Financial Daily from THE HINDU group of publications
Friday, Feb 28, 2003
Ford's IT spend cut may hurt Satyam: Analysts
BANGALORE, Feb. 27
FUTURE growth of software major Satyam Computer Services Ltd.'s efforts with Ford Motor Company is "uncertain" following Ford's decision to cut its information technology budget by 20 per cent or $300 million, according to analysts.
A sluggish ramp-up from its existing clients have impacted Satyam's growth in the current financial year.
A Satyam spokesman, when contacted, said that Ford had not communicated its future engagement strategy with the local vendor. "We cannot comment on this now... we have to check with our internal resources to ascertain any impact", he added.
"There is a gross overhang on how the efforts with Satyam shape up, going forward", an analyst with a European brokerage said. "With the main pie shrinking, work flow to regional vendors are likely to be squeezed", he added.
In its February 26 edition, Financial Times reported that Ford's move was a "part of a shift away from contract workers and echoes a swing in the balance of power in the IT employment market".
Ford had announced its IT streamlining efforts two years ago by slashing its reliance on contract workers. At the time, only about 30 per cent of the company's 6,000 IT workers were staff members, while 70 per cent were contractors. The recent announcement could entail close to 2,800 job cuts of such contract workers.
Several global corporations have resorted to drastic technology spend cuts to compress their cost curve as most of the developed economies continue to wobble in a recessionary environment.
Ford, which has been a client of Satyam since 1996, is currently one of the `Top 10' customers of the software firm. Satyam and Ford had signed a pact in 2001 under which Satyam would offer e-biz solutions, CAD/CAM services and applications software services to the auto giant and its associate companies. Satyam was selected as one of the partners to jointly develop and manage Ford's IT Solution Centre in Chennai.
However, some analysts feel that Ford's move to cut tech spend could lead to a greater outsourcing rush and Satyam with its offshore model could benefit from it.
"It (Ford's move) may not be significant for Satyam", Quantum Securities analyst, Mr Chetan Shah said. Satyam's share in total offshore component for Ford was not likely to be "significant" and if the auto major stressed more on outsourcing, offshore efforts could swell. This was likely to help vendors such as Satyam, he added.
Satyam's shares dipped marginally by 0.09 per cent today on the Bombay Stock Exchange and closed at Rs 218.10.
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