Syntel's Q3 results outshines Wall Street expectations

Syntel's revenue for the third quarter increased one percent to $104.7 million (Rs.506 crore), compared to $103.8 million (Rs.502 crore) in the prior-year period, and increased five percent sequentially from $100.1 million (Rs.484 crore) in the second quarter of 2009.

Sequential revenue improvement was driven by its Applications Outsourcing service offering, and growth was broad-based across all verticals. During the third quarter, Applications Outsourcing accounted for 74 percent of total revenue, with Knowledge Process Outsourcing (KPO) at 18 percent, e-Business contributing six percent and Team Sourcing at two percent.

The Company's gross margin improved to 49.3 percent in the third quarter, compared to 44.3 percent in the prior-year period (500 bps increase) and 48.2 percent in the second quarter of 2009 (110 bps increase). Selling, General and Administrative (SG&A) expenses were 18.1 percent in the third quarter, compared to 19.1 percent in the prior-year period and 20.8 percent in the previous quarter.

Syntel's income from operations expanded to 31.2 percent in the third quarter as compared to 25.2 percent in the prior-year period (600 bps increase) and 27.4 percent in the second quarter of 2009 (380bps increase).

"Increasing stability in the business environment and a gradual improvement in customer confidence had a positive effect on our top line during the third quarter," said CEO and President Keshav Murugesh. "While our clients remain comfortable in moving forward with cost reduction initiatives, they are now increasingly willing to discuss longer-term business plans and strategic technology investments."

"The strong financial and operating discipline at Syntel has been evident in our financial performance during a very difficult nine month period. We expect that as demand for offshore services improves, costs of doing business in India will increase resulting in margin pressure. Syntel continues to invest in the people, infrastructure and new services necessary to drive long-term sustainable value for all of our key stakeholders."

Based on current visibility levels and an exchange rate assumption of 47.0 rupees to the dollar, the Company is updating 2009 guidance from Revenue of $395Mn (Rs.1,910 crore) to $415Mn (Rs.2,007 crore) and EPS of $2.40 to $2.50 to Revenue of $405Mn (Rs. 1,959 crore) to $408Mn (Rs.1,973 crore) and EPS of $2.60 to $2.65.

Agencies

Will $1-b BSNL outsourcing deal impact 30,000 jobs?

Bharat Sanchar Nigam (BSNL) is planning to outsource the management and maintenance of its towers and cable networks to compete more effectively with private players like Bharti Airtel and Reliance Communications, which dominate the booming industry and also unlock the value of its assets, reports the Economic Times.

The deal, which could be worth more than $1 billion (Rs. 5,000 crore) over the next five years, might receive stiff resistance from about three lakh employees as it will impact close to 30,000 jobs. "The company plans to train and redeploy a significant section of these employees to marketing roles," informed two executives requesting anonymity, as many employees are expected to be transferred to the IT firms that win the outsourcing deal.

Through this deal, BSNL will outsource more than 50,000 towers and over one lakh kilometers of optic fibre cable. "The telecom company is in process of finalizing tender conditions for inviting bids for the contract," said these executives.

"The move will help BSNL unlock the value from its towers and passive infrastructure as the once monopoly tries to play catch up with private rivals," said BK Syngal, Senior Principal, Dua Consulting.

"Successful bidders for this contract can share company's networks with private players for a fee and this could result in a revenue boost for BSNL," added Syngal, who is also a former Chairman of VSNL (now Tata Communications).

Reliance Communications had formed a joint venture with Franco American networks major Alcatel-Lucent last year and outsourced the management of its GSM and CDMA networks and infrastructure such as optic fibre cable in a deal worth $500 million over a five year period. The deal had crossed $750 million mark in July 2009.

Bharti Airtel also entered into a $500 million joint venture with Alcatel-Lucent to manage its landline and broadband business in April 2009. Around 4,000 Airtel employees were transferred to this new venture, which is a front runner to bag another $500 million contract from Airtel to manage and maintain its 80,000 kilometers intercity optic fibre cable network.

