Bangalore: Satyam Computer Services Ltd may lose as much as half its customers, some of them to its rivals such as Tata Consultancy Services Ltd (TCS), Infosys Technologies Ltd and Wipro Ltd, after a revelation by its chairman that the firm inflated revenue and profits for several years.
At least one partner and customer, Cisco Systems Inc., said a proposed minority investment in a Satyam subsidiary—Satyam Global Lifenet —could be in jeopardy due to this development.
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“While we had held discussions to explore the possibility of a potential minority investment in one of their subsidiaries (Satyam Global Lifenet), we have not reached any final agreement and are under no contractual obligation to make an investment towards the same,” a Cisco spokesman said in a statement, adding that this would not have a material impact on his firm.
Cisco chairman and chief executive officer John Chambers said in October 2007, that Cisco would take a minority stake in the Satyam project optimize, deploy and manage solutions for handling medical distress situations and health management solutions for global markets.
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Satyam, India’s fourth largest software firm by revenues, counts giants such as General Electric Co., Nissan Motor Co. Ltd and General Motors Corp., among its 690 clients who use a portfolio of its services. Many of its customers, however, are small firms that give it business of between $1 million (Rs4.86 crore) and $5 million a year.
The smaller customers would find it easy to move their business, said Sudin Apte, country head of Forrester Research, Inc., an independent research company. “But for the larger customers, it is a question on how to transition.”
GE, one of Satyam’s largest customers declined comment while Nestlé and Caterpillar had yet to respond at the time this paper went to press. “Customers would chose those who serve them the best,” said S. Gopalakrishnan, chief executive officer of Infosys Technologies. TCS declined comment.
Satyam faced a serious management credibility crisis since Raju led a move on 16 December to use $1.6 billion of the company’s money to buy two infrastructure firms owned by his family members under the pretext of diversification. The move was abandoned after investors protested.
Since then, customers have raised concerns over business continuity, said Sabyasachi S. Prasad, director of Mindplex Consulting, an offshore advisory firm. “The full impact of the development will be known in the next 48 hours.”
Satyam’s interim chief executive Ram Myanampati in a note to employees said, the new management will meet most customers in person over the next two weeks.
An executive at Wipro said the fraud at Satyam would not impact the entire industry and Western firms would continue to outsource information technology (IT) services from India due to cost, and value would continue.
“Just because Enron happened, it does not mean that no one did business with US companies. You find black sheep, in every industry and every country,” Suresh Senapaty, executive director and chief financial officer of Wipro said.
“Satyam’s existing customers will ask questions, but are unlikely to switch suppliers, unless Satyam loses a large number of crucial operational staff in the coming weeks,” said Phil J. Fersht, research director, global business and outsourcing services AMR Research, Inc. “However, Satyam is now at a disadvantage in winning new business in the short term as it struggles to shake off the current controversy. Plus, some customers renewing existing agreements will be evaluating alternative service provider options.”
Graphics by Paras Jain / Mint