Satyam, Analysts Cast Wary Eye at World Economy

The Indian outsourcer says business is strong even as clouds loom.

NEW YORK—Just how a global economic slowdown might affect high-flying Indian outsourcer Satyam was top-of-mind at the companys Analyst Day gathering, held here Sept. 12.

Satyam, which posted 35 percent annual growth in its fiscal year ending in March and a 33 percent rise in annual profits, held the conference to celebrate the fifth anniversary of its initial public offering on the New York Stock Exchange.

Wall Street is watching the high-flying Indian IT services companies intently, paying close attention to anything that might cause a stumble. While Satyam, which passed $1 billion in revenue this year, still boasts a robust profit margin, it is down slightly year-to-year. That raises some questions about how an economic slowdown, of which some economists are warning, might affect the company, said Rod Bourgeois, a senior research analyst at Sanford Bernstein in New York.

/zimages/4/28571.gifSatyam joins the club of billion-dollar companies. Click here to read more.

"We have been able to preserve our margins fairly well. There was a small drop in guidance this year," said Ramalinga Raju, Satyams founder and CEO, in an interview. He said the company raised wages between 17 and 18 percent this year and issued restricted stock units to employees, which diluting the companys stock.

Despite these moves, contract prices have remained stagnant for the past few years, he said. In addition, the company has been under pressure from employee turnover, which Raju said had been 19 percent prior to the wage hike, which was granted over the summer.

Ram Mynampati, president of Satyam, said a slowdown wont necessarily hurt the company because customers will look to Indian outsourcers, as they have in the past, to provide savings should IT budgets come under pressure.

Overall, Satyam executives said they expect relatively smooth sailing ahead, as IT budgets remain healthy, growing between 3 and 6 percent annually, and as offshoring assumes its place as a mainstream corporate practice.

The company is reducing its dependence on the U. S. market, now 64 percent of Satyams revenues, as it increases business in Europe, China and Brazil. In keeping with its global push, Satyam has three centers in China now and is setting up a fourth.

/zimages/4/28571.gifOutsourcing to India has delivered rich rewards for a number of companies. Click here to read more.

Raju said his company is moving beyond the days when it made its living from wage arbitrage. The company is now looking to become a global IT heavyweight as it focuses on innovation and leadership.

"Were no longer thinking of catching up, but were investing in leadership. We look at ourselves as a global company," he said. To that end, the company launched its Satyam School of Leadership in Hyderabad, India, in November 2005.

In comments during a panel discussion at the New York Stock Exchange following the Analyst Day proceedings, Bourgeois praised the performance of the companys management. Satyam, like Wipro, Tata Consultancy Services and Infosys, hires thousands of new workers annually, training and integrating them into each companys corporate culture.

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