Satyam Computer Services Ltd.

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Satyam Computer Services Ltd. - IT Services - Category Directory

(91) 40-5523 3505

Satyam Technology Center
Bahadurpallay Village
Qutbullapur Mandal, R.R. District-500855
Hyderabad, Andhra Pradesh
India
www.satyam.com

Sales

$566 million

Business Description

Our IT professionals work onsite, offshore or offsite to provide customized IT solutions for companies in several industry sectors. Our development centers in India, United States, United Kingdom, Japan, Dubai, Australia, Singapore, Malaysia and other countries serve over 300 global companies, of which 101 are Fortune Global 500 corporations. Our marketing network spans 45 countries, across 6 continents. We are a global professional IT services company. We offer a comprehensive range of services, including software development, system maintenance, packaged software integration, and engineering design services. We use our global infrastructure to deliver value-added services to our customers to address IT needs in specific industries and to facilitate eBusiness initiatives. We began providing IT services to businesses in 1988 and as of March 31, 2004 we had 13,120 technical associates servicing over 300 customers worldwide. In addition to our core business of providing IT services, we have also selectively invested in related businesses.

We recognized the importance of the Internet to India and, in December 1995, created Sify Limited (formerly Satyam Infoway Limited), which we believe is the largest integrated Internet, network and electronic commerce services company in India, offering end-to-end solutions with a comprehensive range of products delivered over a common Internet backbone infrastructure. Sify’s shares are listed only in the United States and are quoted on the Nasdaq National Market under the symbol “SIFY”. In February 2002, we acquired Sify’s software services business for approximately $6.9 million in a transaction approved by Sify’s shareholders and subjected to an independent valuation. The objective of this acquisition was to permit us to focus on our core business of software services and Sify to focus on Internet Services. During the year ended March 31, 2003, due to the sale of new shares by Sify to Softbank Asia Infrastructure Fund, or SAIF, and VentureTech Solutions Private Ltd. or VentureTech, our ownership interest in Sify was reduced from 52.51% to 37.15%. As a result of this reduced ownership interest, we deconsolidated Sify on December 9, 2002 and have since accounted for our interest in Sify using the equity method. VentureTech invested an additional $1.8 million in Sify in April 2003, and our ownership interest was further reduced to 36.0%. Further, during the year ended March 31, 2004, we completed the sale of one million equity shares in Sify Ltd. through the latter’s sponsored ADS program for a consideration of $ 3.4 million (net of tax). Consequent to this sale, our ownership interest was further reduced to 32.04%.

We owned 100% of the outstanding stock of VisionCompass Inc., or VCI, which had developed and marketed our software product, VisionCompass. Following our decision to discontinue the operations of VisionCompass so as to focus on our core business of IT services, VCI was formally dissolved on March 24, 2004.

On June 5, 2002 we formed Nipuna Services Limited or Nipuna, a wholly owned subsidiary in Secunderabad, Andhra Pradesh, India to provide various services connected with business process outsourcing. As of March 31, 2004, we had invested $4.0 million in Nipuna.

Industry Overview

In May 2003, Gartner Dataquest forecasted that the worldwide IT services market would grow from $536.3 billion in 2002 to $727.4 billion in 2007, representing an annual compound growth rate of 6.3%. We believe the growth of this industry is driven by the following factors and trends:

Increased importance of IT to businesses. In today’s increasingly competitive business environment, companies have become dependent on technology not only to conduct day-to-day operations, but also as a strategic tool to enable them to re-engineer business processes, restructure organizations and react quickly to competitive, regulatory and technological changes. As systems continually become more complex, companies increasingly turn to external IT service providers to develop and implement new technologies and integrate them with existing applications in which a company may have already made a considerable investment.

Impact of the Internet and the emergence of eBusiness. Businesses are increasingly using the Internet to interact with new and existing customers and create new revenue opportunities. Business conducted electronically over the Internet, or eBusiness, extends beyond Internet-based applications, such as eCommerce websites and corporate intranets, to include packaged software tools such as customer and supply chain management software. eBusiness initiatives are often large and difficult to manage and must keep pace with constantly evolving business processes and technological innovations. In addition, managing and upgrading existing systems has also become more critical given the importance of these systems to eBusiness initiatives. Internal IT departments often do not have the appropriate resources or breadth of skills necessary to execute these initiatives. As a result, companies increasingly turn to outside service providers to design, integrate, implement and maintain their eBusiness applications.

