Satyam Could Lose Half Its Customers Under Tech Mahindra - InformationWeek

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IT Leadership // IT Strategy

Satyam Could Lose Half Its Customers Under Tech Mahindra

Gartner analysts predict outsourcer's client base could shrink by 50% or more despite acquisition.

Potential operational disruptions and lingering trust issues could cause troubled outsourcer Satyam to lose half its customer base or more as it moves to integrate with acquirer Tech Mahindra, according to analysts at research firm Gartner.

"Many risk assessments of Satyam -- even with Tech Mahindra support -- will likely result in scores lower than many competitors in a standard IT services evaluation," Gartner analyst Frances Karamouzis wrote in a report published this week. "In a buyer's market, it's less likely that enterprises will go with a newly formed, riskier entity."

The upshot: Satyam's revenue could shrink from about $2 billion to $1 billion over the next 12 to 18 months, according to the report. "Legal liabilities and account matters will likely loom for years," wrote Karamouzis. "Organizational and operational issues will require time, resources and significant change management."

Gartner is advising clients to "proceed with caution" when it comes to dealings with Tech Mahindra-Satyam.

Last month, the United Nations said it planned to terminate its contracts with Satyam and bar the outsourcer from bidding on future work. Another Satyam customer eyeing alternatives is property and casualty insurer Selective Insurance. Selective has outsourced about a quarter of its IT staffing requirements to Satyam. Gadget maker SanDisk has also said it's considering pulling work from Satyam.

Satyam's domestic competitors, including Wipro, TCS, and Infosys, as well as multinational outsourcers such as IBM, HP-EDS, and Accenture, stand to benefit from the exodus.

India's top corporate regulator on Thursday approved Tech Mahindra's proposed $422 million acquisition of the scandal-scarred outsourcer.

Tech Mahindra must deposit into escrow $351 million by Tuesday to secure the agreement or Satyam's overseers will move on to the second-highest bidder. The company is backed by Indian manufacturing giant Mahindra & Mahindra and British Telecom, so raising cash shouldn't be problem.

Indian authorities earlier this month formally charged Satyam chairman Ramalinga Raju and several alleged accomplices with crimes including criminal conspiracy, impersonation, forgery, falsification of records, and evidence tampering. Raju has admitted falsifying Satyam's cash position by as much as $1 billion while overstating quarterly earnings and revenue by up to 28%. Satyam also may have faked employee numbers and other data.

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