spin-offs didn't seem to want to be associated with accounting businesses at all: KPMG Consulting is spending tens of millions of dollars rebranding itself as BearingPoint.
- Was it really almost two years ago that ISP-to-the-masses America Online had its crowning moment merging with old-media giant Time Warner to become AOL-Time Warner? Even before this marriage was consummated, the engagement ring was looking more like a rhinestone than a diamond as AOL's stock declined from $71 to $47 per share in the time it took to complete the merger. Rumours abounded of the culture clash between the brash techies and the buttoned-down media folk at AOL-Time Warner. Two years later, while AOL's Steve Case is still chairman of AOLTW, old-timers from the Time Warner side remain in control at the merged company and the top spot at the troubled AOL unit has been a hot seat. The latest AOL CEO Jonathan Miller has his hands full, fighting MSN for subscribers and advertisers, and dealing with an investigation into the Internet unit's accounting practices.
- We can't look back at 2002 and not acknowledge that it was another lousy year for technology spending, a bit better than 2001 but still one of double-digit declines, according to researcher IDC. That's hurt corporate IT departments hoping to deploy competitive technology, but it's mostly hurt the technology vendors -- and, we should acknowledge, a host of related businesses from technology trade shows to technology publications. The human cost in layoffs has been felt at HP, IBM, Apple, Sun, EMC, Lucent, I2, Hitachi, Motorola, Avaya, Verizon, WorldCom, France Telecom, Nortel, Verisign, Quantum, Xerox, Storage Networks,CompuWare, Yahoo, Cingular, Oracle, Commerce One, KPNQwest, RSA, Corel, Cap Gemini and many, many more.
- A more voluntary career transition also took place at IBM: the departure of Lou Gerstner, widely credited with reinvigorating the computing giant when he took the helm in the early 1990s, and the ascendance of Sam Palmisano to the chief executive's office and chairman's seat in the boardroom. The outgoing Palmisano isn't expected to rock the Big Blue boat -- he's been a company man since 1973 -- but he's already charted out the course for IBM's next phase: a move to offer on-demand computing, built on utility-like processor grids and self-maintaining autonomic systems. Like everyone else, Palmisano seems determined to look ahead and focus on the next cool thing -- that's why we're in this business, isn't it?