HP writes down $8.8 billion over 'improprieties' in the Autonomy acquisition (i.e. they lied) | webOS Nation
 
 

HP writes down $8.8 billion over 'improprieties' in the Autonomy acquisition (i.e. they lied) 26

by Derek Kessler Tue, 20 Nov 2012 4:34 pm EST

HP writes down $8.8 billion over 'improprieties' in the Autonomy acquisition (i.

It was a little over two years ago that HP hired former SAP chief Leo Apotheker to be the Palo Alto tech giant's new CEO. Apotheker came from a short tenure as CEO of German enterprise software firm SAP, from which he'd been forced out after poor performance during an admittedly poor economic environment. At the time, we expressed our misgivings over the pick; Apotheker was an enterprise software guy through-and-through, having spent twenty years at SAP (which is small in comparison to HP). Sure, enterprise services were a profitable and growing portion of the HP business, but HP also still had a massive and dominating consumer hardware enterprise and had just months prior completed its acquisition of Palm to further expand that consumer hardware portfolio.

We all know what happened next: within a year HP launched and then cancelled a new generation of webOS hardware, announced a plan to split HP into separate consumer and enterprise companies, and purchased UK-based enterprise software company Autonomy for $10.2 billion. A month later, Apotheker's embattled term as HP CEO came to an unceremonious end as he was dumped in favor of former Ebay CEO Meg Whitman, who has since spent the past year struggling to clean up the mess Apotheker created.

Today, in conjunction with announcing their fiscal year 2012 results, HP declared an $8.8 billion write-down loss related to the purchase of Autonomy. Specifically, the charge is related to the revelation that "members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company" before HP's purchase. In other words, they lied about how much Autonomy was worth and how much money it could make for HP, leading to HP overpaying by billions of dollars for the company (The purchase price at the time was more than 80% higher than Autonomy's stock price; when HP bought Palm they paid a mere 23% premium over the trading price).

After writing down $3.3 billion a year ago after Apotheker's cancellation of webOS hardware and $8 billion more a few months ago related to a failure to actualize the value of their 2008 purchase of enterprise services company EDS, the last thing HP needed was another multi-billion write-down. But here we are, bringing the one-year write-down total to over $20 billion. Without the EDS and Autonomy write-downs, HP actually would have only suffered a loss of $600 million for the year, which while not great, looks downright rosy given the situation HP found itself in a year ago and the $12.7 billion paper loss now on the books.

Understandably, HP's not happy about this debacle, and make no mistake, this is a debacle. HP says that they have contacted both the US SEC Enforcement Division and the UK Serious Fraud Office for "civil and criminal investigation". And not wanting to leave it up to the feds, HP's also "preparing to seek redress against various parties in the appropriate civil courts to recoup what it can for its shareholders." In other words, "We'll see you in court."

For his part, former Autonomy CEO Mike Lynch has flatly denied the charges to multiple publications, including Business Insider and The Wall Street Journal. Former HP CEO Leo Apotheker, the man who pursued the acquisition of Autonomy, also chimed in through the Journal, saying that he's "both stunned and disappointed to learn of Autonomy’s alleged accounting improprieties" and that "the due diligence process was meticulous and thorough" with the assistance of "two of the world’s largest and most respected auditing firms" to check the numbers. How Autonomy was supposedly able to dupe these respected auditing firms and HP's own numbers guys is hard to say, and we're not going to point any fingers at who might be to blame. Suffice to say, there's plenty of failing to go around here. And HP's shareholders aren't please by this news either, sending shares of HP down nearly 12% today, hitting a new low not seen since October 1994 (yes, an eighteen-year low, though if you adjust for inflation it's actually a twenty-year low for HPQ). HP's stock price is down 58% over the past year.

Recently we've been rolling back how much we report on HP's financial situation. With the webOS Global Business Unit poised to become an independent company (albeit one that's monetarily reliant upon HP's largess), the continually depressing fiscal state of HP had been becoming less and less relevant. But if we go back one year to the start of this debacle, we have to wonder how differently things could have turned out had HP not so grossly overpaid for Autonomy.

In the conference call after the cancellation of webOS hardware development, HP CFO Cathie Lesjak said that "To make [webOS] a financial success would require significant investments over the next one to two years." HP wasn't willing to commit the billions of dollars that would have been necessary for webOS to stand a chance at long term success in the burgeoning smartphone marketplace. Just ask Apple, Google, and Samsung how much they've had to spend to achieve success, and how many billions companies like HTC, Microsoft, Nokia, and Research In Motion have spent in their falls from grace (or in Microsoft's case, a slow and stumbling climb up from eternal and existential floundering in mobile).

To put HP's financial predicament at the time in perspective, it was three months later that they announced the full $3.3. billion loss that they were taking related to the webOS experiment over the prior year. It's probable that HP likely would have continued to lose money in the short term if they'd continued to pursue a webOS market, but we doubt that even after two years they could have come close to equaling the bath they're taking over Autonomy. By committing over $10 billion to purchasing Autonomy, Leo Apotheker severely limited HP's cash flow options, creating a "this or that" scenario where HP had to make cuts, and Palm was a casualty in the bloodletting.

But, oh, what the webOS GBU could have done with $8.8 billion. We'd be on at least a third generation of HP webOS hardware by now, and from what we've been able to learn about what HP had in development, they had a lot of innovative stuff in the works. But until we get our hands on a time machine, there's no sense in crying over almost nine billion dollars in year-old spilled milk.

