Beleaguered technology outsourcer Satyam Computer Services risks losing both clients and employees, market analysts have warned.

Ever since Satyam fell out of favor with investors over the botched $1.6 billion Maytas deal, several of its clients said they might cut back incremental business to the Indian outsourcer as a result of the controversy.

Satyam's biggest blow came when the World Bank announced that it has found Satyam ineligible for direct contracts with the bank for a period of eight years, effective from September 2007, on grounds of bribery, fraud and business malpractice.

And, last week, when Satyam's promoter B. Ramalinga Raju admitted that it had committed $1.4 billion (Rs.7000 crore) accounting fraud by inflating the company's cash and bank balances, it became clear that the software services exporter could stand to lose both its clients and employees.

Satyam, which specializes in business software and back-office services, employs nearly 53,000 people at its headquarters in Hyderabad and other parts in India and overseas.

Despite the government taking positive steps to bring Satyam back on its feet, Satyam is in the danger of losing vendor's credibility, consultancy Forrester has warned.

The largest scandal in India's corporate history calls into question the viability of the company as an independent entity, consultancy Forrester said in a recent research note.

As a result, sourcing and IT executives need to actively review their exposure to the company and their options as a cloud of uncertainty hangs over the company, it said.

Both clients and employees will desert Satyam as a result of competitive wooing. In our interactions with several of Satyam's employees across the organization they showed utter frustration. Large and small clients alike will look to other suppliers they already work with as an immediate fallback position as the confusion continues. More than half a dozen providers have already called Forrester to discuss competitive strategies for taking over business in joint accounts, it added.

There could be a shift in customer loyalties. The solution for global customers will be delivered by multinationals if not Indian players, said Avinash Vashistha, CEO of advisory firm Tholons.

According to Sunil Apte, country head of global research firm Forrester, chased by regulators and battered by investors, Satyam might find it increasingly difficult to fend off competition and retain contracts worth around $500 million up for renewal this year.

About 30-40 percent of Satyam's clients will explore alternatives in the next couple of quarters. Offshoring may take a hit and deal finalization may take longer as clients do more due diligence, he said.

Agree Viju George and Kunal Sangoi, analysts at brokerage Edelweiss. According to them, around 40 percent, or up to $1 billion, of Satyam's revenue pie could get redistributed among other IT players on an annualized basis by the end of 2009.

According to media reports, National Australia Bank Ltd said it was reviewing a contract with Satyam for system development and support to 2011.

Another client, Applied Materials, which awarded a $200 million five-year contract in 2008 to Satyam for managing the semiconductor firm's software application and maintenance work, has expressed concerns over the recent events and, though it is not exploring any immediate termination of the contract, is reportedly trying to restructure the agreement. The company contributes $65-70 million annually to Satyam's revenues.

According to Sabyasachi S. Sathyaprasad, founder of consulting firm Mindplex, Customers like Visa Best Buy and Caterpillar are currently renegotiating their contracts, and after the latest development, they may prefer to work with others.

Following the World Bank's decision, Satyam's reputation for maintaining high standards of corporate governance and data security has taken a blow and it is doubtful whether it can continue to attract the business of Fortune 500 clients, governments and multilateral agencies such as the World Bank, an independent analyst said, adding the World Bank's move triggered concerns among investors that other clients, including General Electric, Nestle, ArcelorMittal, Nissan Motor Co. and Qantas Airways, might follow the Bank's move.

At a time when contracts are being negotiated and renewed, the latest developments could make Satyam's major clients switch vendors. Infosys, TCS and Wipro stand to gain at Satyam's cost, the analyst said, on conditions of anonymity.

Already, the analyst said, many of the Satyam's major clients like Citi, Reuters, Merrill Lynch, Applied Materials, Fujitsu, Kimberly-Clark and Qantas are giving work to rival vendors like TCS, Infosys and Wipro, which have strength in almost the same verticals as Satyam.

Especially General Electric, the largest client for Satyam, is reportedly evaluating options of inducting the Satyam team working on its IT project and sources familiar with the matter said talks are on with other outsourcing vendors.

Nestle, which has been a Satyam client since 2004, said it has received assurances from the outsourcer that it could provide normal continuation of services and it also has robust internal resources to provide it with the necessary IT support. However, a Nestle spokesman said the top brass in the company are very worried about its engagement with the Indian IT firm and alternative solutions are being considered so that no disruption of Nestle's IT operations takes place.

Malaysian Airlines, which has engaged Satyam for its onsite professional services, said, We have been in discussions with Satyam and have been advised that the services will continue as usual.

Satyam's another client, British Petroleum (BP) has sought assurance from the Indian IT firm that their work will not be impacted. We are seeking further information and assurance from Satyam that our services will not be impacted by the situation. We will also prudently consider what other actions may be needed in order to best safeguard our systems, said David Nicholas, director (media), BP Group.

