US computer giant IBM on Monday reported that first quarter net profit fell one percent to $2.29 billion while revenue declined 11% to $21.7 billion.
Earnings per share were $1.70, up from $1.64 in the same quarter last year.
"IBM continued to perform well in a very difficult economic environment," IBM chief executive Samuel Palmisano said in a statement.
"This was due to our long-term strategic focus: shifting into software and services, divesting of commodity businesses, and creating solutions that help clients reduce cost and conserve capital.
"We are well-positioned to continue to move aggressively and leverage our strong cash performance to make the most of the opportunities that arise, including smarter planet initiatives and other strategic options," Palmisano said.
"We remain ahead of pace for our 2010 roadmap of 10 dollars to 11 dollars per share."
Tuesday, April 21, 2009
Friday, March 20, 2009
Sony Ericsson expects 340-390 mn euro loss in Q1 on weak sales
Cellular handset maker Sony Ericsson Mobile Communications AB on Friday said it expects to post a loss in the range of 340-390 million
euro in the first quarter of this year, due to continued decline in sales.
The company has estimated a net loss before taxes in the range of 340-390 million euro, excluding restructuring charges between 10 million and 20 million euro, Sony Ericsson said in a statement.
"..Net sales and net income before taxes in the first quarter of 2009 continue to be negatively affected by weak consumer demand as well as de-stocking in the retail and distribution channels," the statement added.
Besides, Sony Ericsson plans to ship about 14 million phones during the first quarter of 2009 with an estimated average selling price of 120 euro.
The company is due to announce its first quarter result on April 17.
Sony Ericsson had reported a net loss of 187 million euro in the fourth quarter of last year, against a net income of 373 million euro in the corresponding year-ago period.
Earlier in January, telecommunications firm Ericsson AB had said it would slash about 5,000 jobs as part of its cost cutting initiatives, while it had reported a substantial fall in net income for the fourth quarter ended December 31, 2008.
euro in the first quarter of this year, due to continued decline in sales.
The company has estimated a net loss before taxes in the range of 340-390 million euro, excluding restructuring charges between 10 million and 20 million euro, Sony Ericsson said in a statement.
"..Net sales and net income before taxes in the first quarter of 2009 continue to be negatively affected by weak consumer demand as well as de-stocking in the retail and distribution channels," the statement added.
Besides, Sony Ericsson plans to ship about 14 million phones during the first quarter of 2009 with an estimated average selling price of 120 euro.
The company is due to announce its first quarter result on April 17.
Sony Ericsson had reported a net loss of 187 million euro in the fourth quarter of last year, against a net income of 373 million euro in the corresponding year-ago period.
Earlier in January, telecommunications firm Ericsson AB had said it would slash about 5,000 jobs as part of its cost cutting initiatives, while it had reported a substantial fall in net income for the fourth quarter ended December 31, 2008.
Worst yet to come for Indian economy: Moody's
The positive movement of the st"The positive sentiment is expected to be short-lived, as India essentially only started feeling the pinch of the global downturn in the December quarter and the worst is yet to come," Moody's economy.com said in a research report.
The industrial production growth slipped into negative territory for the third time in the current fiscal by 0.5 per cent in January while exports also dropped by 15.9 per cent on a year-on-year (y-o-y) basis in the month.
However, expectations of further monetary easing measures by the Reserve Bank increased after inflation fell to 0.44 per cent for the first week of March against 2.43 per cent a week ago.
Since October, RBI has infused over Rs 4,00,000 crore in the system by cutting ratios and signalling interest rate cut.
There is also some positive news from Dalal Street as the Bombay Stock Exchange benchmark index Sensex surged 245 points in this week.
Moody's added that the Indian economy is likely to grow by 6.3 per cent with some downward risk in the current fiscal against government estimate of 7.1 per cent.
For the year 2009, India's growth rate is unlikely to exceed five per cent, but a recovery in the opening quarter of 2010 due to expected rebound of the US economy in the December quarter, should lift annual expansion to about five per cent for fiscal 2009-2010, it said.
It further added that the market sentiment is still unstable in India and so far in 2009 there has been a net outflow from the Indian stock market.
Even businesses in India continue to be troubled by liquidity concerns and tight access to credit.