BSNL had recently postponed plans to hive off its towers and other related infrastructure into a separate company. The company felt it would be difficult to unlock value by merely hiving off its infrastructure and listing it due to falling valuations for the tower sector, said the executives.

Agencies/Economic Times

Is Xerox set to acquire ACS for $6.4 in 2009?

Xerox, the global copier and imaging giant, will pay $6.4 billion to acquire the outsourcing company Affiliated Computer Services, expanding its foothold in a growing industry, the companies said.

Xerox, based in Norwalk, Conn, is paying $63.11 a share in cash and stock for ACS, which posted revenue growth of 6% and new business signings of $1 billion in annual recurring revenue during its fiscal 2009.

“We’re creating a new class of solution provider,” Xerox’s chief executive, Ursula M Burns, said in a statement, adding that the deal was “a gamechanger for Xerox.” She estimated the company’s revenue from services would triple to $10 billion next year from $3.5 billion in 2008. Lynn R Blodgett, ACS’s chief executive, said in the statement that the deal was necessary “to expand globally and differentiate our offerings through technology.” ACS will continue to operate as an independent organization. Blodgett will remain as chief executive, reporting to Burns.
It was the first major deal for Burns, who took over Xerox in July with the retirement of Anne M Mulcahy.

Owners of ACS stock will receive $18.60 a share in cash and 4.935 Xerox shares for each ACS share. Xerox will assume $2 billion in ACS debt and issue $300 million of convertible preferred stock to ACS’s Class B shareholders. ACS had a market value Friday at the close of trading of $4.6 billion. Xerox said the transaction would add to profit in the first year on an adjusted-earnings basis.

ACS, based in Dallas, specializes in outsourcing processes for industries including telecommunications, retail and financial services and health care, and describes itself as the largest provider of managed services to government entities in the United States. The companies estimated the market for so-called business process outsourcing at $150 billion, growing at a rate of 5% a year.

JP Morgan Chase and Blackstone Advisory Partners acted as financial adviser to Xerox, while Citigroup Global Markets served as financial adviser to ACS

Agencies

Will MindTree foray into China shortly?

Mid-sized software services firm MindTree will be making foray into China, having bagged a significant outsourcing contract from China’s biggest telecommunications equipment maker Huawei Technologies.

For the Bangalore-headquartered company, China marks new geography entry, besides already having presence in US and Europe. Confirming the development , Parthasarathy N S, CEO, testing & IMTS, MindTree, said, “We will be doing independent testing in the telecom space. This project has different phases and has potential to become large. The contract also allows us to move up the value chain as China has emerged a big growth market”.

However, he declined to name the customer as he is not allowed to do so. The contract deals with R&D and involves managing and supporting independent testing for Huawei’s different product line, where employees of MindTree will do the work at customer location, a person privy to the development said.

“Four companies were bidding for the contract, including an Indian firm and it was given to MindTree after complete evaluation of capabilities ”, the person said on conditions of anonymity. The company, which counts steel-maker Arcelor Mittal, Swedish truckmaker Volvo and insurer AIG among its top customers, will now be opening a subsidiary in China. Mr Parthasarathy said that they have sent techies from its India centres to China and will also look at option of hiring local talent there.

“China is an important market and we are evaluating to set up a development centre, but nothing will be decided till 12-18 months,” said Parthasarathy.

Economic Times

Seven-year IT services deal signed by IBM, Qantas

According to a report the outsourcing deal is valued at up to $200 million which could cost up to 178 Qantas workers their jobs

IBM Corp. said that it has signed a seven-year outsourcing contract with Qantas, Australia's largest airline, for the provision of project delivery functions, as part of the airline's improved business efficiency goals.

David Hall, Qantas executive manager of corporate services and technology, said the agreement with IBM will enable a fast transformation, increased efficiencies, and improved customer experience.

"Qantas believes the partnership with IBM will give us access to IBM's scale, strength, expertise, and the latest tools and technologies available in the global marketplace. We are confident that IBM will deliver significant benefits to our business," he said.

Under the contract, Qantas will gain access to IBM's deep research, analytics and business optimization capabilities.

