Satyam still risky a year after fraud revealed: Forrester
- 09 March, 2010 01:53
Over a year after Indian outsourcer Satyam Computer Services reported a major financial fraud at the company, research firm Forrester still cautions customers doing business with it.
Satyam has a new owner, Tech Mahindra, which took over the management from the middle of last year.
But clients should keep an eye on Satyam's ongoing problems such as high attrition, cultural differences between the new management and old Satyam staffers, and risks arising from the unavailability of the company's audited financials, Forrester said in a report.
The company, which spent most of last year fighting for survival and defending its client base after the fraud broke out, did not invest in new technologies such as cloud-based delivery of services, Sudin Apte , a principal analyst at Forrester, said on Monday.
Many other analysts also believe that Satyam's turnaround is far from complete.
"Satyam does not figure for most clients planning to outsource to India," said an analyst on condition of anonymity, as his company does not publicly discuss individual providers. Satyam may still be losing customers, he added.
The company is typically not considered for new deals of a value of above US$100 million, Apte said. The customers that it has added recently are for small deals of $5 million to $7 million, he added. Most of these have been attracted by the basement prices offered by Satyam, which have lowered the company's margins, Apte said.
Satyam was plunged into a crisis in January last year after its founder, B. Ramalinga Raju , said that the company's revenue and profit had been over-stated for several years.
The Indian government stepped in soon after, and appointed its own board for the company. The new board decided to invite bids to select a strategic investor in the company.
Tech Mahindra, another Indian outsourcer, was selected in the bid, and acquired a dominant stake of 43 percent in Satyam.
The government-nominated board also ordered in January last year the re-statement of Satyam's accounts, but that process has still to be completed.
The company has as yet to communicate to customers the full extent of the financial fraud, restate the accounts, and also convey to customers a plan by which it expects to maintain operational stability, an analyst said.
There are customers who might have awarded business to Satyam, but for their hesitation to do business with a company that is not in compliance on its accounts, Apte said.
A Satyam spokeswoman said on Monday that the company now plans to have its accounts restated by June 30. She declined to provide information on the company's performance, including on the number of clients that the company has added recently.
The stability of the company has become a key issue as it is grappling with high staff attrition, Forrester's Apte said. The market has picked up, and other companies are hiring, which raises questions as to whether Satyam will be able to retain and attract staff in the new competitive environment, he added.
The company has also lost some key staff to other Indian outsourcers, Forrester said. The Satyam spokeswoman said that the company has recently been able to attract some key executives from other outsourcers including Wipro.
Satyam is also involved in legal battles including with 37 companies that claim a refund of 12.3 billion Indian rupees (US$270 million) that was allegedly given to the company as temporary advances.
Forrester's main concern however is that with its low pricing and low margin model, Satyam may not have the funds to invest in new technologies that its competitors in India have already invested in. There is also no indication at this point that the new owners plan to invest more funds in the company, Apte said.