"As the current focus of many firms is to refinance debt and survive the financial turmoil, investment is expected to be subdued this year," the report added.
Moody's expects long-term investors to continue to value India's underlying growth potential, but speculators who are facing liquidity constraints, are likely to stay clear of emerging markets on signs of turbulence.
"As the current focus of many firms is to refinance debt and survive the financial turmoil, investment is expected to be subdued this year," it added.
The industrial production growth slipped into negative territory for the third time in the current fiscal by 0.5 per cent in January while exports also dropped by 15.9 per cent on a year-on-year (y-o-y) basis in the month.
However, expectations of further monetary easing measures by the Reserve Bank increased after inflation fell to 0.44 per cent for the first week of March against 2.43 per cent a week ago.
Since October, RBI has infused over Rs 4,00,000 crore in the system by cutting ratios and signalling interest rate cut.
There is also some positive news from Dalal Street as the Bombay Stock Exchange benchmark index Sensex surged 245 points in this week.
Moody's added that the Indian economy is likely to grow by 6.3 per cent with some downward risk in the current fiscal against government estimate of 7.1 per cent.
For the year 2009, India's growth rate is unlikely to exceed five per cent, but a recovery in the opening quarter of 2010 due to expected rebound of the US economy in the December quarter, should lift annual expansion to about five per cent for fiscal 2009-2010, it said.
It further added that the market sentiment is still unstable in India and so far in 2009 there has been a net outflow from the Indian stock market.
Even businesses in India continue to be troubled by liquidity concerns and tight access to credit.
"As the current focus of many firms is to refinance debt and survive the financial turmoil, investment is expected to be subdued this year," the report added.
Moody's expects long-term investors to continue to value India's underlying growth potential, but speculators who are facing liquidity constraints, are likely to stay clear of emerging markets on signs of turbulence.
"As the current focus of many firms is to refinance debt and survive the financial turmoil, investment is expected to be subdued this year," it added.
Friday, February 27, 2009
Yahoo! CFO Blake Jorgensen to quit
Yahoo! has said its Chief Financial Officer (CFO) Blake Jorgensen will be quitting the company, amid reports that the internet major will soon be revamping its corporate structure.
In a regulatory filing with the US Securities and Exchange Commission on Thursday, Yahoo! said Jorgensen would be leaving the firm and added that the search has started for a new CFO.
Jorgensen would remain with the company as the CFO through a transition period, the filing added.
The development comes amid reports suggesting that the newly appointed Yahoo! chief Carol Bartz would soon be announcing a corporate reorganisation of the company.
Bartz took over the reins of the internet major in January.
On the other hand, Yahoo! India's CEO for Research & Development (R&D) Sharad Sharma has decided to quit the company.
Sharma would be replaced by Shoubick Mukherjee as the new R&D head.
In a regulatory filing with the US Securities and Exchange Commission on Thursday, Yahoo! said Jorgensen would be leaving the firm and added that the search has started for a new CFO.
Jorgensen would remain with the company as the CFO through a transition period, the filing added.
The development comes amid reports suggesting that the newly appointed Yahoo! chief Carol Bartz would soon be announcing a corporate reorganisation of the company.
Bartz took over the reins of the internet major in January.
On the other hand, Yahoo! India's CEO for Research & Development (R&D) Sharad Sharma has decided to quit the company.
Sharma would be replaced by Shoubick Mukherjee as the new R&D head.
Tuesday, January 27, 2009
Key rates unchanged; GDP forecast cut to 7%
The Reserve Bank of India (RBI) in its third quarter review of the Monetary Policy 2008-09, kept the key interest rates unchanged. The central bank also scaled down the GDP growth target to 7% with a downward bias from the earlier 7.5%-8%.
The repo rate under the LAF has been kept unchanged at 5.5%. The reverse repo rate under the LAF has been kept unchanged at 4%. The Bank Rate has been kept unchanged at 6%.
The review also reduced the inflation target to 3% in the medium term. The inflation projection is down keeping in view the global trend in commodity prices and the domestic demand-supply balance.
Money supply growth has been revised to 19% from 17% earlier. RBI expects fiscal deficit for FY09 at 5.9 per cent of GDP against earlier estimate of 2.5 per cent.