"Qantas' partnership with IBM represents a major step towards the airline's mission to lead and innovate in the competitive airline industry," said Katie Bambrick, IBM Global Business Services Managing Partner for Australia and New Zealand.

"Drawing on IBM's advanced technologies and the airline industry expertise IBM has built over the last half-century, this partnership has an exciting future," said Ms Bambrick.

According to Australian IT the outsourcing deal with IBM is valued at up to $200 million which could cost up to 178 workers their jobs.

Staff at Qantas's project delivery team are set to transfer to IBM as part of the deal. Those who do not accept new employment terms from IBM will be forced to take redundancy, the report said.

Agencies

Lavasa to be tranformed into e-City by Wipro

Lavasa and Wipro announced their partnership for planning, implementing and managing information and communication technology (ICT) services across Lavasa city.

Wipro will support the city in the areas of city management system & services, e-governance, ICT infrastructure and value-added services, including providing intelligent home solutions and digital lifestyle. The ICT services will include voice-video-data services to various businesses operating out of Lavasa city.

According to a company release, the strategic partnership will focus on providing integrated and effective solutions for enhancing IT operations within the hill city. It will identify governance services and operating models, and define processes for delivering good governance.

Wipro will also provide the necessary infrastructure support, including technology selection, supply, installation and management of platforms, networks, data center, etc.

The estimated revenues out of this partnership from Lavasa city's first town Dasve is about $100 million over the next 10 years.

Speaking on the occasion, Rajgopal Nogja, president, Lavasa Corporation, said, "For a completely new hill city like Lavasa, technology leadership is a key driver of city development and management. Wipro has proven expertise in innovative ICT solutions and this partnership will ensure a quantum leap in not only being technologically proactive, but also realizing our vision in becoming a completely e-governed city.

Through this partnership, Wipro will also design the detailed infrastructure for telecom services for governance, and also for the residents and visitors of Lavasa city. Wipro will provide telecom-based services that will facilitate smart homes, and buildings including integrated building management systems, physical security requirements and other on-demand services.

Agencies

Oracle, Wipro join hands to offer w-SaaS

By looking at the potential in the cloud computing segment, Wipro, an IT services company has joined hands with Oracle, a global business software firm to offer a service that software firms can use to deliver products through the software-as-a-service (SaaS) model. The service called w-SaaS will enable software firms to offer their existing applications as SaaS in a multi-tenant model.

The service runs on Oracle's grid computing technologies, which includes Oracle databases, middleware and virtualization software. According to Wipro, this model is expected to result in savings of up to 50 percent of effort for SaaS enablement of existing applications, resulting in up to 10-20 percent savings in the total cost of ownership. "Our relationship with Oracle enables us to provide independent software vendor's (ISV) and joint customers, a powerful platform that allows them to improve their revenues in a cost effective manner," said Srini Pallia, Senior Vice-President and Global Head, Business Technology Services at Wipro.

This announcement from Wipro comes at a time when cloud computing is eating into the profits of several outsourcing companies by offering many similar benefits like reduced IT costs, less internal development of software and reduced management of applications and hardware. According to analyst firm Gartner, the market for worldwide software as a service (SaaS) is forecast to reach $8 billion in 2009, a 21.9 percent increase from 2008 revenue of $6.6 billion.

Wipro expects opportunities for this offering in North America, with growth potentials in the emerging markets of Latin America, Asia Pacific and Western Europe. Energy and utilities, retail, transportation, healthcare and manufacturing sectors will be focus verticals.

Agencies

Will Indian outsourcing benefit from downturn?

The turmoil in the financial market is likely to spell good news for the Indian outsourcing companies, as the downturn will compel multinationals to seek further economies for sustenance in these tough times, Wipro Technologies founder Azim Premji has said.

In an interview to the Sunday Times, Premji insisted that "the Indian outsourcing giants will benefit from this downturn, as all multinationals seek further economies."

Premji's statement comes at a time when the United States President Barack Obama has proposed changes in tax laws to curb outsourcing.

Obama proposing change in tax laws of that country had reportedly said, it's a tax code that says you should pay lower taxes if you create a job in Bangalore, than if you create one in Buffalo, New York.

