Satyam wins $ 200 M deal with Applied Material

Satyam Computer Services Ltd. has signed a five-year contract worth $ 200 mn with Applied Materials, Inc., a global leader in Nanomanufacturing Technology to the electronics industry. Satyam will provide application development, maintenance, and support (ADMS) plus business transformation core technology services to Applied Materials through a managed services delivery model.

“We expect this model to provide us with a very cost-effective solution for managing IT and business infrastructure processes and activities, as well as measurable service level and quality enhancements," said Ron Kifer, Group VP & CIO of Applied Materials.

B. Ramalinga Raju, Satyam’s founder and chairman commented, “We expect the Managed Services approach to become commonplace, and to serve as a model for numerous future engagements with other customers.”

Satyam has created a dedicated development center for Applied Materials. The facility will be part of Satyam’s Electronic City campus at Bangalore.

It has provided ADMS and Engineering Services to Applied Materials for more than five years prior to this announcement.

Director and Senior Vice President at Satyam, TR Anand states that the company expects revenues from applied materials to start from the next quarter. The company also sees see a ramp-up in contract from the next quarter.

One sector that has been ravaged on Wednesday has been technology, which is down across the board; in fact the IT index is down 3.5%, while Satyam has lost 3.5%. But they have bagged a big order, because of which, the stock has rebounded a little bit in the afternoon.

Excerpts from CNBC - TV18’s exclusive interview with TR Anand:

Q: What are the details of this order from Applied Materials? Over what period would you be clocking USD 200 million?

A: The details are as below. We have signed a managed services deal for 200 million to be executed over five years with Applied materials; therefore we would roughly be executing about USD 40 million per year. The managed services deal includes application development and maintenance services for them, as a sole provider across the globe, along with applications assistance in their business transformation.

Q: By which quarter do you start seeing revenues from them? Is it going to be an equal contribution every quarter for this project or is it a ramp up sort?

A: We have already begun the transition process; so we should be seeing revenues starting from Q1 of the next fiscal, which starts in April. We should be seeing this ramp-up fairly rapidly in Q1 so you would see a steady state from Q2 onwards.

Q: What kind of upside potential could be there? Is it a finite locked in USD 200 million contract or depending on the execution could there be some potential upside or increase in the order size from the company?

A: The current managed services deal is for a fixed price over five years. Now what will happen is that we will execute what is known in the scope of work today, obviously business conditions, etc, could change a lot in this industry, especially over five years the high technology industry could provide us other opportunities as well, but I don’t think we could comment and quantify at this point of time.

Q: Watching Satyam what do you see happening with the rupee? How much has it been gaining?

A: I am not really the qualified person at Satyam. The question is best answered by my CFO and others; so I would not want to comment on the rupee and its impact on Satyam.

Q: What kind of bill rates or average margin picture does this deal come with? Would it be comparable with the other bill rates that you operate on with some of your larger clients?

A: The best part of this is that it is a managed services deal; so it is not based on any bill rates. We do not bill the customer base on the kind of people that we deploy or the amount of hours per day or per month that we work; it is based on the work understanding, quantifying the work, delivering it; it doesn’t matter where it is delivered from. I can choose to decide on the onsite offshore ratio, the location from where I deliver it. All that matters is I execute as per the agreements and improve upon them. Therefore, it gives us a good opportunity to be able to optimize delivery; I definitely see that this is going to be fairly exciting for us. Specifically, this is not going to be any different from the margin percentages that we are seeing today. I wouldn’t see any downside on it.