The Reserve Bank has allowed banks to avail liquidity support under the LAF for the purpose of meeting the funding requirements of mutual funds (MFs), non-banking financial companies (NBFCs) and housing finance companies (HFCs) through relaxation in the maintenance of SLR up to 1.5 per cent of their NDTL.
A special refinance facility for scheduled commercial banks (excluding RRBs) was provided by the Reserve Bank on November 1, 2008 under Section 17 (3B) of the RBI Act, 1934 up to 1% of each bank’s NDTL as on October 24, 2008. Both these facilities are currently available up to June 30, 2009.
The repo rate under the LAF has been kept unchanged at 5.5%. The reverse repo rate under the LAF has been kept unchanged at 4%. The Bank Rate has been kept unchanged at 6%.
The review also reduced the inflation target to 3% in the medium term. The inflation projection is down keeping in view the global trend in commodity prices and the domestic demand-supply balance.
Money supply growth has been revised to 19% from 17% earlier. RBI expects fiscal deficit for FY09 at 5.9 per cent of GDP against earlier estimate of 2.5 per cent.
The Reserve Bank has allowed banks to avail liquidity support under the LAF for the purpose of meeting the funding requirements of mutual funds (MFs), non-banking financial companies (NBFCs) and housing finance companies (HFCs) through relaxation in the maintenance of SLR up to 1.5 per cent of their NDTL.
A special refinance facility for scheduled commercial banks (excluding RRBs) was provided by the Reserve Bank on November 1, 2008 under Section 17 (3B) of the RBI Act, 1934 up to 1% of each bank’s NDTL as on October 24, 2008. Both these facilities are currently available up to June 30, 2009.
Friday, January 23, 2009
Steve Ballmer’s Entire Memo to the Microsoft troops about layoffs
From: Steve Ballmer
To: All Microsoft FTE
Subject: Realigning Resources and Reducing Costs
In response to the realities of a deteriorating economy, we’re taking important steps to realign Microsoft’s business. I want to tell you about what we’re doing and why.
Today we announced second quarter revenue of $16.6 billion. This number is an increase of just 2 percent compared with the second quarter of last year and it is approximately $900 million below our earlier expectations.
The fact that we are growing at all during the worst recession in two generations reflects our strong business fundamentals and is a testament to your hard work. Our products provide great value to our customers. Our financial position is solid. We have made long-term investments that continue to pay off.
But it is also clear that we are not immune to the effects of the economy. Consumers and businesses have reined in spending, which is affecting PC shipments and IT expenditures.
Our response to this environment must combine a commitment to long-term investments in innovation with prompt action to reduce our costs.
During the second quarter we started down the right path. As the economy deteriorated, we acted quickly. As a result, we reduced operating expenses during the quarter by $600 million. I appreciate the agility you have shown in enabling us to achieve this result.
Now we need to do more. We must make adjustments to ensure that our investments
are tightly aligned with current and future revenue opportunities. The current environment requires that we continue to increase our efficiency.
As part of the process of adjustments, we will eliminate up to 5,000 positions in R&D, marketing, sales, finance, LCA, HR, and IT over the next 18 months, of which 1,400 will occur today. We’ll also open new positions to support key investment areas during this same period of time. Our net headcount in these functions will decline by 2,000 to 3,000 over the next 18 months. In addition, our workforce in support, consulting, operations, billing, manufacturing, and data center operations will continue to change in direct response to customer needs.
Our leaders all have specific goals to manage costs prudently and thoughtfully. They have the flexibility to adjust the size of their teams so they are appropriately matched to revenue potential, to add headcount where they need to increase investments in order to ensure future success, and to drive efficiency.
To increase efficiency, we’re taking a series of aggressive steps. We’ll cut travel expenditures 20 percent and make significant reductions in spending on vendors and contingent staff. We’ve scaled back Puget Sound campus expansion and reduced marketing budgets
. We’ll also reduce costs by eliminating merit increases for FY10 that would have taken effect in September of this calendar year.
