Satyam scam, slowdown make 2009 hard for software industry

Satyam scam, slowdown make 2009 hard for software industry

New Delhi: The Satyam Computer accounting scam, slowdown and resultant hiring freeze by many made 2009 an unforgettable year for the Indian information technology industry.

There was never a dull moment for bad news during the year, given the fact that Satyam’s founder B Ramalinga Raju came out of the closet with an accounting fraud on 7 January. The scam tarnished the credibility of India’s IT story, requiring others to do a lot of convincing to retain clients.

As dramatic it was, the World Bank, within a week of the Satyam scam coming to light, announced it had banned, besides Satyam, Wipro and Megasoft from working for it for allegedly “providing improper benefits to the Bank staff" during the course of their projects with it. While the cases dated back to mid-2007, the timing of the disclosures only helped compound the woes of the IT industry.

To give the government its due credit, it acted swiftly by superseding the Satyam Board, which brought in new auditors to restate accounts, and ascertained employee count and within months found a new owner in Tech Mahindra. Satyam has since been renamed Mahindra Satyam.

Multiple agencies probed the scam, whose size was initially estimated at Rs7,800 crore, and Raju, once a celebrated IT icon, is in custody awaiting trial.

2009 also saw the software exporting community trying hard to keep their margins as clients cut down on IT spends. The huge forex losses due to fluctuation of rupee didn’t help them either.

Bulk of IT companies’ revenue comes from the US and Europe and they earn more when the dollar is stronger.

Although the dollar was stronger, many of them had hedged against a stronger rupee - which it was in 2007 - thus losing out any which way.

The fallout of this was that top Indian IT companies, which used to hire up to 25,000 people annually, put recruitment on hold. Many of them, including Infosys, postponed campus recruitments.

Talking of Infosys, its poster-boy Nandan Nilekani left the IT company he helped found to join the government for a project to give every Indian citizen a unique identity number.

Globally, the industry saw a few mergers and acquisitions. In April, US business software company Oracle Corporation announced that it would buy its Silicon Valley rival Sun Microsystems for $7.4 billion in cash.

The takeover has moved Oracle, the world’s second-largest software maker, into the server and storage computers market, placing it against IBM and Hewlett-Packard.

In September, the world’s second largest PC maker Dell Inc entered into an agreement to acquire computer services firm Perot Systems for about $3.9 billion, making it one of the biggest deals in the IT space since the global financial turmoil hit the sector. The acquisition was aimed at helping Dell foray into the software space.

Copier major Xerox Corporation announced that it will acquire outsourcing entity Affiliated Computer Services (ACS) for about $6.4 billion in a cash and stock deal.

Indian IT industry is passing through a difficult phase. Shrinking budgets, pressure on revenues and bottomline, competition from global bigwigs are staring at the home-grown software multinationals who have to adjust to a new scenario than the one they have been used to so far.

In a way, the game is just beginning now.