INTRODUCTION TO SATYAM COMPUTERs

Satyam Computer Services Ltd. is a consulting and information technology Services Company based in Hyderabad, India. It was found in 1987 by B. Ramalinga Raju. The company offers information technology (IT) services spanning various sectors, and is listed on the New York Stock Exchange and Euro next. It is considered as an icon among the IT companies and at one point had over billion dollar revenue. Satyam's network covers 67 countries across six continents. The company employs 40,000 IT professionals across development centers in India, the United States, the United Kingdom, the UAE, Canada, Hungary, Singapore, Malaysia, China, Japan, Egypt and Australia. It serves over 654 global companies, 185 of which are Fortune 500 corporations Satyam has strategic technology and marketing alliances with over 50 companies. Apart from Hyderabad, it has development centers in India at Bangalore, Chennai, Pune, Mumbai, Nagpur, Delhi, Kolkata, Bhubaneswar, and Visakhapatnam. Satyam Computer Services Ltd is one of the leading global consulting and IT services company that offers end-to-end IT solutions for a range of key verticals and horizontals. Satyam Computers has domain expertise in verticals such as Automotive, Banking & Financial Service, Insurance & Healthcare, Manufacturing, Telecom, Infrastructure, Media, Entertainment, and Semiconductors.

HISTORY OF SATYAM COMPUTERS

Satyam Computers was founded in June 1987 as a private limited company by Ramalinga Raju along with one of his brothers-in-law, DVS Raju. In June 1991, Satyam Computers got its first Fortune 500 Client. In the same year in August, Satyam Computers was recognized as a Public Limited Company. Satyam went public in May 1992 and its issue was oversubscribed 17 times. In July 1993, Satyam entered into a joint venture with Dun & Bradstreet. Satyam was awarded ISO 9001 Certification in March 1995. In December 1995, Satyam Infoway was incorporated. In May 1997, Satyam became the first Indian IT Company to get ITAA Certification for Y2K Solutions. In November 1998, Satyam became one of the first companies to enter Indian Internet service market with the launch of Satyam Infoway's ISP Service. In the same year Satyam entered into a joint venture with GE. In

1999, Satyam Infoway became the first Indian Internet company to be listed on NASDAQ. In February 2000 Satyam was declared one of '100 Most Pioneering Technology Companies' by World Economic Forum, Davos. In May 2000 Satyam became the first organization in the world to launch Customer-Oriented Global Organization training. In March 2001 Satyam became first ISO 9001:2000 Company in the world as certified by BVQI. In May 2001 Satyam was listed on New York Stock Exchange. In 2003, Satyam announced business continuity center in Singapore, the first of its kind outside India. In 2004, Satyam opened new development center in Mississauga, Canada. In 2005 Satyam acquired 100% stake in Singapore based Knowledge Dynamics, a leading Data Warehousing and Business Intelligence solutions provider.

Achievements of Satyam Computers:

First Indian IT Company to get ITAA Certification for Y2K Solutions. Satyam Infoway is the first Indian Internet company to be listed on NASDAQ. Declared one of '100 Most Pioneering Technology Companies' by World Economic First organization in the world to launch Customer-Oriented Global Organization First ISO 9001:2000 Company in the world as certified by BVQI. Ranked by the Brown-Wilson Group as the number two outsourcing vendor globally

Forum, Davos in the year 2000.

training.

in the year 2006. Note: The above information was last updated on 21-07-2007

SATYAM SCAM:
The scam at Satyam Computer Services, the fourth largest company in Indias much showcased and fiscally pampered information technology (IT) industry, has had an unusual trajectory. It began with a successful effort on the part of investors to thwart an attempt by the minority-shareholding promoters to use the firms cash reserves to buy out two companies owned by them Maytas Properties and Maytas Infra. That aborted attempt at expansion precipitated a collapse in the price of the companys stock and a shocking confession of financial manipulation and fraud from its chairman, B. Ramalinga Raju.