Each of these steps will be difficult. Our priority remains doing right by our customers and our employees. For employees who are directly affected, I know this will be a difficult time for you and I want to assure you that we will provide help and support during this transition. We have established an outplacement center in the Puget Sound region and we’ll provide outplacement services in many other locations to help you find new jobs. Some of you may find jobs internally. For those who don’t, we will also offer severance pay and other benefits.
The decision to eliminate jobs is a very difficult one. Our people are the foundation of everything we have achieved and we place the highest value on the commitment and hard work that you have dedicated to building this company. But we believe these job eliminations are crucial to our ability to adjust the company’s cost structure so that we have the resources to drive future profitable growth.
I encourage you to attend tomorrow’s Town Hall at 9am PST in Café 34 or watch the webcast.
While this is the most challenging economic climate we have ever faced, I want to reiterate my confidence in the strength of our competitive position and soundness of our approach.
With these changes in place, I feel confident that we will have the resources we need to continue to invest in long-term computing trends that offer the greatest opportunity to deliver value to our customers and shareholders, benefit to society, and growth for Microsoft.
With our approach to investing for the long term and managing our expenses, I know Microsoft will emerge an even stronger industry leader than it is today.
Thank you for your continued commitment and hard work.
Steve
To: All Microsoft FTE
Subject: Realigning Resources and Reducing Costs
In response to the realities of a deteriorating economy, we’re taking important steps to realign Microsoft’s business. I want to tell you about what we’re doing and why.
Today we announced second quarter revenue of $16.6 billion. This number is an increase of just 2 percent compared with the second quarter of last year and it is approximately $900 million below our earlier expectations.
The fact that we are growing at all during the worst recession in two generations reflects our strong business fundamentals and is a testament to your hard work. Our products provide great value to our customers. Our financial position is solid. We have made long-term investments that continue to pay off.
But it is also clear that we are not immune to the effects of the economy. Consumers and businesses have reined in spending, which is affecting PC shipments and IT expenditures.
Our response to this environment must combine a commitment to long-term investments in innovation with prompt action to reduce our costs.
During the second quarter we started down the right path. As the economy deteriorated, we acted quickly. As a result, we reduced operating expenses during the quarter by $600 million. I appreciate the agility you have shown in enabling us to achieve this result.
Now we need to do more. We must make adjustments to ensure that our investments
are tightly aligned with current and future revenue opportunities. The current environment requires that we continue to increase our efficiency.
As part of the process of adjustments, we will eliminate up to 5,000 positions in R&D, marketing, sales, finance, LCA, HR, and IT over the next 18 months, of which 1,400 will occur today. We’ll also open new positions to support key investment areas during this same period of time. Our net headcount in these functions will decline by 2,000 to 3,000 over the next 18 months. In addition, our workforce in support, consulting, operations, billing, manufacturing, and data center operations will continue to change in direct response to customer needs.
Our leaders all have specific goals to manage costs prudently and thoughtfully. They have the flexibility to adjust the size of their teams so they are appropriately matched to revenue potential, to add headcount where they need to increase investments in order to ensure future success, and to drive efficiency.
To increase efficiency, we’re taking a series of aggressive steps. We’ll cut travel expenditures 20 percent and make significant reductions in spending on vendors and contingent staff. We’ve scaled back Puget Sound campus expansion and reduced marketing budgets
. We’ll also reduce costs by eliminating merit increases for FY10 that would have taken effect in September of this calendar year.
Each of these steps will be difficult. Our priority remains doing right by our customers and our employees. For employees who are directly affected, I know this will be a difficult time for you and I want to assure you that we will provide help and support during this transition. We have established an outplacement center in the Puget Sound region and we’ll provide outplacement services in many other locations to help you find new jobs. Some of you may find jobs internally. For those who don’t, we will also offer severance pay and other benefits.
The decision to eliminate jobs is a very difficult one. Our people are the foundation of everything we have achieved and we place the highest value on the commitment and hard work that you have dedicated to building this company. But we believe these job eliminations are crucial to our ability to adjust the company’s cost structure so that we have the resources to drive future profitable growth.
I encourage you to attend tomorrow’s Town Hall at 9am PST in Café 34 or watch the webcast.
While this is the most challenging economic climate we have ever faced, I want to reiterate my confidence in the strength of our competitive position and soundness of our approach.