Emergence of a high-quality IT services industry in India. India has emerged as a destination for companies seeking to engage IT service providers in a variety of areas, including eBusiness and software design, development, integration and system maintenance. India’s National Association of Software and Service Companies, or NASSCOM estimates that export revenue generated from the software and service industry in India was approximately $12.2 billion in fiscal 2003 and is expected to reach $50.0 billion by fiscal 2008. The key factors contributing to this rapid growth include the availability of a large pool of highly skilled, English-speaking engineers and professionals, the ability to produce high quality software applications, low personnel costs relative to the United States and a time difference which permits work to be done during non-business hours in the United States and Europe.

We believe that India ranks second only to the United States as the country with the largest population of English-speaking technical personnel. According to the NASSCOM Strategic Review 2004, educational institutions in India produce approximately 290,000 engineering students each year. Given the shortage of technical labor in the United States and other developed economies, the availability of people could be a competitive advantage for Indian IT services companies. Also, the English speaking ability of Indian technical engineers and professionals facilitates interaction with customers in the United States and Europe and is a significant advantage compared to non-English speaking countries which also offer IT services.

Indian companies have developed high-quality methodologies. A January 2002 NASSCOM survey of international quality standards of the top 300 Indian IT services companies showed that 216 had acquired ISO 9000 or SEI or other certifications and 58 more companies were in the process of acquiring the same. According to NASSCOM, currently 36 Indian companies have received a level five assessment under the Software Engineering Institute’s Capability Maturity Model, or SEI-CMM, developed by the Carnegie Mellon University. Level five is the highest level attainable under the SEI-CMM standards, which assess an organization’s quality management system and systems engineering processes and methodologies. The level five certification process involves periodically subjecting our management system and systems engineering processes and methodologies to stringent third party review and verification. Some of our customers look to an SEI-CMM certification as a threshold indication of the quality of our processes and methodologies.

Need for IT service providers who can provide a range of services worldwide. Many companies today need a wide range of IT services, from high value-added services such as the integration and implementation of eBusiness and packaged software applications to lower-end services such as system maintenance and the re-engineering of older applications. As a result, companies often seek a service provider that can understand and integrate a wide spectrum of emerging technologies with existing systems and which offers a comprehensive range of services from software design and development to system maintenance. In addition, as companies become global, they increasingly require IT support on a worldwide basis. In the eBusiness environment, service providers need to have a close relationship with customers given the complexity and time sensitive nature of eBusiness.

We believe there is a need for full service IT service providers that have expertise in both existing systems and new Internet-based technologies, access to a large pool of highly-skilled technical personnel and the ability to cost-effectively service customers on a worldwide basis.

Our Business

We believe the following aspects of our business help us to address the challenges faced by our customers in the current IT environment.

Comprehensive range of services. We provide our customers the ability to meet all of their IT needs from one service provider. Our understanding of both existing systems and new technologies allows us to assist our customers in the management and maintenance of established systems and the development and integration of new technologies. We also help them understand their IT needs and work with them to develop an appropriate strategy to address these needs.

Global delivery model. We provide our services through our offshore centers located in India, our offsite centers located in the United States, United Kingdom, Japan, Dubai, Australia, Singapore, Malaysia, and other countries and onsite teams operating on our customers’ premises. Through this global network, we can provide a flexible delivery mix that is tailored to meet our customers’ specific needs. In addition, our global network of centers allow us to service our customers on a 24-hour basis and thereby shorten the time required to complete projects. Our onsite teams and offsite centers allow us to respond quickly to customer requests, to interact closely with the customer to develop IT services where the customers’ specifications are not clearly defined and to market services tailored to meet the needs of specific geographic markets.

In-depth industry knowledge. We have developed significant industry expertise in insurance, financial services, manufacturing and telecommunications. This allows us to better understand and address the IT needs of customers within a particular industry. Our technical associates include experienced project managers and software engineers with substantial experience in providing IT services to a particular industry. We have also hired business specialists who possess the industry knowledge our company needs to better understand the requirements of our customers in these sectors and assist our software engineers in proactively designing IT services. We believe our customers benefit from our ability to design and develop applications and services tailored to address industry-specific needs.

Adherence to high quality standards. We have a large pool of highly trained technical associates that allows us to provide high quality services tailored to meet our customers’ needs. As of March 31, 2004, 49% of our technical associates had bachelors degrees in engineering, and 51% had masters degrees in engineering, technology or computer applications and bachelors degrees in science and others. Each new technical associate must participate in a three to six-month software engineering training program and all technical associates are expected to undertake between 40 and 80 hours per year of development training. In addition, we have implemented strict quality control programs which form an integral part of our project management methodology to ensure we provide high quality services to our customers. We have a company-wide quality management system which satisfies the ISO 9001 TickIT and received a level five assessment under the SEI-CMM standards. Among other things, our system involves a rigorous review of software development processes, testing of all work, measurement and analysis of key quality metrics and regular internal quality audits. Our adherence to this system ensures that our customers receive timely delivery of consistent and high-quality services.