Premji also voiced its concern about the "creeping tide of protectionism" in the West and said that "If we get into protectionism, then the West is going to get a wave of protectionism in response, and that is going to turn back the clock 20 years".

Premji further warned that it will be America and Europe that will suffer, because they will be excluded from the only growth markets left, in Asia, Africa and China.

CXOtoday

Will Capgemini layoff 100 in Chennai?

Consulting and outsourcing firm Capgemini has laid off nearly 100 employees at its Chennai centre.

The pink slips were issued for employees mostly in the middle management positions. This comes on the back of reports that said Capgemini sacked 600 employees in Hyderabad and Pune. The company has nearly 20,000 people working in India.

An employee said the layoff across centers was because of the overall economic slowdown, which was impacting the company’s project flow and clients.

“While some clients have ramped down on the size of contracts, other projects, like the Lehman Brothers account closed after the company’s collapse. Apart from the middle management, some employees on probation were also asked to leave,” said the employee at one of the company’s locations, who did not wish to be named.

When contacted, Capgemini India’s chief people officer Cyprian D’Souza said through an email, “India is central to our global delivery model and we are in the process of mapping our existing skills with the business in hand and the business outlook. The economic condition is tough and no company is immune to its effects.”

D’Souza added that the industry was seeing an overhaul within all the affected verticals. “The process though tough, has to be undertaken to align our business with global economic realities, optimise operational efficiency, ensure financial health and enable future growth.”

For the first quarter of 2009, Capgemini group posted consolidated revenues of Euro 2,205 million, up 0.9 per cent compared with the year-ago period.

Agencies

Obama remark on Bangalore misinterpreted, says Nasscom chief

US President Barack Obama's remark that American firms were shipping more jobs to Bangalore than creating them in Buffalo (in New York state) had been "misinterpreted", an IT industry lobby said here on Wednesday.

"Nothing much should be read about Obama's comment on Bangalore and Buffalo. I think his remark has been misinterpreted. What he said was of the additional revenue he would get from his tax reform proposals, he would invest some of it in research and training so that more jobs get created," Som Mittal, president of the National Association of Software and Services Companies (Nasscom) told reporters.

Contending that the current US tax system gave US-based multinationals shipping jobs to places like India an unfair advantage over domestic rivals, Obama Monday announced plans to reduce tax breaks for them.

"It's a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York," Obama said, spelling out his proposals to close corporate tax loopholes and crack down on overseas tax havens.

Allaying fears of job losses or decline in outsourcing or off-shoring, Mittal said the Obama proposal was not about India but how American subsidiaries were structured overseas in light of the taxation method followed by US firms over the years.

Admitting that Obama's protectionist measure was a matter of concern for the industry, Mittal asserted that Nasscom would study the proposal to assess what impact it would have on outsourcing or off-shoring and do the needful if the bill got drafted.

"The good part is that we have a voice. If we see that it's impacting us in any way, as the bill gets drafted, we will do the needful," Mittal said.

The US accounts for about 60 per cent ($30 billion) of the $50-billion IT export revenue from India. About 70 per cent of the export revenue is generated by Indian firms and the remaining by multinational captives or third party vendors in the sub-continent.

Endorsing Mittal's views, former Nasscom president and Satyam board chairman Kiran Karnik said he was sceptical about Obama's tax proposal becoming a law.

"It (tax reform bill) is unlikely to become a law as US firms will be the hardest hit. Obama's proposal is of concern because it's a sign of protectionism. In the recent G-20 meeting in London, world leaders said they were against protectionism," Karnik said.

In a lighter vein, a leading IT firm head said Obama seemed to have got his geography wrong as he should have mentioned Beijing instead of Bangalore since more manufacturing jobs were shipped to China than to India over the years.

"Looks like Obama got his geography wrong. Jobs are not going to Bangalore but Beijing, as manufacturing jobs are going to China and not India. Only 1000-2000 back office jobs have come to India," the official said on anonymity.

Agencies

Will TCS move staff back to India?

