It includes both hardware and software. This page provides the results of a series of YR2K tests on PCs and operating systems. This page provides the YR2K status of Firmware's microprocessors. This page provides many examples of YR2K status of software and hardware. This has the implication that Year 2000 problems may reveal themselves both before and for some time after 1 January 2000 and not at all on the date itself.
Most systems count time by counting clock ticks.
Exceptionally however there are devices in which year numbers are used in time calculations and which may have problems when the year becomes 2000. Because their software may therefore be older they are rendered more liable to Year 2000 problems. Embedded systems are often in continuous operation and so are liable to be necessarily in operation when the date changes from 1999 to 2000.