Infotech Lead Asia: Hewlett Packard (HP) is in trouble again, thanks to its acquisition of Autonomy. The current crisis has the potential to negatively impact its customer base of top enterprise CIOs.
In 2011, HP acquired Autonomy for $11.1 billion. The purchase was criticized for being overpriced, with some questions about the company’s financials.
On Tuesday, Hewlett-Packard said Autonomy lied about its finances, resulting in a massive write-down of the value of the business. “There were serious accounting improprieties, disclosure failures and misrepresentations at Autonomy,” said HP CEO Meg Whitman.
As a result, HP is taking an $8.8 billion charge to align the accounting value of Autonomy with its real value. More than $5 billion of the write down is due to the false accounting. Autonomy makes search engines that help companies find vital information stored across networks. HP acquired Autonomy as part of an attempt to strengthen its portfolio of high-value products.
This is the second major write down in recent quarters. Recently, HP announced its $8 billion write-down associated with its 2008 purchase of EDS.
HP’s net loss in the fiscal fourth quarter was $6.85 billion compared with net income of $239 million a year earlier.
Mike Lynch, the former chief executive of Autonomy, rejected allegations made by the company’s new owner HP. A spokeswoman told Reuters: “HP’s due diligence review was intensive, overseen on behalf of HP by KPMG, Barclays and Perella Weinberg. HP’s senior management has also been closely involved with running Autonomy for the past year.”
WSJ has suggested takeaways from HP’s earnings report.
HP is going straight for the jugular for the Autonomy misstep. HP has informed the Securities and Exchange Commission, as well as the U.K.’s Serious Fraud Office.
Printing revenue declined 5 percent year-over-year, with most of the damage coming in the consumer sector. Total hardware units were down 20 percent year-over-year. Commercial units were down 15 percent year-over-year, and Consumer units were down 22 percent year-over-year. With many people carrying around smartphones and tablets, it might just be unnecessary to buy printers at this point.
HP’s software business isn’t looking that bad. Software revenue grew 14 percent year-over-year with a 27.2 percent operating margin (though that includes results from Autonomy).
Autonomy is HP’s second big whiff in recent memory, after the company decided to wind down its acquisition of Palm, a smartphone developer behind the Palm Pre. The year-earlier period included $885 million of charges tied to HP’s decision to wind down its webOS device business following the acquisition of Palm, according to the Journal’s report.
Personal Systems revenue was down 14 percent year-over-year. Total units were down 12 percent with both Desktops and Notebooks units down 12 percent. This comes on the heels of an earlier report in which Gartner said the world-wide PC shipments shrank 8.3 percent, while IDC reports PC shipments shrank 8.6 percent, in the third quarter this year when compared to the same period a year earlier.
HP customers who spoke to CIO Journal say they remain confident in the vendor’s technology and product roadmap, however warily.
Larry Bonfante, CIO for the United States Tennis Association, said he wasn’t worried about H-P’s ability to continue providing products to the USTA in the short term. But he said they’re taking taken a bath and that he will keep an eye on that.
Jackie Lucas, CIO for Baptist Health, said she’s waiting for more information from HP about how today’s news will affect it before commenting. She told CIO Journal last month: “With these kind of investments, we’re going to keep a watch on the vendor, and we have made more calls to HP.”
