(FORTUNE Magazine) – STUCK WITH dusty old computer programs that are incompatible with the latest hardware? Want to peddle military software to the Army, but your package doesn't meet the Defense Department's new programming language requirements? Can't afford the time, money, or manpower to rewrite programs from scratch? The answer could be translators, a type of software that switches programs from one computer language to another. A number of software companies are in the business, but Lexeme Corp., a privately held Pittsburgh company, claims to be the only one whose programs can translate several languages fully automatically. A Lexeme co-founder, Michael Shamos, 39, a professor of computer science at Carnegie-Mellon University, developed the translator technology. Lexeme's software translates eight standard programming languages, including Fortran, Cobol, Pascal, and Basic, into any of three other languages, including Ada, which the Pentagon has settled on as its standard. Lexeme expects 1986 sales to total about $2.5 million. Customers include RCA, Digital Equipment, and McDonnell Douglas. Until recently, translating programs from one language into another usually meant that programmers had to pore over and rewrite instructions line by line, much as medieval monks transcribed Scripture. Lexeme's translation software breaks a language down into its tiniest building blocks, called lexemes. The program builds the lexemes into a ''parse tree,'' which resembles a structural diagram. The software converts the parse tree into an intermediate language; then an expert system, a form of artificial intelligence, recasts it into the desired language. Manual translations typically cost $3 to $10 per line of instruction. Lexeme charges 50 cents to $2 per line, depending on the size of the job and whether the translator must be customized by hand to fit a new language. If a customer wants to do the work himself, Lexeme licenses its software for a fee of 10 cents to 25 cents per line. Shamos boasts of translating a 25,000-line program in 48 hours, or about one-hundredth the time it would take by hand. How big the translation market could get is unclear, because translation is not always the best solution to a problem. For example, new languages like Ada are more advanced than Fortran, so programs written from scratch in Ada can be faster and easier to use than those translated from Fortran. Lexeme's software has other limitations, but Shamos believes the U.S. market for translators could amount to $1 billion a year. If the cost of doing translations is low enough, some old programs might be worth converting after all. Says Walter Culver, president of Computer Sciences Corp.'s Systems Division in Falls Church, Virginia, which uses translation programs, ''If translations could be done for pennies an instruction, they get very attractive.'' Lexeme is banking on just that.