With these changes in place, I feel confident that we will have the resources we need to continue to invest in long-term computing trends that offer the greatest opportunity to deliver value to our customers and shareholders, benefit to society, and growth for Microsoft.
With our approach to investing for the long term and managing our expenses, I know Microsoft will emerge an even stronger industry leader than it is today.
Thank you for your continued commitment and hard work.
Steve
Google tops Q4 forecasts, though earnings drop
Google Inc.'s profit slipped for the first time in the fourth quarter, but the Internet search leader is still weathering the economic storm better than analysts anticipated.
The results released yesterday indicated the Mountain View, California-based company was able to rein in its free-spending ways enough to offset a slowdown in the online ad market that generates most of Google's revenue. That contrasted with a missed forecast and 5,000 layoffs announced earlier in the day by rival Microsoft Corp.
Even so, there were signs the recession is starting to bear down on Google.
The downturn forced Google to write down $1.1 billion of the combined $1.5 billion that it has invested in two troubled companies, AOL and Clearwire Corp. And Google is allowing its 20,222 employees to swap their outstanding stock options for new ones that will carry a lower exercise price -- which means the workers will have a better chance of making money from the options.
The move was driven by 47 per cent drop in Google's stock price over the past year, leaving about 17,000 employees holding options that are "under water" and can't be cashed in now at a profit.
Although he hailed his company's strength in a decrepit economy, Google Chairman and CEO Eric Schmidt signaled the challenges are becoming more daunting by describing the fourth quarter as "the easy part" and calling the upcoming months as "uncharted territory".
Revenue climbed 18 per cent to $5.7 billion. That marked the first time Google's revenue growth had fallen below 30 per cent from the previous year.
The results released yesterday indicated the Mountain View, California-based company was able to rein in its free-spending ways enough to offset a slowdown in the online ad market that generates most of Google's revenue. That contrasted with a missed forecast and 5,000 layoffs announced earlier in the day by rival Microsoft Corp.
Even so, there were signs the recession is starting to bear down on Google.
The downturn forced Google to write down $1.1 billion of the combined $1.5 billion that it has invested in two troubled companies, AOL and Clearwire Corp. And Google is allowing its 20,222 employees to swap their outstanding stock options for new ones that will carry a lower exercise price -- which means the workers will have a better chance of making money from the options.
The move was driven by 47 per cent drop in Google's stock price over the past year, leaving about 17,000 employees holding options that are "under water" and can't be cashed in now at a profit.
Although he hailed his company's strength in a decrepit economy, Google Chairman and CEO Eric Schmidt signaled the challenges are becoming more daunting by describing the fourth quarter as "the easy part" and calling the upcoming months as "uncharted territory".
Revenue climbed 18 per cent to $5.7 billion. That marked the first time Google's revenue growth had fallen below 30 per cent from the previous year.
Monday, January 19, 2009
Tata Motors may seek rollover of JLR debt
Tata Motors, India’s largest commercial vehicles maker, may seek to roll over a part of the Rs 9,200-crore bridge loan it took to buy the Jaguar, Land Rover brands of cars in June from Ford Motor Company, say analysts. The company is still short of over Rs 4500 crore to refinance the debt which is due before June 2 this year.
“The company may ask for a rollover of debt after repaying it partly,” said S Ramnath, director, research at Mumbai- based brokerage IDFC-SSKI. “It would eventually increase the interest cost burden of the company,” he said.
The company had planned to raise the fund for refinancing through three routes. It planned to raise about Rs 4200 crore through rights issues which it managed after the issue devolved on underwriters in October as the stock prices were tumbling globally following the economic crisis.
The company also planned to raise around Rs 3000 crore through selling certain investment of the company. A Tata Motors spokesperson said that so far it had raised Rs 545 crore through this route which includes Rs 485 crore by selling the stake of Tata Steel to a group company. Another divestment that the company made is of the stake that it held in the unlisted entity Tata Teleservices which fetched it around Rs 60 crore.
The company did not disclose its plans on further divestments According to the company’s last annual report, it had investments in group’s listed entities such as Automobile Corporation of Goa, Tata Steel, and Tata Steel CCPS.
“The group’s response has not been prompt in divesting the stakes; there has been a slide in the stock prices since August when it announced its plans,” said an analyst with a foreign brokerage firm who did not wish to be quoted. “The task has become more difficult now,” he said.