As part of cost-cutting measures, India's largest outsourcing firm Tata Consultancy Services (TCS) said that it will relocate staff abroad into India.

"The company follows an onsite-offshore model. We will focus to do more work in India because it helps in saving cost and efficiency," TCS Chief Operating Officer N Chandrasekaran said.

However, the company would continue to do work onshore and relocation did not mean that it was winding up its operations abroad.

The company, which tried out its relocation in January-March this year, gained significantly in the last quarter of 2008-09. In Q4, the company brought back its US staff to India resulting in a cost saving of Rs 121 crore. The company did not give any figures on how many people were brought back. The relocation of staff could be in thousands, he said.

At the same time, the company would be hiring more people numbering 24,855 in India. It would hire 250 freshers in the US and a few in China, Chandrasekaran said.

But there would be no lateral hiring and there is a freeze on increments to its staff. He made it clear that TCS would not lay off people as a result of relocation. "There would be no lay offs," he said.

Bringing back the staff to India would not be restricted only to the US market, but across geographies.

"We have thousands of staff working in the US, UK, Europe and other geographies," he said. The company had decided not to hire Satyam staff after the scam broke out, but now it is open to it.

"When we hire laterals, whoever applies, we will look at them," Chandrasekaran said. Twice every year, the company sacks non-performers. This year, too, non-performers would go, he said.

"Non-performers will go and there is no plan to move non-performing staff to other subsidiaries," he said.


Agencies

Logica on a hiring spree in India

At a time when adding new jobs is being taken out from the agenda of most of the companies, IT and business services company Logica plans to recruit about 3,000 people by 2009, in which 2000 will be in Chennai. The remaining jobs will be in Philippines, Czech Republic and Morocco, reported The Times of India.

The company provides consulting, outsourcing solutions and services and blended delivery services across many industry verticals. In India, it provides support services like infrastructure management, BPO services and financial accounting outsourcing.

"Logica employs 5,700 people and plans to ramp it up to 8,000 by the end of this year," said Abhay Gupte, CEO, Logica India. Logica's Chennai center has about 900 employees.

Agencies

Is Symphony eyeing more R&D acquisitions in India?

Symphony Services, a provider of outsourced product development, which recently acquired four captive R&D centres in India, expects the trend of captive acquisition to gain further momentum.

Symphony's four captive R&D centres are In-Reality, Intransa, CT Space and Cambridge Tech Partners in India.

Over the last decade, more than 700 product companies have embraced the offshore model and established captives in India, China, Eastern Europe and other lower cost, high talent regions.

Talking to CXOtoday, Ajay Kela, chief operating officer and managing director, Symphony Services, said, "Symphony's four acquisitions in the recent past are software companies with captive operations in India. We are currently in discussion with some of the subscale captives for acquisition and helping them turnaround, but cannot disclose the actual number."

Now with the recession sinking deeper, most parent companies are increasingly conserving cash and tend to avoid additional infrastructure expenses in a captive centre, thus giving opportunities for companies to acquire.

According to a report by Forrester, titled "Shattering the Offshore Captive Center Myth", about 60% of captives are struggling as they fail to meet expectations. There are several common reasons for failure: a poor delivery track record, operational problems, lack of scale, poor morale and high attrition, and escalating costs.

The challenges that captives are facing is resulting in a significant decrease in the number of new captives that are being introduced. According to Management Consulting company Zinnov, the number of new captives started in India over the last few years has declined from 76 to 15. Also, service providers are expected to outpace the growth of captives by more than 300% over the next four years.

Symphony acquisitions have been of different types - from outright purchase or acquisition of a captive to captive transfer where the deals did not have significant monetary implications, but captive transfers of its employees and operations to be run by Symphony.
In a 'captive transfer' employees of the captive entity become Symphonians and both the management teams collaborate to manage the operations and ensure product research and development for the parent company, Kela said.

"Over the last few years, there has been a trend of many subscale captives (manpower of less than 500 people) exploring alternative strategies like transferring their captive operations to services providers for managing their global product engineering operations because it no longer makes economic sense for them to run their own captive centre," said Kela.