What is known as of now is that over an extended period of time, the promoters decided to inflate the revenue and profit figures of Satyam. In the event, the company has a huge hole in its balance sheet, consisting of non-existent assets and cash reserves that have been recorded and liabilities that are unrecorded. According to the confessional statement of Mr. Raju, the balance sheet shortfall is more than Rs.7000 crores. After all, the revenues of Indias IT industry have grown at a scorching compound annual rate of almost 30 per cent in the past eight years, driven by exports. This is remarkable, assuming that revenue and profit inflation have not excessively overstated performance. With cheap skilled labour having shored up profits that were lightly taxed when compared with the norm, net profits must have been substantial and rising too. Why then did the fourth largest IT Company choose to take the criminal route of falsifying accounts and indulging in fraud? One possible cause could be the desire to drive up stock values. The benefits derived by promoters from high stock values are obvious, allowing them to buy into real wealth outside the company and giving them the invasion money to acquire large stakes in other firms. This tendency was epitomized by the benefits derived by America Online when it merged with Time Warner. Although the latter had more assets, revenues, and customers, AOLs higher market capitalization led to that company and its chairman, Steve Case, getting more out of the deal than did long-time giant Time Warner. There is some suspicion that Mr. Raju and his family may have sought similar benefits. The family chose to build its shareholding in Satyam Computer Services and shed it when required. In year 2000 Satyam Computer merged with a related company, Satyam Enterprises. Rajus cousin, C. Srinivasa Raju, who held 800,000 shares, or 19 per cent, in Satyam Enterprises, was reportedly allotted an equivalent number in Satyam Computer, leading to criticism that relative prices did not justify the 1:1 swap. But the original promoters share held by the Raju family and their subsequent acquisitions were not for keeping. Though the precise numbers quoted vary, according to observers the stake of the promoters fell sharply after 2001 when they held 25.60 per cent of equity in the company. This fell to 22.26 per cent by the end of March, 2002, 20.74 per cent in 2003, 17.35 per cent in 2004, 15.67 per cent in 2005, 14.02 per cent in 2006, 8.79 in 2007, 8.65 at the end of September 2008, and 5.13 per cent in January 2009 (Business Line, January

3, 2009). The most recent decline is attributed to the decision of lenders from whom the family had borrowed to sell the shares that were pledged with them. But the earlier declines must have been the result either of sale of shares by promoters or of sale of new shares to investors. According to audited balance sheet figures (if they are to be trusted) available from the CMIEs database, the paid-up equity in Satyam Computer Services rose from Rs. 56.24 crore in March 2000 to just Rs. 64.89 crore by March 2006 and further to Rs. 133.44 crore in March 2007. Overall, the number of shares held by the promoter group fell from 7.16 crore (22.8 per cent) to 5.8 crore (8.6 per cent) between September 2001 and September 2008. These points to a conscious decision by the promoters to sell shares, which may have been used to acquire assets elsewhere. The more inflated the share values, the more of such assets could be acquired. It is quite possible that the assets built up by the eight other Raju family companies under scrutiny, including Maytas Properties and Maytas Infra, partly came from the resources generated through these sales. If true, this makes Rajus confession suspect, since he stated that neither myself, nor the Managing Director (including our spouses) sold any shares in the last eight years excepting for a small proportion declared and sold for philanthropic purposes. This may not have been the only way in which resources were transferred out of Satyam Computer Services into other arms of the expanding Raju family empire. Money could have been siphoned out through opaque transactions with beneficiaries who were paid sums not warranted by their business profile. Satyams business strategy did involve unusual transactions. One example was the acquisition in 1999 by group company Satyam Infoway, which was the largest private Internet Services Provider in the country at that time, of India World Communications, for a sum of $115 million. The acquired company operated popular portals such as samachar.com and khel.com that had no clear revenue model, and was the principal beneficiary just as in the AOL deal. According to reports, the owner of India World was himself charged with intellectual property violations by his erstwhile employer IndiaWorld.com, an Internet services company managed by U.S.-based ASAP Solutions Inc. Satyam Infoways position was that it was aware of the claim being made by ASAP Solutions, but that its interest was not in

