When Big Ben chimed in the year 2000, the technology sector was the 'new economy', an apparent economic miracle. It took just over a year for received wisdom to see it as a disaster.

Even before last month's terrorist attacks on the US, shares in many IT firms, telecoms companies and the so-called dot. coms were falling, helping to fuel fears of a general recession. The dot. com bubble was the last of a line. In the early 1990s, spending on information technology was, as it is now, in the doldrums.

Things slowly picked up as the decade progressed. After mini-booms in specific areas such as web-browser software, the late 1990s saw enterprise resource planning (ERP) software, which automates areas such as accountancy and manufacturing, enjoying its time in the sun.

'In the mid-1980s, business applications software was chosen by the IT department, ' says Trevor Salomon, market director for ERP vendor JD Edwards, which has been selling IT for 18 years. The result was systems that were often poorly integrated across organisations.

After the early 1990s recession, systems came to be chosen by finance directors - and ERP systems, providing an integrated accountancy-based view, became popular.

The boom was also driven by a set of unique circumstances: the need to replace older systems that were not designed to deal with years beyond 1999, the problem dubbed the 'millennium bug'.

Many systems might have malfunctioned - but the glitch was referred to in apocalyptic terms.

Many firms bought much more expensive and complex systems than the ones being replaced, with several vendors reporting income doubling yearon-year and soaring share prices.

'There was only the flimsiest of value propositions, ' says Simon Bragg, European research director for analyst ARC Advisory.

'Now, You have got to have a strong return-oninvestment case, but in the late 1990s it was: 'Y2K, let's do it'. It was really vague.'

Naturally enough, spending on year 2000 compliant systems ground to a halt in 1999. But a new mania was ready to take IT vendors even higher.

The world wide web concept was created by British scientist Tim Berners-Lee in 1990.His aim was to make the Internet - the global data interchange system created by the US military in the 1960s - easy to use.

Software called a web-browser would allow users to see well laid-out, easily linked 'pages'.

Mr Berners-Lee saw the web as an ideal library.He didn't see it as a get-rich-quick scheme, but for millions of people towards the end of the decade, that is what it became.

The millennial explosion in Internet (or dot. com) stock prices has been compared to the South Sea bubble of 1720, when the unknown potential of Latin America sent share prices soaring, or to the Dutch tulip mania of the 1630s.

But the dot. com bubble was closer to British railway mania. In the mid-1840s, dozens of firms sprang up to build lines (several years after the first railways were built in the 1820s - as with the web, the bubble took time to inflate).

The companies were hot stocks until it became apparent that revenues would not match expectations.Mergers and failures followed - but the result was valuable infrastructure.

Similarly, the world wide web has laid down tracks for cheap, fast communication, creating the potential for businesses that did not previously exist.

The trouble is, the value of such dot. com businesses was absurdly overestimated by stock markets. They poured investors'money into companies when they set up and when they floated.

This money was swiftly spent on IT and telecommunication products and services, so the vendors boomed too (and, unlike the speculative dot. coms, they were making huge amounts of money).

At one point, a UK fund manager pointed out that Amazon. com, the US web bookseller, was worth more in stock market terms than J Sainsbury.

The UK supermarket took£18.4bn in its financial year ending March 2001, making post-tax profits of£266m. Amazon took $2.76bn (£1.82bn) during calendar year 2000, and recorded a loss of $1.41bn.

Some defended Amazon's high share price by pointing out that its revenue growth rate was 68 per cent a year (between 1999 and 2000), while Sainsbury's was only 6 per cent a year.

But Amazon would have had to maintain that extremely high relative growth rate until 2005 to overtake the supermarket's revenues - and then there would be the small matter of turning an equivalent profit.

On 14 March 2000, UK web travel firm Lastminute. com listed its shares on the London stock exchange at 380 pence (having controversially hiked the sale price at, well, the last minute).

Eighteen months later, Lastminute. com, not atypically for a dot. com stock, was trading at around 35 pence.

It had joined the '90 per cent Club' - companies that had lost nine-tenths of their value since those new millennium heights (see box, page 7).

'In the early 1990s, the downturn was caused by the commercial sectors - consumers were not buying, ' says Clive Longbottom, service director of analyst firm Quocirca.

'This time, it was caused by the IT sector itself. IT vendors geared themselves to a dot. com boom, and all of a sudden, There is a load of three-month-old equipment at fire-sale prices.'

One immediate casualty was jobs. Early last month, Compaq and Hewlett-Packard announced plans to merge.

They cited the need to consolidate, even though they had already cut 14,500 jobs between them.

Another 15,000 jobs may go if the deal goes through.

HP's profit for May to July 2001 was 89 per cent down on the same period last year, and Compaq's for April to June was down 80 per cent. Sales were down 14 per cent and 17 per cent respectively.

UK telecoms equipment firm Marconi cut 10,000 jobs, more than a quarter of its workforce, from March to September, as sales slumped.

Another casualty was consumer confidence. In the wake of the World Trade Center and Pentagon terrorist attacks, many analysts see the behaviour of US consumers as critical. If they stop spending, a full-blown recession may be hard to avoid.

Yet the US has mass share ownership, pushed by web-based stockbrokers and, even before the atrocities, losing a packet on shares was making Americans reconsider their spending.

Britain's avoidance of a downturn before the attacks was explained by a still-buoyant job and property market (most Britons have their wealth tied up in their houses and share ownership never took off to the same extent). But a harsher global economic climate will affect the UK.