Also, most software companies cannot afford to dramatically increase R&D expenditures by moving resources back onshore. Hence transferring their captive to a provider is a viable option for software companies and continues to leverage from the offshoring model, he said.

CXOtoday

Over 121,000 Filipinos' jobs axed amid global recession

Over 121,000 Filipino workers have either lost their jobs or suffered pay cuts or reduced work loads because of the economic crisis, a government official said Sunday.

Between October last year and mid-March, 11,574 permanently lost their jobs and 38,806 others were temporarily laid off by Philippines-based companies, Labour Undersecretary Rosalinda Baldoz told an economic forum in this industrial enclave north of Manila.

A total of 59,149 others were placed on flexible work arrangements, she added.

Meanwhile, 12,000 out of the 8.5 million-strong Filipino work force abroad had lost their jobs, mostly in Taiwan and the United Arab Emirates (UAE), according to Baldoz.

Last week the government said electronics firms based in the Philippines began giving their remaining workers half-pay or 150 pesos (3.11 dollars) a day in a bid to keep them employed until demand picks up again.

The labour undersecretary said the electronics sector was the worst hit with almost half the total work force affected.

The crisis has also hit about 10 per cent of employees in the automotive, garments, mining, property, services, and woodworking industries, she added.

She went on to say the government expects the crisis to bottom out over the next few months as just 397 workers a day were losing their jobs in mid-March compared to 437 at the start of the month.

"Before the first semester ends, we could say that the worst is over," she said.

"In the next five months, workers' displacements will continue but we expect it to be on a slower pace and only in the export manufacturing sector."

Agencies

Is Infosys eyeing acquisitions in the US?

Indian software major Infosys Technologies Ltd expects to find acquisition opportunities in the US during the downturn, co-chairman Nandan Nilekani was quoted as saying.

"Acquisitions will definitely be very accessible in this market from a price point of view," Nilekani told the Wall Street Journal in an interview. "If it makes sense, we'll do it."

Companies that operate in the healthcare and pharmaceuticals sectors might make particularly interesting targets, he said, adding that Infosys has $2 billion in cash and no debt.

In the interview, Nilekani reiterated Infosys's earlier guidance of about 12 per cent revenue growth for the fiscal year ending March 31. That would be a sharp deceleration from growth of 35 per cent, as measured by the US accounting rules, in the year ended March 31, 2008.

Nilekani told the Journal that potential customers are holding back both because of the economic crisis and a rise in protectionist sentiment.

On the economic crisis, Nilekani said "I've never seen this level of lack of clarity." He said executives are "more focused on short-term tactical issues" than making bigger decisions about outsourcing.

In response, Nilekani said Infosys is working with customers on alternative payment arrangements, including some that would link fees to business results. Other customers are asking to pay on a per-transaction basis, rather than a lump sum for a system.

Nilekani said rising protectionist sentiment in the US also is affecting customers' decision-making about outsourcing.

The economic stimulus bill, for example, includes a provision preventing participants in the US' financial bailout programme from hiring workers with H-1B visas, which are commonly used by the non-US outsourcing companies.

"Political issues have become more pre-eminent in our conversations," he added.

Partly for that reason, he told the journal that he does not know whether more the US firms will lay off domestic workers and move more jobs to India, as International Business Machines Corp plans to do, Nilekani said.

Agencies

IBM to layoff 5,000 jobs in US; While expand in India, China

IBM will cut about 5,000 jobs in the United States, adding to similarly large cuts in the past few months, sources with knowledge of the matter told media.

The job cuts will account for over 4 per cent of IBM's US workforce, which totaled around 115,000 at the end of 2008. The sources, who were not authorised to speak publicly on the issue, said the cuts will mostly be in IBM's global services business, which includes outsourcing and consulting services.

An International Business Machines Corp spokesman declined to comment. The company, which had a total workforce of 398,455 as of end 2008, has not disclosed how many jobs it has cut so far this year, but has said it was making "structural changes" to reduce spending and improve productivity.

IBM, which now earns around two-thirds of its revenue from outside the United States, has been expanding its workforce in emerging markets like India and China.

