Satyam may lose half its business to rival firms

Satyam may lose half its business to rival firms
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First Published: Tue, Jan 13 2009. 12 37 AM IST
Updated: Tue, Jan 13 2009. 12 37 AM IST
Bangalore: Almost half the business of Satyam Computer Services Ltd will be up for renegotiation by March, posing the risk that a substantial number of clients could desert the fraud-hit technology vendor and move work to rivals, analysts said.
Nearly $600 million, or Rs2,907 crore, worth of contracts could potentially go to other firms and likely to be distributed among Indian and US-based technology service providers, analysts Viju George and Kunal Sangoi at Edelweiss Securities Ltd wrote in a research note on Monday.
The Indian firms include Satyam’s bigger domestic rivals Tata Consultancy Services Ltd, Infosys Technologies Ltd and Wipro Ltd. US-based rivals for Satyam’s business include Cognizant Technology Solutions Corp., Accenture Ltd and International Business Machines Corp., or IBM.
“A drastic redistribution of market share in favour of others in an overall stable-to-declining information technology (IT) services market is likely as early as January to February as client budgets are substantially set at the beginning of the calendar year,” George and Sangoi wrote.
Hyderabad-based Satyam counts General Electric Co., or GE, Nissan Motor Co. Ltd and General Motors Corp. among 690 clients who use its services. Many of its customers are small firms that give it business of between $1 million and $5 million a year.
The future of the company is clouded by the Rs7,136 crore accounting fraud to which founder-chairman B. Ramalinga Raju confessed on 7 January, shocking Satyam’s clients, investors and 52,000 employees and raising doubts about corporate governance standards followed by companies in India.
Companies such as GE and Citigroup Inc. of the US and Telstra Corp. of Australia have relations with multiple service providers and traditionally, these firms finalize their IT budgets at the beginning of the year before renegotiating contracts.
While many companies have gone through accounting scams and some have managed to survive, the key difference in Satyam’s case is the potential lack of cash assets to meet immediate commitments, including employee salaries for January and February, said a report on Indian IT services by CLSA Asia Pacific Markets.
“This raises the prospects of a predatory attack on Satyam’s business from its peer vendors, and markets are agog with extrapolations of how this may happen,” CLSA analysts Bhavtosh Vajpayee and Nimish Joshi wrote in a report on Monday.
This year, contracts will come up for renegotiation with the US and European economies in recession, forcing clients of Indian software vendors to slash technology spending. Technology researcher IDC Corp. has predicted that growth in global IT spending will be reduced by half to 2.6% because of the recession and that a recovery could take as long as three years.
Wipro has admitted that some mutual customers of Satyam were talking to it, while TCS has declined comment since the Satyam controversy broke.
Edelweiss analysts say that Infosys may not be keen on Satyam’s customers as most of the contracts the Hyderabad firm won were priced at least 10% lower than what its peers in the industry charged their clients.
Other Indian firms have so far failed to offer Satyam clients anything substantially different that makes them more attractive either in terms of service or costs, said Sabyasachi S. Prasad, director of Mindplex Consulting, an offshore advisory firm.
“The competition of Satyam have approached its clients for taking over shared business. But nobody is coming forward and telling the client what they can do during the transition and bring down costs for customers,” Prasad said.
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First Published: Tue, Jan 13 2009. 12 37 AM IST