Friday, March 6, 2009

Pressure Not Just on Satyam; IT’s Big-4 Feel Heat

Is Satyam losing clients due to Raju’s creative accounting or the stark recession? The happenings at Indian IT’s Big-4 – TCS, Infosys, Wipro, & HCL – would make us believe that creative accounting is only half the story at Satyam. The tainted company has already lost major contracts like Citigroup, Merrill Lynch, Coca-Cola, Glaxo-Smithkline, Novartis, Cigna, State Farm Insurance, SanDisk etc with new names being added to this list almost everyday - Nissan and Pfizer being the latest to go public with their Satyam-abandoning plans. However, the Big-4 is also not immune to this development with several of their clients forcing a take-it-or-leave-it rate cut on them. Both existing contracts and new contracts are being signed at 15-20% less margin than last year. Major outsourcing customers who have recently forced their way with the Big-4 include British Telecom, Visa, & Bank of America. Satyam’s losses should theoretically be the Big-4’s gains, but in reality those clients who have abandoned Satyam are bargaining hard with TCS, Infosys, Wipro, & HCL, coaxing them to take their accounts at 15 to 20% less margins. During the past several years, Indian IT has maintained that it operates on 25% margins, and Satyam’s core problem was said to be undertaking contracts at just 5% margins. But now, all are forced to work at 5 to 10% margins, and what this means for the future of Indian IT is clear.

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