The analyst said that Australian telecom company Telstra, which contributes $20-25 million annually to Satyam's revenues, has now decided to split a new contract worth $200 million among the top three Indian vendors. Satyam seems to have lost the race, he said.

Not surprisingly, Satyam's interim CEO Ram Mynampati has gone to the US to reassure clients about the beleaguered company's ability to serve them.

However, Satyam's rivals said they are not planning to proactively poach on Satyam's clients and employees.

We have already made the announcement that we will not poach any Satyam employee. We will not proactively approach their clients and customers either but clients have to decide for themselves and they have the right to choose their partner at work, said T.V. Mohandas Pai, board member and head (HRD and Education & Research), India's IT bellwether Infosys Technologies.

Concurs Wipro CFO Suresh Senapaty. I can't say no to customers if they come to me with more businesses. We already have customers which are common with Satyam. If they are giving us more business we will not say no or it may create problems for customers, he said.

National Association of Software and Service Companies or NASSCOM, the consortium that serves as the apex body of the Indian IT and BPO industry, has also urged IT companies to refrain from making unsolicited offers to Satyam's clients or it's employees.

However, Nikhil Rajpal, head of sourcing advisory firm Everest is doubtful. Clients are evaluating options as their business continuity is at risk. Other suppliers are also working overtime to poach some of these marquee clients, he said.

According to brokerage Emkay Global Financial Services, multinational outsourcing firms such as IBM, Accenture or Cognizant could also use Satyam's accounting scam to their advantage. We don't rule out the possibility of MNC competition playing Satyam's fiasco as a selling point against the offshore Indian players, the brokerage said in a research note.

Agrees overseas brokerage Stifel, Nicolaus & Co. Inc. Best positioned to benefit from such a situation, we believe, are the large, global, well-known MNCs like Accenture and IBM. We consider them of Tier-1 caliber in terms of offshore capabilities, but their size, stature, brand, global reputation, and high-level client relationships (particularly Accenture) differentiate them, in our view, and will make them more attractive to worried clients than even the Tier-1 offshore firms like Infosys and Wipro, said an analyst at Stifel, Nicolaus & Co. Inc.

The MNCs, the analyst added, stand to benefit more because they are large, established and with sterling reputations and recognizable brands that put them in the best position to reassure worried clients.

Meanwhile, Deepak Parekh, who is heading the newly constituted three-member Satyam board, said all efforts are being made to retain Satyam's clients and employees.

Parekh said he had interacted with two large well-known multinational corporations which observed that the quality and accuracy of Satyam's services were far better than several others and have assured that it would continue to give contracts to Satyam.

The top priority of the board is to restore confidence of the customers, employees, suppliers and the investors by ensuring business continuity. We'd like to assure Satyam's customers that our immediate priority is to ensure sustainability of service with minimal disruptions, he said.

According to Parekh, Satyam has a highly talented workforce and it was unfortunate that the accounting fraud has put their jobs at stake. However, Parekh said the board as well as the government will take all possible steps to secure the future of the employees and added that banks too should be more supportive and liberal as far as Satyam employees are concerned.

Parekh said the board had no idea whether the company had enough money to pay salaries next month. However, Satyam has large outstanding receivables - dues owed by the company's clients. If that flows in within the next 60 days, Satyam will not face a cash crunch, he said.

In this regard, the board, Parekh said, was also planning to offer some of Satyam's large clients incentives to release the receivables early without waiting for the 60-day time to ensure timely payment of salaries.

Parekh's remarks come at a time when the media are reporting that many of Satyam's employees fear that a possible merger or takeover could mean retrenchment while others are expressing concerns about their financial commitments like repayment of loans and credit cards.

Ever since the accounting fraud became public, at least 120 employees from Satyam's lower and middle run management have reportedly turned in their resignation papers and around 20,000 employees, including those from the senior level management, were posting their resumes on job sites in their efforts to tap the market for other options.

Several job consultancy firms also claimed that they are receiving at least 200-300 calls daily from Satyam employees inquiring about jobs.

But analysts believe that the newly constituted board has earned the respect and confidence of Satyam's employees and could persuade them to stay and help steer the company to a path of recovery.

According to a Satyam employee, the company has been continuously boosting the morale of its employees by regularly communicating with them in terms of salary, lay offs and clients. Most of us want to stick to our company till everything is clear. We have been communicated that contracts from firms have been renewed. Companies like Oracle, FedEx, Qantas and others have confirmed that they will work with us, the employee said.

Shares of Satyam closed 9.16 percent down at Rs.31.25 at the Bombay Stock Exchange on Tuesday.