Out of over 30 million shares of Tata Steel held, the company sold around 10 million on September 25 when the stock price of the scrip was Rs 488.55 on the Bombay Stock Exchange.
At Friday’s stock price of Rs 201, the share value has dropped by 59 per cent.
Tata Teleservices, Tata AutoComp Systems, Hispano Carrocera SA and Tata Sons are the other unlisted group firms where the company has its investments. Besides, there are seven subsidiaries of the company where it may choose to dilute its stake to raise the fund.
The third route for raising the money was a $500-600 million equity issue in a foreign market. “This is not possible in the prevailing market conditions,” said Ramnath. The company did not comment on this issue.
“Market sentiments are really bad, they would not be able to derive the benefit if they bring the issue in foreign market now,” said Piyush Parag, an analyst with Religare Securities.
“The company may ask for a rollover of debt after repaying it partly,” said S Ramnath, director, research at Mumbai- based brokerage IDFC-SSKI. “It would eventually increase the interest cost burden of the company,” he said.
The company had planned to raise the fund for refinancing through three routes. It planned to raise about Rs 4200 crore through rights issues which it managed after the issue devolved on underwriters in October as the stock prices were tumbling globally following the economic crisis.
The company also planned to raise around Rs 3000 crore through selling certain investment of the company. A Tata Motors spokesperson said that so far it had raised Rs 545 crore through this route which includes Rs 485 crore by selling the stake of Tata Steel to a group company. Another divestment that the company made is of the stake that it held in the unlisted entity Tata Teleservices which fetched it around Rs 60 crore.
The company did not disclose its plans on further divestments According to the company’s last annual report, it had investments in group’s listed entities such as Automobile Corporation of Goa, Tata Steel, and Tata Steel CCPS.
“The group’s response has not been prompt in divesting the stakes; there has been a slide in the stock prices since August when it announced its plans,” said an analyst with a foreign brokerage firm who did not wish to be quoted. “The task has become more difficult now,” he said.
Out of over 30 million shares of Tata Steel held, the company sold around 10 million on September 25 when the stock price of the scrip was Rs 488.55 on the Bombay Stock Exchange.
At Friday’s stock price of Rs 201, the share value has dropped by 59 per cent.
Tata Teleservices, Tata AutoComp Systems, Hispano Carrocera SA and Tata Sons are the other unlisted group firms where the company has its investments. Besides, there are seven subsidiaries of the company where it may choose to dilute its stake to raise the fund.
The third route for raising the money was a $500-600 million equity issue in a foreign market. “This is not possible in the prevailing market conditions,” said Ramnath. The company did not comment on this issue.
“Market sentiments are really bad, they would not be able to derive the benefit if they bring the issue in foreign market now,” said Piyush Parag, an analyst with Religare Securities.
Monday, January 12, 2009
Satyam's US clients face tough choices
Details of the stunning fraud at Indian outsourcing
giant Satyam are still trickling out. On Friday, Jan. 9, former Chairman Ramalinga Raju was arrested, the company's stock was delisted, and its board of directors was liquidated. It's unclear whether the $2.1 billion-a-year company will survive. But worried as they are, Satyam's current customers cannot abandon the company overnight; in the tech-services business, the operations of the client and service provider can be deeply intertwined.
Now companies like General Electric (GE) and Nestlé are hard at work assessing their exposure to risks if Satyam goes under. No. 1 on the priority list is determining how much of their business' knowledge has been documented and can easily be handed over to another outfit—and how much is locked up in the heads of Satyam's staff.
Other BusinessWeek stories
à
Why Satyam backpedaled so fast
à
Scramble starts as Satyam crumbles
à
Who wins from India's Satyam scandal?
The original intent of shifting IT work like programming and database management to outfits like Satyam was to save on labor costs. The savings for many companies has been 15%-20% on their IT budgets. But for Satyam clients, a potentially expensive and complex process of disentanglement is beginning.
Intellectual Property
Figuring out the knowledge-transfer process "is not for the faint of heart," says John McCarthy, an analyst for Forrester Research (FORR) in Cambridge, Mass. "In the best case, they can transfer the documentation [to another firm], but if not, they have to look to the [employees] of Satyam." And once the firm gathers its intellectual property, it has to decide where else to entrust it.
