Satyam deal hints at new software trend

Rosemary Arackaparambil

MUMBAI: A tie-up between India's Satyam Computer Services Ltd. and the

world's No. 3 software services company Computer Services Corp, could mark a new

trend for software companies struggling in a tough market, analysts said.

Satyam, India's fourth-largest software exporter, on Thursday said it inked a

three-year deal to offer software services to CSC's global clients and will set

up two development centres in South India to execute projects outside of client

sites.

"We have done project-based contracts with big software consultants

before. But it is the first time that we have tied up with a large systems

integrator on a global basis for a long-term contract," Subu Subramanian,

Satyam's senior vice-president, told Reuters.

Satyam had been working with six CSC customers in recent months ahead of the

longer-term agreement, he said, and projects for 10 more CSC clients are in the

pipeline. Satyam will assign 250 programmers for CSC's projects over the next

six months and add more later, he said. That Satyam was now getting new

customers with little effort on sales and marketing, at a time when clients are

generally tightening purse strings, was a big advantage, he said. "The key

about this contract is that it gets us assured business of longer timeframe and

higher volumes," he said. "The effort on sales and marketing vis-a-vis

the business you can get is far more efficient."

The global economic slowdown had already squeezed IT-related spending budgets

and the September 11 attacks on the United States have worsened its impact.

Almost all Indian software companies have reported that sales cycles are getting

longer. Industry estimates for the growth of software exports in the current

financial year were scaled down to 30-35 per cent in October from 40-45 per cent

in April.

Overcoming shortcomings

"It seems like Satyam will be a third-party outsourcing vendor. But then

if it is tough to get engagements on your own, you've got to ally with the

larger guys," said an analyst with a foreign brokerage. "I wont' be

surprised if these kind of deals pick up."

Analysts said it was more likely that second tier companies would opt for

such deals than bigger firms like Infosys Technologies and Wipro which are

striving hard to push their own brand-equity. "Companies with large scale

operations and infrastructure, but who are not very high on the services value

chain and whose marketing skills are not very strong, are more likely to go in

for such deals," said Sanjeev Goswami, analyst with SSKI Securities.

Bangalore-based Aztec Software and Technology Services Ltd. said last month

it would seek alliances as breaking into new accounts by itself was getting

difficult. Subramaniam said Satyam would not end up as a back-office vendor of

services to CSC's clients.

The "partners" will make joint pitches to customers, but the

billing dealings will be with CSC, he said, without elaborating on the revenue

sharing arrangement. "The billing rates could even be better than what we

get currently, because CSC is such a strong player and their contracts are for

multiple years."

Satyam, a conservative player in the services market with a diversified

client base, has lower billing rates than its Indian competitors. Its offshore

billing rates average $24.60 per hour, compared to around $30 for firms like

Infosys and Wipro, analysts said. "We believe this agreement validates our

core investment drivers for Satyam shares -- the company's defensive

volume-driven strategy," Goldman Sachs, which has a market outperformer

rating on the stock, said in a report.