At the end of 2008, employment in the BRIC countries -- Brazil, Russia, India and China -- totaled around 113,000.

IBM has been hit by slower US technology spending, although it has fared better than many rivals thanks to its global footprint and a decreased emphasis on hardware sales.

A month ago, IBM affirmed its full-year forecast of $9.20 earnings per share, and said contract signings for its business services had grown so far this year.

IBM is in exclusive talks to buy Sun Microsystems Inc, according to sources familiar with the matter, a move that would create a clear leader in the high-end computer server market.

Agencies

Will Infosys-Telstra deal cause job losses in India?

Bangalore-based software giant Infosys will pick up most of IBM Global Services’ multi-million dollar applications support contract with Australian software giant Telstra, after the latter’s deal with the former was scrapped following telco reducing its outsourcing partners from four to two.

According to The Australian, the decision to shift from IBM to Infosys could result in hundreds of job losses locally and in Bangalore, where IBM operates outsourcing centres.

IBM GS staff was told the scratching of the vendor’s software support would represent about 50 per cent of its one billion dollar, six-year deal with Telstra, signed in early 2006.

Telstra’s decision to drop IBM was a big surprise to IBM GS staff, who expected the contract to continue until 2012.

The deal was lost not because of performance issues but because Infosys low-balled the IBM offer, sources said.

Telstra has been reviewing its IT outsourcing contracts with Satyam, EDS, IBM GS and Infosys since last year, when the telco announced it would trim its list of major IT suppliers from four to two in an effort to reduce costs and streamline its providers.

Earlier, Telstra had ended one of its information technology outsourcing contracts with International Business Machines Corp (IBM). It has now roped in Infosys Technologies for the same.

IBM Global Services' multimillion dollar applications support contract with Telstra has been scrapped as a result of the telco reducing its outsourcing partners from four to two, as per an Australian media report.

The decision to shift from IBM to Infosys could result in hundreds of job losses locally and in Bangalore, where IBM operates outsourcing centres, the report said.

The Australian reported that IBM staff were told the scrapping of the vendor's software support would represent about 50% of its $1 billion, six-year deal with Telstra, signed in early 2006.

Less than a week ago, Telstra terminated its IT outsourcing contract with fraud-hit Satyam Computer Services. Telstra is the second major Australian company to do so after The National Australia Bank decided in February to suspend future work with the Indian outsourcer since the disgraced Indian outsourcer's accounting scandal came to light.

The IBM India spokesperson could not be reached for comment while the Infosys communication person said, "We are in our silent period and will not be able to comment on the issue."

Agencies

Satyam Continues To Lose Major Customers

Satyam Computer Services is on a 'losing spree', having so far lost outsourcing contracts from large customers to rivals such as IBM Corp., TCS, Infosys Technologies and Wipro Ltd. Now, a US property and casualty insurer is seeking to replace its outsourcing contract with Satyam.

US based Selective Insurance Co., which has reportedly outsourced about a quarter of its IT staffing requirements to Satyam, is said to be looking for alternate arrangement in light of Satyam latest woes.

In papers filed with the Securities and Exchange Commission (SEC) last month, Selective is quoted to have said: "We believe we would be able to manage an efficient transition to a new vendor and not experience a significant negative impact to our operations in the event that we no longer retain Satyam in their current capacity due to the financial issues they are currently experiencing."

Satyam chairman Ramalinga Raju on January 7 admitted falsifying the company's cash position by as much as $1 billion while overstating quarterly earnings and revenue by up to 28%. Sources indicate that Satyam may also have faked employee numbers and other data.
Since then increasingly nervous Satyam customers are looking for alternatives in case the scandal-scarred outsourcer is unable to restore internal stability or find a buyer with pockets deep enough to see the Indian company through its current crisis.

Many customers have either completely exited, or are in the process of moving their outsourcing contracts from Satyam to rival tech firms such as IBM, TCS, Wipro, Infosys and Accenture.