26 Comments

"there's no sense in crying over almost nine billion dollars in year-old spilled milk."

Ewwww!!! That's some pungent spilled milk!!!

Wow... We are still dealing with the ghost of Leo Apotheker even now. That is pretty sad.

=(

I have given up hope. if HP can mismanage their way to a nearly $9 Billion dollar loss out of plain stupidity and simply not paying attention, well then there is NO hope for them. Hopefully it will be a quick death and somebody will purchase & use Palm's old patents.

http://bgr.com/2012/11/20/hp-autonomy-scandal-former-ceo-apotheker

Apotheker lasted less than a year at HP, during which he tried without success to transform the hardware vendor into a cloud software company.

http://www.theverge.com/2012/6/5/3062611/palm-webos-hp-inside-story-pre-...

One source tells us that Sam Greenblatt, who served as CTO of HP's website, was instrumental in pushing Whitman and HP's board in that direction and was moved into a new role as webOS CTO alongside Martin Risau, an ally of Apotheker's who'd stuck around after the embattled CEO was fired.

webOS GBU is become a cloud company and the dream of Leo is alive. Now everything is clear.

Meg is no saint here. She was there and supported all those decisions. Just heard her on npr's market place admitting as much. She blamed deloite

She supported hiring Leo and letting him run the business into the ground, and now she has to pick up the pieces. And as she's picking up the pieces, this comes out and shatters Leo's mess into billions more pieces.
 
What a disaster.

Leo was hired in Suptember 2010. Meg joined the board in January 2011. How did she support HP hiring Leo?

What a legacy. I don't thing any one person has caused nearly this much equity destruction without the assistance of a Federal indictment. Leo was as extraordinary as WebOS was.

Atleast she realized her mistakes, and is trying to make things better now.

Pretty sure Meg came on after Leo's hiring.

Is this an article crying over spilled milk, while telling others not to cry over spilled milk?

Ok Yes Leo's Ghost has come back and taken an even bigger chunk of HP with it. Where though is all this coming from? Do I have to say it? Ok the BOD, what a bunch of short sighted buffoons. They had this Idea LETS BE IBM! They took a 20% stock hit the day they announced this DEBACLE. What is the cost this is gonna cause now? At this point i'd have thought that we would hear that an emergency stockholder meeting would be demanded. When are they going to force the whole BOD to resign? They all deserve to be fired. Maybe try and put REAL MONEY in WebOS. I can dream.

Apothacker was a mole to ruin Palm, that way iphone could rule the world. I call this corporate espionage at it's best. ;)

Yup, HP can waste 20 billion dollars, but they're to much of pushovers to invest in something that has a chance : webOS.

The thing is webOS's chances were not good. iOS was dominating. Android was catching up and obviously going to sprint past iOS. webOS was like 2 laps behind with Microsoft joining the race around where webOS was. So it was a huge risk to get behind webOS. But that said, webOS, ****if things went their way****, would've completely assured HP of a fantastic, dominating future in the tech world.

HP could sell webOS phones, they could license out webOS phones. HP could build webOS based TVs. HP could build webOS based printers. HP could build webOS tablets. HP could integrate webOS into their laptops. HP could build millions of things based on webOS. And don't forget all the money made on app sales.

This is the saddest part. The future of the company now is bleak. They can stick around for a long time but the way HP is going they're never going to be a tech leader again. They're doing so-so in a declining market. webOS gave them the ability to gamble on a chance to be a tech leader for many years. HP barely tried and then gave up. There was no guarantees whatsoever that the webOS gamble would've worked, but they shouldn't have tried at all if they were going to half ass it as bad as they did.

r.i.p. HP

When comparing Autonomy and Palm, you have to wonder what the hell HP thought they were doing.

$1.2b on a company with a lot of resources including an extensive patent portfolio was risky but a sound decision.

$8.8b for a company that did what IBM/Google etc were doing made you wonder what the hell they thought was possible to make it worth so much. You'd have to have been insane to pay so far over the odds for such a thing, the risk was arguably higher than with Palm

> $8.8 billion

I'm sorry. You must be wrong. Don't you mean "million"?

O.o

Nope. It's sometimes hard for us 99%ers to wrap our head around numbers like this:

8,800,000,000.00

Nope. Grab a chair, take a breath. They spent 11 billion to purchase this current write down of 8.8 billion. So they're 20b in the hole. And they're probably not done.

I have just one thing to say:

BWAHAHAHAHAAAAHAHAHHAHHAAAAAAAA!!!!!

HP, you deserve it, for all your stupidity, shortsightedness, and bureaucracy! Hundred times over!!

the fools!

"HP Invent." The only thing HP has invented in the last five years is new ways to package corporate failure.

Think Big, think small, think beyond. Beyond sucks.

"We will make things right". Nope, we're making things right.

Time to put HP on Ebay.

jajajajaja! jalarious

Apothekir what a fool the biggest fool in technology big ideot

Can't argue with the above. Leo was a bad CEO.

Perhaps Autonomy was a last chance desperate gasp by a guy who saw the writing on the wall. He and the board knew the numbers and new they weren't getting better. Perhaps it is both he was desperate and stupid. See what happens to people who give up on webos?

oh, he's rich and sitting on another board collecting even more money, but that's not what I meant!