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Satyam customers warned to expect disruption

Gartner recommends companies closely monitor their contracts with the the outsourcer for disruption and prepare contingency measures
Written by Nick Heath, Contributor

Analysts are warning Satyam's customers to prepare themselves against the risk of disruption of services from the troubled outsourcer.

It follows last week's admission by Satyam's founder and former chairman B Ramalinga Raju that its books had been inflated by nearly $1bn (£700m).

Analyst group Gartner warned that the ensuing investigation will hamper Satyam's ability to invest in client engagement, staff development and R&D and risks driving staff out of the company, limiting its attractiveness as a IT services vendor.

Gartner recommends that companies closely monitor their contracts with Satyam for disruption, prepare contingency measures and offer "retention bonuses" to keep key Satyam staff on critical projects.

The note said: "In the current economic environment, enterprises consider financial indiscretions by any business intolerable; we believe this will severely handicap Satyam when prospective customers are evaluating potential partners."

Satyam's clients include household names such as BBC Worldwide, Birds Eye Iglo Group, Fifa, General Electric and Nestlé.

A spokesman for Nestlé said it had assurances from Satyam over the continuation of its service but added it is examining its options: "Nestlé's own internal resources are in a position to provide the company with the necessary IT support.

"Alternative solutions are being considered and no disruption of Nestlé's IT operations is expected."

A spokesman for BBC Worldwide, which worked with Satyam on its BBC Blast VJ Masher video portal for young people and has an ongoing services contract with the outsourcer, said: "There is only a very small amount of work being carried out at this present time, which is reaching a natural conclusion, unconnected with recent events.

"If we were to enter into any future contract of work with Satyam we would obviously apply the appropriate due diligence and contractual terms to protect BBC Worldwide."

Fifa said it is "monitoring the situation relating to Satyam", which is the IT services provider for the 2010 and 2014 Fifa World Cups and two Confederation Cups.

Speaking from Satyam's headquarters in Hyderabad today, senior Indian banker and new Satyam board member Deepak Parekh said that on paper the company has enough money coming in to cover its debts but admitted that at the moment "nobody knows these numbers are correct".

Parekh said in the coming days the board will appoint accountants to verify the figures and go back over the firm's books for the past two or three years. "We have triple A clients and can request them to pay early rather than waiting 60 days.

"The company has a large amount of receivables due and the debt due is low so there is adequate liquidity but we need to get these figures verified."

Parekh added that the company may also ask for more time to state its third quarter results.

The company's shares jumped to end the day more than 40 percent up at 34.40 rupees (47 pence).

Parekh and two other senior figures were appointed to Satyam's board by the Indian government after it sacked the previous board on Friday.

There has also been much speculation about whether Satyam could be taken over or merge with another organisation, such as one of the other large Indian outsourcers.

But Manish Dugar, chief financial officer of one of the largest Indian outsourcers, Wipro, played down suggestions that it could be among the companies looking to take over Satyam. He said the two companies were so similar, any deal would be hampered by a doubling up of departments across the new organisation.

Dugar told ZDNet UK's sister site, silicon.com: "If you look at the business of Satyam and Wipro we are more or less comparable in service, the size, the kind of work that we do, customer base, etc. It is complementary but I don't know how synergistic it would be, because if we are out there doing something where they are then one plus one becomes 11."

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