Strategy

Our main goal is to be a leading worldwide provider of comprehensive IT services. We intend to accomplish our goal by.

Continuing to focus on eBusiness and high-value added services. To better service our customers in all key industry segments, we intend to continue to focus on and expand our eBusiness offerings and our other high-value added services, such as packaged software integration and engineering design services. To continue to differentiate our services and achieve recognition as a leading worldwide provider of comprehensive IT services, we intend to broaden our range of Internet-based applications as new technologies become available.

Leveraging our existing customer base. Our goal is to build long-term stable business relationships with our customers to generate consistent revenues. With our existing customers, we plan to continue to expand the scope and range of the services we provide by extending our capabilities into new and emerging technologies and by understanding our customers’ businesses. In fiscal 2004 and fiscal 2003, we generated 84.0% and 84.0%, respectively, of our IT services revenues (excluding inter-segment revenues) from customers who were customers in the prior year. To further strengthen our relationships and broaden the scope and range of the services we provide to existing customers, our senior corporate executives have specific relationship management responsibilities for our largest customers. In fiscal 2003, we appointed approximately 30 relationship managers to further our relations with our major customers.

Expanding our presence in existing markets and penetrating new geographic markets. We plan to expand our presence in our existing markets and to establish a presence in new geographic markets throughout Europe and the Asia-Pacific region. We intend to accomplish this by leveraging our existing global customer base to serve them in other geographic locations. In fiscal 2003, we opened additional sales and marketing offices in Europe, the Asia-Pacific region and Canada and offsite centers in Australia, China and Malaysia to help us gain better access to new customers. We also plan to continue to hire local employees to staff and manage our offsite centers. We believe that the use of locally hired technical associates and managers working from offsite centers will enable us to increase our share of the local market and compete more effectively with local IT service providers.

Continuing to enhance our specific industry expertise. We aim to have an in-depth understanding of targeted industries in order to identify customer needs in those industries and be able to proactively design and offer tailored IT services to address those needs. By focusing on targeted industries, we believe we can develop services that are reusable within an industry and thereby lower our cost of delivering those services. We intend to enhance our health care, government and retail IT services capabilities by hiring additional specialists with expertise in these industries.

Attracting and retaining quality technical associates and augmenting their training. To attract, retain and motivate our technical associates, we plan to continue to provide an environment that rewards entrepreneurial initiative and performance, including competitive salaries and benefits as well as incentives in the form of cash bonuses and stock options. We also intend to continue to devote significant resources to training our technical associates through our Satyam Learning Center in a variety of software languages and computer platforms.

Enhancing our capabilities through joint ventures, technology alliances and acquisitions. We plan to continue to broaden our network of joint ventures and technology alliances with technology providers, customers, and IT service providers, particularly in markets in which we are not currently involved. We enter into these joint ventures and alliances to acquire expertise in high-end software products and emerging technologies, to add qualified personnel, to gain access to additional customers to invest in companies which service niche markets. We will also consider acquiring companies to gain ownership of specific technologies and to exploit other synergies with our existing business. While we currently have not identified any specific candidates, we regularly engage in discussions and negotiations relating to potential investment, joint ventures, technology alliances and acquisitions in the ordinary course of our business.

IT Services

We offer a comprehensive range of IT services based on existing and emerging technologies that are tailored to meet the specific needs of our customers. Our IT services include:

Software development. We design, develop and install software for a variety of IT systems. Our applications range from single-platform, single-site systems to multi-platform, multiple-site systems. A project may involve the development of new applications or new functions for existing software applications. Each development project typically involves all aspects of the software development process, including definition, prototyping, design, pilots, programming, testing, installation and maintenance.

System maintenance. We provide maintenance services for large software systems, which may include modifications and enhancements to the system and product support. We also assist customers in migrating to new technologies while extending the useful life of existing systems. Projects may involve re-engineering software to migrate applications from mainframe to client/server architectures or to migrate from existing operating systems to UNIX or Windows NT. For companies with extensive proprietary software applications, implementing such technologies may require rewriting and testing millions of lines of software code. We perform most of the maintenance work at our offshore facilities using satellite links to our customer’s system. In addition, we maintain a small team on the customer’s premises to coordinate support functions.