The NHS may find there is an upside to all this doom and gloom. Technology staff should be easier to find, as the disappearance of high-paying dot. com jobs makes the state sector work look welcoming.

There could also be an impact on procurement. In the 1990s, as the private sector spent on technology, the health service held back.

'We have had several promised booms in IT spending, ' says Michael Cross, health sector analyst for e-government specialist Kable.

The first was the introduction of the internal market, requiring hospital information support systems.

'But apart from about half a dozen high-profile projects, the money didn't come through.'

It took until 1998 for the next hint of spending, when then health secretary Frank Dobson announced£1bn for health service IT.

'At the tail-end of financial year 2001-02, There is a definite sense that the pace of contracts is picking up, especially for level-3 electronic patient records, ' says Mr Cross.

Projects such as direct booking and NHS Direct, plus prime minister Tony Blair's enthusiasm for electronic government, are also driving spending.

Kable thinks overall state IT spending (products, services and staff costs) was£8.7bn in the financial year ending last April (with health spending accounting for£1.7bn in this financial year).

The overall figure will rise well above inflation, up 7 per cent to£9.3bn in 2001-02, and a further 6 per cent to£9.9bn in 2002-03.

The public sector has been attracting the attention of companies that rode previous trends.

Germany's biggest software firm SAP and USbased rival Oracle dominated the late 1990s wave of ERP implementations. Even before the recent stock market turmoil, both were seeking to reinvent themselves as Internet software specialists and both were suddenly keen on healthcare - in Oracle's case, despite being absent from the sector for several years.

The two were among consortia bidding for the single NHS payroll and human resources contract, worth about£300m over 10 years, with the Oraclebacked bid the preferred supplier.

Other major firms are staking their claims.

Microsoft signed a deal in August allowing it to resell the UK's Government Gateway (software that provides authentication and links between state bodies), with the world's largest software firm taking 76 per cent of the overseas sales price.

Software giant Sun spent the e-commerce boom touting itself as 'the dot in dot. com'.

But Ed Zander, the chief operating officer of the US firm, told a news conference in August:

'Because of the incredible growth of the past three to five years, governments have collected a hell of a lot of taxes.

'Governments around the world have money, and they are faced with getting services on the web and cutting costs.'

Mr Cross argues that, in the short term at least, the public sector will continue to look attractive.

'If there is a nuclear war, then there is not likely to be a lot of money going into hospital administration systems, ' he says. 'But otherwise, the argument still holds. In fact, there might be an argument that central money will be thrown at anything that looks like security and efficiency, making the government sector even more attractive.'

This could have big implications for NHS suppliers.

There are a lot of small players at the moment: some niche areas resemble cottage industries.

An influx of corporate giants could see some of them squeezed out of the market. But there could be opportunities for the savvy purchaser - operating carefully.

'IT suppliers are masters of negotiation and they will stitch you, given the chance, 'warns Mr Bragg.

He advises negotiating with several contractors and asking reference sites (organisations that have already bought software and services) exactly how much they paid the supplier. Oracle has a reputation for big discounts - but it is far from unique.

On the other hand, Mr Salomon (whose firm, JD Edwards, does not have a European healthcare product) warned before the stock market crash that buyers needed to examine the stability of their prospective suppliers.

'I think we will see consolidation of the major vendors, ' he says. The survivors are likely to be large firms, working across several sectors and without debts.

Because NHS spending has been set for the year, Mr Longbottom also feels that the healthcare IT market is unlikely to be affected short term.

Longer-term prospects depend on what happens next, both on the stock market and in government.

'The real market issue is whether we are going to war, ' he says. 'If there are just incursions into Afghanistan to 'take out' Bin Laden, then the market will pick up fairly quickly.

'If we find ourselves fighting a war against Islam, with perhaps civil war in Pakistan, a major nuclear power, then we would be into a whole new ball game.'

Similarly, he says that while the government can maintain its public services spending in the short term, if it finds itself fighting a long war it will need to find funds to do so.

'Where will that come from? It could come from tax, though that seems unlikely, ' he says.

'Otherwise, the government is going to have to find other areas of expenditure to trim.

'Health and education will be the last to go, but eventually health might suffer as well.'

So IT firms were finding times tough before 11 September, even though much of the infrastructure laid in the 1990s will come into its own, eventually.

That was making the public sector look attractive, with several large players eyeing up new business.

IT firms have seen prices fall rapidly since 11 September - along with others - and what happens next is hard to call.

Assuming, however, that the 'war on terrorism' causes an economic blip, rather than Armageddon, the underlying trends could re-emerge fairly rapidly.

If so, there should be plenty of choice for judicious NHS IT spenders, if they can find the right vendor with the right product, right price and ability to weather the economic squalls ahead. Get ready to be popular.

Taking stock: gloom and doom The US has two main stock exchanges, the New York Stock Exchange and Nasdaq, where most of the US dot. com firms and technology vendors floated their businesses.

The performance of the latter gives the best guide to the health of the new economy.

The Nasdaq index, covering its 100 biggest firms, topped 5,000 in mid-March 2000, as British firm Lastminute. com floated.

It wobbled, then started to fall.On Friday 14 April, it fell by a tenth, from 3,677 to 3,321, in a single day.

By September 2001, the Nasdaq index was below 1,800 - meaning that roughly $4,000bn had been cut from the combined worth of the stocks since that March 2000 high.

In the wake of the US terrorist attacks, a further 400 points were knocked off its value.