Some of the customers, including Telstra, Emerson, Nissan, State Farm Insurance, Applied Materials, Kansas State Bank, and Sony, have either moved out their projects completely, or are in the process of migrating current Satyam work to other outsourcing vendors.

iGATE, which was keenly bidding for the 51% stake of Satyam, has now pulled out from the bidding process mainly due to the loss of Satyam customers. Phaneesh Murthy, CEO of iGATE Corp, said, "We know that there are customer exits happening at Satyam. While the value erosion and the extent of liabilities were a concern, it was the totality of concerns that influenced our decision."

However, some large Indian players like BK Modi's Spice Telecom, Tech Mahindra, and L&T are among the companies to move to the second stage of bidding for the fraud-ridden IT outsourcer.

CXOtoday

Is US new threat to India in BPO sector?

A downturn in worldwide economy, Satyam's fraud case and the terrorist attacks in Mumbai and supply chain and shipping cost issues in China are causing US technology companies to pull back from the two traditional outsourcing locations.

Citing these three global factors, an annual survey by BDO Seidman, LLP, one of America's leading accounting and consulting organizations, suggested several technology firms would choose US as future outsourcing location over India and China.

"While last year may have produced an outsourcing bubble, 2009 will see companies retrench to survive in the face of reduced demand. The US has become a far more viable option for them," said Douglas Sirotta, a Partner in BDO Seidman's Technology Practice.

"This year we are seeing three global factors that are causing US technology companies to pull back from traditional outsourcing locations, led by the recent boom and bust of the worldwide economy.

"Satyam's fraud case and the terrorist attacks in Mumbai are causing a lot of companies to reconsider operating in India. And supply chain and shipping cost issues in China are negatively impacting the attractiveness of outsourcing technology operations to the Far East."

Currently nearly two-thirds (62 per cent) of chief financial officers (CFOs) at leading US technology businesses say that their companies outsource services or manufacturing, it said.

However, the survey results point to a likely decline in international outsourcing in 2009: 22 percent say the United States is the outsourcing destination they are most likely to consider in 2009, compared to 16 per cent for China and 13 per cent for India. Another 19 per cent report no interest in additional outsourcing.

The survey conducted in January 2009 examines the opinions of 100 chief financial officers at leading technology companies located throughout the US. Other major findings:

Less than half (42 per cent) of the CFOs indicate that they have operations outside the US, compared to nearly double that amount (79 per cent) last year.

Nearly a third (29 per cent) of respondents say their primary concern regarding international growth is an uncertain business or political climate.

About a quarter (26 per cent), cite international business and tax regulations, with 21 per cent citing currency risk, 14 per cent intellectual property risk and exploitation, and 10 per cent training of international employees as their primary concern.

Currently the most common non-US locations for outsourcing are India (50 per cent), Southeast Asia, including the Philippines (31 per cent, down from 50 per cent in 2008), China (19 per cent, down from 46 per cent in 2008), and Western Europe (19 per cent).

For future outsourcing, the CFOs most frequently cite the United States (22 per cent), followed by China (16 per cent), India (13 per cent), Southeast Asia, including the Philippines (7 per cent), Latin America (7 per cent), Western Europe (6 per cent), Canada (5 per cent) and Eastern Europe (3 per cent).

Of those outsourcing, the most common functions being off-shored currently are: manufacturing (54 percent), IT services and programming (46 percent), research and development (35 percent), distribution (35 percent) and call centres (35 percent).

Agencies

Has Accenture sacked half Manila workforce?

US-based outsourcing firm Accenture is laying off almost half its workforce in the Philippine capital due to the effects of the global financial crisis, the Labour Department said.

Accenture Philippines has filed a notice of retrenchment for about 500 workers at its facilities in Manila, said Labour Undersecretary Rosalinda Baldoz.

Accenture, which engages in business process outsourcing, including call centres, had about a thousand workers in Manila and in March 2008 it opened an office in the central city of Cebu which employs about 500 people.

Call centres and other outsourced business processes have become a major industry in the Philippines. Industry leaders had previously predicted that the sector would not be affected by the global financial turmoil as companies in developed countries would outsource more of their functions abroad to save money during the crisis.

Agencies