Satyam's future up in the air after scandal

Customers of Satyam Computer Services Ltd. were left facing questions about its viability last week, after the India-based offshore outsourcing vendor's chairman admitted to orchestrating a fraudulent accounting scheme and resigned.

Satyam had already hired an investment banking firm late last month to review its "strategic options." But Chairman B. Ramalinga Raju's admission that the company had inflated its profits and cash holdings for several years plunged Satyam into a crisis.

Ram Mynampati, a Satyam executive who was named interim CEO last week, said at a press conference that company officials were trying to reassure customers that there would be no interruption in Satyam's IT services.

But Forrester Research Inc. analysts Sudin Apte and John McCarthy said in a Jan. 8 report that Satyam's ability to continue as an independent entity is in doubt. The analysts added that they expect customers and employees alike to "desert Satyam as a result of competitive wooing."

Apte and McCarthy advised IT managers to monitor Satyam's performance against service-level agreements and analyze the feasibility of shifting systems to other outsourcing vendors or bringing them in-house.

"I think Satyam is in a very dire situation," said Peter Bendor-Samuel, CEO of Everest Group, a Dallas-based consulting firm. "If they aren't running out of cash now, it's probable that they will be very shortly."

Satyam is India's fourth-largest outsourcer. What it needs most of all is to hold on to customers such as automaker Nissan North America Inc., which signed a five-year application services deal with Satyam in 2006.

Nissan spokeswoman Katherine Zachary said the company is keeping an eye on the situation.

"We're taking appropriate steps to ensure the continuity of our systems and applications that are Satyam-supported, and we're going to continue to monitor the situation," Zachary said.

The National Association of Software and Services Companies, India's largest IT trade group, was quick to distance itself from Satyam, even though Raju is a former Nasscom chairman. "This is a stand-alone case of failure of corporate governance, and it is critical that it be viewed in this light," Nasscom said in a statement.

Ribeiro writes for the IDG News Service. This version of the story originally appeared in Computerworld's print edition.

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Copyright © 2009 IDG Communications, Inc.

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