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.

Another one from Daily Reckoning on how Asians are getting rich

Last week, we met with our new partners from India. One thing that surprised us was the Indian labor market:

"Yes…there are more than a billion people in India…" said our partner, "but just go and try to find someone. The labor market is very tight. People who have been to business school - if they've been to a good one - can get a job anywhere. Not just in India, but almost anywhere in the world. So they're salaries are up at world levels. If you want someone to sweep your driveway…yes, that will be very cheap. But if you want someone to do the kind of work we do…well, you will pay almost as much as you would in America. Salaries are rising fast."

This from Associated Press:
"An annual survey by Hewitt Associates revealed that Indian salaries are likely to rise an average 14.5 percent in 2007, with banks and financial services companies offering the biggest hikes.

"The Philippines is expected to come a distant second with salary increases averaging 8.3 percent, and in China, salaries are likely to rise 8.1 percent, the survey showed.

"While pay hikes are expected to moderate in most Asian countries during 2007, India will see an acceleration from last year's average increase of 14 percent.

"'The war for talent is becoming increasingly fierce in India,' said Sharad Vishvanath, a Hewitt executive involved with the survey. 'As a result, compensation plays an increasingly fundamental role in attracting talent and ensuring ongoing employee engagement.'

"Indian paychecks are expected to eventually reach the same levels as developed Asian economies like Japan and Singapore, said the survey which looked at 1,500 Asian companies of which 580 are in India."

Why should this trend come to an end? Why, in a globalized world, should a man's labor in Chennai be worth less than a man's labor in Detroit? Is the man in Detroit smarter? There is no reason to think so. Has he better tools? More information? More capital? Maybe in the past he did. But now no country has a locked-in advantage. The same Internet that makes it possible for us to write to thousands of Daily Reckoning readers all over the world also eliminates much of the local advantage that the West used to have. That and shipping containers…and trade agreements…and low-cost air travel…and the rise of English as a world trade language.

Our guess is that this trend is likely to continue. Asia is probably going to get rich. China already has the biggest single pile of money put together since Midas - more than $1 trillion.

Naturally, as the Asians get rich, it is going to push the other trends along - they're going to use vastly more energy. And they're going to want to eat more meat…and drive more cars on more highways…

…and they're probably also going to want to throw their weight around militarily. Nations mind their own business until they are big enough to begin minding other peoples' business. Eventually, the Asians will begin spending their money on weapons…and start to flex their muscles. Our advice to U.S. leaders: Be nice to the Asians.

Few Big E's from Daily Reckoning

Today, we wonder - briefly - about the big things…the big trends. Let's recall our Big E's and see if we're still on track.

Energy - Our guess is that energy is generally becoming more expensive. Not that we have any inside information about it. We're just putting two and two together. The modern world runs on oil, and every year that passes brings more of the modern world and less of the ancient fossil fuel that powers it. Absent of some breakthrough in energy production…or some major break in the trend towards economic development worldwide…expect to pay more for juice.

Experimental Money - Money makes the world go round…but what makes money go round? In theory, it has to be limited in supply so that it mirrors the supplies of goods and services that it is used to buy. Historically, gold was used to insure that the supply of 'money' did not outstrip the supplies of goods and services. But since 1971, gold has been out of the system. People only have their faith that the people who control paper will control it well. Yet, history also shows that they never do. The temptation to create too much 'money' has always been irresistible…which leads to a trend; paper money loses its value. Since the quantity of "money" is now increasing so rapidly, we expect this trend to accelerate. This is not to say there couldn't be a period of deflation…in which currency actually gains value, for a time. But a deflationary period would probably only increase pressure on the financial authorities to increase the supply of currency. We would be surprised to see this experimental system survive for another 20 years.

Exodus - Economic power is shifting from West to East. Just look at the Forbes list of billionaires…just read the papers…just look at where your cars and gadgets were made. Most of the economies of Asia are growing two to three times faster than those of the United States.