Packaged software integration. We work with providers of packaged software in the areas of enterprise resource planning, customer relationship management and supply chain management to install and integrate these packages with our customers’ existing computer systems and with various Internet applications as required to address the eBusiness needs of our customers. These packaged software applications help enable companies to strengthen relationships with their customers and business partners, create new revenue opportunities, enhance operating efficiencies and improve communications. We also customize this software to meet the specific needs of our customers and provide ongoing maintenance and support services. We have established alliances with providers of enterprise resource planning systems, such as Oracle and SAP. We have also established alliances with other companies who supply customer relationship or supply chain management systems and eBusiness applications for building on-line businesses. In addition, we offer our customers applications in the areas of business and customer intelligence, data-mining and data-warehousing to enable them to analyze trends.

Engineering design services. We provide engineering design services using computer aided design, modeling and engineering tools. Our engineering design services include component design, product and process analysis, and simulations and range from basic drawing changes to complex designs. In addition, our services may involve customizing the latest computer aided design, modeling and engineering software to specific user requirements.

Delivery of IT Services

We offer our customers flexible delivery alternatives through our offshore centers located in India, through offsite centers which we have established in our major markets and through onsite teams operating at the customers’ premises.

Offshore centers. We typically assign a team of technical associates to visit a customer’s premises and determine the scope and requirements of a particular project. Some members of the initial team remain onsite to facilitate direct liaison with the customer, while others return to India to establish and supervise a larger project team of suitably qualified technical associates to implement the project. Typically 20% of a project team will be on site depending on the nature and complexity of the project. Projects completed in our offshore centers in India contributed 43.9% and 47.0% to our IT services revenues in fiscal 2004 and fiscal 2003, respectively.

We have also entered into arrangements with several customers where an entire project team is assigned to a single customer. Such teams, called dedicated offshore centers, work from our facilities in India and are staffed and managed by us. Once the project priorities are established by the customer, we, in conjunction with the customer’s IT department, manage the execution of the project. When needed, our dedicated offshore centers will have equipment specific to the customer, or will have a separate work area with its own security protocols. We have an established dedicated offshore centers for, among others, General Electric Appliances Products LLP, and Ford Motor Company.

Offsite centers. We believe that a key success factor in meeting our customers’ needs is our physical presence near the customer. Accordingly, we have expanded and improved the offshore development model by establishing offsite centers in our major markets. In the United States, we currently operate offsite centers located in Atlanta, Georgia; Chicago, Illinois; Parsippany, New Jersey; and Santa Clara, California. Outside of the United States, we have offsite centers located in Tokyo, Japan; Basingstoke, U.K.; Singapore; Sydney, Australia; Dubai, Malaysia and other countries. We believe our offsite centers allow us to respond quickly to customer requests, to interact closely with the customer to develop IT services where the customer’s specifications are not clearly defined and to market services tailored to meet the needs of specific geographic markets. In addition, we staff our offsite centers with locally-hired managers, marketers and technical associates which we believe enable us to compete more effectively with local IT service providers.

Onsite teams. Some customers require the presence of our project teams at their premises, particularly for mission critical or high-end projects. The customer’s team and our project team collaborate to develop IT services that meet the customer’s specifications.

Quality and project management

We believe that quality is a culture, expressed in the way we interact and cater to the needs of our clients, and in the products and processes we deliver to them. So while we have met several external quality parameters, we are even more stringent about setting and meeting our own exacting standards.

To minimize disruptions and financial loss in the event of a disaster or disruption to our business operations, we have implemented a business continuity management system. This integrated enterprise wide process explores possible failure scenarios, assesses their impact on our business and puts in place appropriate controls to mitigate and manage the risks.

Our global Business Continuity Center in Singapore is designed to ensure that our clients receive seamless and uninterrupted support in case we are unable to provide our services from India or elsewhere and equips us with an alternate site for our critical projects when required. We are the first major Indian software company to establish such operations in Singapore. We chose Singapore as the site for this center based on its excellent connectivity to the rest of the world, low risk profile and new visa scheme to facilitate disaster recovery and business continuity operations.

Our multiple international locations provide us with numerous options for alternate sites in any eventuality. Our business continuity plans, backed by redundant network connectivity and replication/back-up facilities, are intended to ensure a high level of preparedness.

During fiscal 2003, we launched a new initiative known as ORBIT 5 (Organizational and Business Transformation), aimed at transforming the efficiency of our processes to deliver a higher standard and service.

The ORBIT 5 initiative aims not only to achieve and maintain our processes and sub-processes at the highest level but also to help us to create world-class infrastructure and systems.

To further improve our business processes, we have also adopted the iSTRIVETM methodology. This methodology involves systematic data gathering and statistical analysis to enable us pinpoint errors in our processes.