Satyam has about 550 to 600 clients; those contacted for this article did not want to talk about their business with Satyam. About 237 accounts spend more than $1 million annually with the company and 52 accounts spend more than $10 million. About 23% of its revenues come from the manufacturing sector; 21% from telecom, information technology, and media companies; 10.5% from retail; and 7% from health care and pharmaceuticals, says McCarthy.
Lifeblood Issues
How much trouble these clients are in for, though, depends not on their particular industries but the types of operations they have outsourced to Satyam. Firms in the greatest danger are those who have contracted with Satyam for running "mission critical" systems
and services —meaning IT operations core to the company's functioning, says Peter Bendor-Samuel, chief executive of the Everest Group, a Dallas outsourcing consultancy.
These systems include managing critical SAS and Oracle (ORCL) databases that control, for example, a company's accounts payable and receivables. "These are lifeblood issues to a company," says Bendor-Samuel. "They're pretty complicated and scary things to manage. [Satyam clients] are sweating every minute of every day to get it done."
Some companies are in better shape to handle the process than others, says Steve Martin, a partner and co-owner of Pace Harmon, a San Francisco-based outsourcing advisory firm serving Fortune 500 companies. "Best-practices companies do a good job documenting" business knowledge, says Martin. "Those who don't won't have an orderly or efficient transfer."
giant Satyam are still trickling out. On Friday, Jan. 9, former Chairman Ramalinga Raju was arrested, the company's stock was delisted, and its board of directors was liquidated. It's unclear whether the $2.1 billion-a-year company will survive. But worried as they are, Satyam's current customers cannot abandon the company overnight; in the tech-services business, the operations of the client and service provider can be deeply intertwined.
Now companies like General Electric (GE) and Nestlé are hard at work assessing their exposure to risks if Satyam goes under. No. 1 on the priority list is determining how much of their business' knowledge has been documented and can easily be handed over to another outfit—and how much is locked up in the heads of Satyam's staff.
Other BusinessWeek stories
à
Why Satyam backpedaled so fast
à
Scramble starts as Satyam crumbles
à
Who wins from India's Satyam scandal?
The original intent of shifting IT work like programming and database management to outfits like Satyam was to save on labor costs. The savings for many companies has been 15%-20% on their IT budgets. But for Satyam clients, a potentially expensive and complex process of disentanglement is beginning.
Intellectual Property
Figuring out the knowledge-transfer process "is not for the faint of heart," says John McCarthy, an analyst for Forrester Research (FORR) in Cambridge, Mass. "In the best case, they can transfer the documentation [to another firm], but if not, they have to look to the [employees] of Satyam." And once the firm gathers its intellectual property, it has to decide where else to entrust it.
Satyam has about 550 to 600 clients; those contacted for this article did not want to talk about their business with Satyam. About 237 accounts spend more than $1 million annually with the company and 52 accounts spend more than $10 million. About 23% of its revenues come from the manufacturing sector; 21% from telecom, information technology, and media companies; 10.5% from retail; and 7% from health care and pharmaceuticals, says McCarthy.
Lifeblood Issues
How much trouble these clients are in for, though, depends not on their particular industries but the types of operations they have outsourced to Satyam. Firms in the greatest danger are those who have contracted with Satyam for running "mission critical" systems
and services —meaning IT operations core to the company's functioning, says Peter Bendor-Samuel, chief executive of the Everest Group, a Dallas outsourcing consultancy.
These systems include managing critical SAS and Oracle (ORCL) databases that control, for example, a company's accounts payable and receivables. "These are lifeblood issues to a company," says Bendor-Samuel. "They're pretty complicated and scary things to manage. [Satyam clients] are sweating every minute of every day to get it done."
Some companies are in better shape to handle the process than others, says Steve Martin, a partner and co-owner of Pace Harmon, a San Francisco-based outsourcing advisory firm serving Fortune 500 companies. "Best-practices companies do a good job documenting" business knowledge, says Martin. "Those who don't won't have an orderly or efficient transfer."
Subscribe to:
Comments (Atom)
