GE stands by Satyam, but time running out
- 21 January, 2009 07:32
Although analysts expect that Satyam Computer Services will lose customers in the fallout of its accounting scandal, major customer General Electric said Tuesday it had not moved work from Satyam.
"We will continue to work with Satyam at this point," a GE India spokeswoman said.
But customer patience may be running thin, analysts said, and at least one client is known to have terminated a contract with Satyam.
Customers are already looking at alternatives, and are likely to make a final call on their continuation with Satyam in about a week to 10 days, Sudin Apte, analyst at Forrester Research, said on Tuesday.
Other Indian outsourcers are also making strong pitches for Satyam's customers, he added.
Satyam entered a crisis earlier this month after the company's founder B. Ramalinga Raju said that the company had inflated profits for several years. A new board appointed by the government said that the company could be facing a liquidity crisis, but the precise position would be known only after the company's accounts are restated.
The Indian government has ruled out a financial bailout for Satyam.
"Until they see cash in the balance sheet, customers are going to be very concerned about Satyam's ability to pay employees, and keep things running," Apte said. Solving the liquidity issue at the company will have to wait until the restatement of the company's accounts, which is going to take some months, he added.
"Customers don't have the patience for that," Apte said.
Satyam's customers are said to be scouting for alternatives. India's largest outsourcer Tata Consultancy Services said during its earnings call last week that it had been approached by some of Satyam's clients, but no deals had been finalized.
Satyam said on Monday that State Farm Insurance in the U.S. had terminated its technology outsourcing contract with the company.
"Customers are not concerned about the investigations into the financial scandal at Satyam," said an analyst on condition of anonymity. Rather, CIOs who are customers of Satyam want a clear picture about Satyam's liquidity position, having a new management in place, and ensuring the continuation of the company as an operating entity, he added.
Satyam does not yet have a CEO or chief financial officer.
The outlook for the company continues to be uncertain on other fronts as well. One board member, Tarun Das told reporters in Delhi on Tuesday that Indian and multinational companies have shown interest in taking over the company.
At the first press conference last week of the government-nominated board, another board member, Deepak Parekh did not rule out a merger for Satyam.
Investigators are considering the possibility that funds from Satyam may have been siphoned out of the company. The government on Monday brought under scrutiny construction companies Maytas Properties and Maytas Infra in which Raju and his family have a dominant stake. Satyam announced in December the acquisition of the construction companies, but changed its position less than a day later after facing an investor backlash.