Negotiations delay with GE : Not a cause for worry, says Satyam

Mumbai:
19 September 2003

Mumbai: Satyam Computers has said that the delay in its negotiations with the US-based GE, its largest client, is not a worry and the company is confident that the GE account will see some growth this year. The stock analysts were concerned over the apparent delay in negotiations with the US company.

GE negotiates and signs a master services agreement (MSA) with its vendors and such a renegotiation is due to begin in September 2003 for rates that will be effective mid-2004. This appears to have been delayed. The company said about 50 per cent of GE revenues for Satyam currently arise from fixed-price contracts (this share is growing), which do not fall within the purview of the MSA.

Satyam explained that fixed-price contracts have the potential to be as profitable as "time-and-materials" projects if executed within the planned time. Further, it added that fixed-price contracts offer the flexibility of trimming or adding manpower dedicated to an assignment based on actual requirements.

One reason GE has increasingly moved towards fixed-price billing has been to effectively bring down billing rates. A client like GE manages to pass on the execution risk to the vendor through "fixed-price" contracts as the cost of any over-runs will then be borne by the vendor.

According a report by ASK Raymond James, a leading analyst, "among Satyam's large clients in the fixed price segment, TRW and Ford showed signs of stability, and Caterpillar signs of some growth."

Given its FY2003 disappointing performance, the market perceived risks regarding its FY2004 'guidance'. The report said: "We believe that the larger, older clients are holding steady while growth from key services and end-use vertical segments continues. These, we feel, are significant positives that merit a re-rating."