IndiaWorld.com but was limited to the URL indiaworld.co.in and the other portals under its banner, for which it had of course paid a huge sum. Mr. Rajus confession is also suspect for another reason, which has been widely discussed in the media. Even if he and his colleagues were inflating revenues and profits, the actual revenue earning capacity of the company, as confessed by him, seems to be extremely low. He claims that the huge difference between actual and reported profits in the second quarter of 2008-09 was because the ratio of operating margins to revenues was just 3 per cent rather than the reported 24 per cent. But even if Satyam Computer Services was cooking its books, it was engaged in activities similar to that undertaken by other similarly placed IT or ITeS companies and it too had a fair share of Fortune 500 companies on its client list. It is known that many of these companies have been showing operating margins that are closer to the 24 per cent reported by Satyam than the 3 per cent revealed in Mr. Rajus confession. Thus in financial year ending March 2008, the ratio of profits before tax of Infosys was 32.3 per cent of its total income, that of TCS 23.1 per cent, of Satyam 27.8 per cent, and that of Wipro 19.2 per cent. This suggests that either Mr. Raju is exaggerating the hole in his balance sheet or there is some other, more complex, and more disturbing explanation. But whatever it is, the difference between 24 per cent and 3 per cent seems too large to be the industry standard. Despite indicators of these kinds, which could raise suspicion, Satyam Computer Services remained a leading player with substantial investor support for many years. The promoters continued to hold control over the company despite the small share in equity they held and built an empire with land assets and contracts for executing prestigious infrastructural projects. And despite its award-winning reputation for corporate governance, its impeccable board with high-profile independent directors, and its appointment of big-four member PwC as its auditor, this still mysterious accounting fraud occurred. The full truth, it appears, is not yet out.

The three phases of the Satyam scam

An analysis of the report by the Serious Fraud Investigation Office (SFIO) on the swindle at Satyam Computer Services Ltd shows manipulation of software, and lack of audit controls and systemic review.

The fraud can be divided into three phases. For nearly three years since 1999, the firm rode on the Y2K phenomenon, which saw Indias software industry get huge orders and earn good profits. The second phase began in 2001. According to the SFIO report, the falsification of accounts started then to keep Satyams share price high. The company had gone public in 1992. Riding on the high price, Satyam promoters offloaded their shareholding in the market and used the proceeds to buy land. In fact, founder B. Ramalinga Raju had set up as many as 374 infrastructure firms and 8 investment companies to help him become a land baron, the report has found. This phase continued till 2004, which was when things started going wrong. The third and final phase started sometime in mid-2007 and continued till Rajus confession on 7 January this year. During this period, the company showed huge cash balances and fixed deposits in several banks of international repute. It was, however, actually starved of funds and the promoters were desperate to raise money to keep the company afloat. The Satyam board met and decided to acquire two group firms Maytas Infra Ltd and Maytas Properties Ltdindependent director Krishna Palepu received an anonymous email. The writer went by an alias, Joseph Abraham, and has been declared the whistle blower in the case. This email laid bare the fraud. Palepu forwarded the email to another independent director, M. Rammohan Rao, who chaired the Satyam audit committee. Rao forwarded this email to S. Gopalakrishnan, partner at Price Waterhouse, the companys auditors. Gopalakrishnan told Rao over phone that there was no truth to the allegations and assured him of a detailed reply in a proposed presentation before the audit committee on 29 December. That meeting never took place. A new date 10 January was fixed. Raju knew the clock was ticking for that audit meeting could have seen the committee members pose tough questions. Raju had not taken Raos calls seeking an answer to the allegations in the whistle blowers email.

Satyam Computer Services

CSR activities: Emergency Management and Research Institute EMRI (Emergency Management and Research Institute) is a pioneer in Emergency Management Services in India. It is a not - for - profit professional organization founded, funded and nurtured by Mr. B.Ramalinga Raju, founder and Chairman, Satyam Computers and his brothers. Operating in the Public Private Partnership (PPP) mode, EMRI is the only professional Emergency Service Provider in India today. EMRI handles medical, police and fire emergencies through the 1-0-8 Emergency service". This is a free service delivered through state- of -art emergency call response centres and has over 1289 ambulances across Andhra Pradesh, Gujarat, Uttarakhand, Goa, Chennai, Rajasthan, Karnataka and Assam. With the expansion of fleet and services set to spread across more states, EMRI will have more than 10000 ambulances covering over a billion populations by 2010. With increased focus on research and analytics, EMRI has plans to significantly enhance the overall emergency management scenario - further reducing individual suffering.

References:
www.wikipedia.com http://www.scribd.com/doc/10929155/Satyam-Scam http://www.livemint.com/2009/05/04225036/The-three-phases-of-the-Satyam.html