HP looks as bad a deal as Autonomy

HP looks as bad a deal as Autonomy

Summary: HP is blaming hidden flaws in Autonomy's books for the loss of billions of dollars. But the deal has highlighted glaring flaws in HP's bigger story.

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Autonomy's speciality is analysing big data — using probability theory to find patterns across multiple different stores of information. It is ironic, then, that HP apparently missed the claimed massive accounting irregularities in Autonomy's own books — signals strong enough in retrospect to make the British company's actual worth barely one-tenth of the $11bn acquisition price.

Meg Whitman
Can CEO Meg Whitman turn HP's fortunes around after the Autonomy debacle? Image: Jack Clark/ZDNet

The real mystery, though, isn't what happened or why — although one must wonder whether some rogue chemist has been spiking the coffee in HP's boardroom, such is the unreality of the chain of events. HP's board anointed Leo Apotheker without an interview, voted through the Autonomy deal despite the severe reservations of HP's own CFO, paid $11bn for a company with assets of around $3bn, and then blamed that overpayment on previously invisible yet poorly defined accounting misdemeanours.

HP's one detailed complaint about the accounting, that Autonomy sometimes booked hardware sales as software to inflate the margins, only accounts for some $200m — hardly chicken-feed, but hardly a multibillion-dollar heist either.

Things didn't go as expected from the moment the deal was signed. In May, the Financial Times noted that Autonomy's revenues dropped off a cliff the moment HP took over — which people within Autonomy claimed was due to a difference in corporate culture, but the FT noted dryly may have been more due to a disagreement over what constitutes a sale. There is some flexibility, sometimes over-exuberantly used, over when expected revenues from a deal are actually put on the books.

In 2011, the FT noted that Autonomy was aggressively buying up smaller companies for more money than might seem sensible. It also pointed out that Peel Hunt analyst Paul Morland had said: "This appears to be consistent with our theory that 2011 forecasts were going to be hard to achieve and the acquisition fills a hole."

Two years before that, there were reports of overstated revenues and payments deferred — more useful tools to make figures look healthier than perhaps they were.

There are plenty of discussions about where this sort of behaviour lies on the spectrum of accounting, from conservative to over-inventive. Too much can land a company in regulatory hot water, or worse. But the key fact here is that if you can read acerbic reservations about a company in the FT over many years, so can any one of HP's 15 different sets of financial advisors in on the deal.

You'd hope that some of them had a subscription to the newspaper; they could afford one — a year's worth of online access to the FT clocks in at around £350 ($560), and HP's collection of banks, accountants and dealmakers split some £44m ($70m) in fees between them. (It's not clear how much those fees would have been reduced had the deal not gone through.)

The real mystery

This wouldn't be the first huge deal to go through for the wrong reasons, with the wrong people, at the wrong time. But the size and specifics of the calamitous Autonomy purchase make it special.

And that's at the heart of the real mystery — how on earth can HP now present itself as a company that understands either software or business? The company built its reputation on hardware, and has never really been at home in enterprise software.

How on earth can HP now present itself as a company that understands either software or business?

It lacks a complete stack to sell to CIOs, who increasingly inhabit a hardware-free world, and it lacks a coherent strategy to explain how this will change. And any claims on its behalf to have special insight into the strategic needs of the enterprise now have to be weighed up against its completely fumbling its own.

HP's future is bleak. Revenues are down across the board, in both hardware and services. Its natural habitats — the server room and the enterprise desktop — are shrinking rapidly, as mobile and cloud lay waste those once-fertile rainforests of IT spending. HP is talked of as a take-over target, even as fellow-travellers such as Intel and Dell are looking shakier than ever before. 

Autonomy may have been a shocking failure, but it's not the only one. Most worryingly, it seems just another indication of an HP that's lost its way in dangerous times, with CEO Meg Whitman running out of cash, choices and sympathy. It's past time to stop pinning the blame and start playing the game of making HP coherent, relevant and believable.

Topics: Hewlett-Packard, Big Data

Rupert Goodwins

About Rupert Goodwins

Rupert started off as a nerdy lad expecting to be an electronics engineer, but having tried it for a while discovered that journalism was more fun. He ended up on PC Magazine in the early '90s, before that evolved into ZDNet UK - and Rupert evolved with them into an online journalist.

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11 comments
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  • Oh Dear

    But most of the responsible board members are still there? And the shareholders are doing what? Nothing?
    D.T.Long
    • spot on

      HP's board is brainless. Looks like the same is true of MS's board.
      otaddy
      • Ya, since WHEN is Microsoft in trouble.

        Why do people like you insist on throwing away any possibility of credability you may have hoped you had.

        Your post is absolutly deplorable.
        Cayble
  • Nothing like a good insider's account to understand IT shenanigans

    To understand how software companies use fraud, manipulation, deceit, and various legal and accounting schemes as part of a corporate takeover, I cannot recommend enough, "High-Tech Planet: Secrets of an IT Road Warrior" written by a former Oracle executive who saw it all:

    http://amzn.to/czf0qw

    It describes in details these questionable practices. I got an education when I read it and from now on, as financial analyst, I am very wary of all the hype surrounding M&As
    alimam
  • their own worst enemy

    HP seem to think that cutting 1000's of staff and nagging CEO s will work this time. They have been lost for a very long time.
    ttremeth
  • that should read "changing"

    Finger error.
    ttremeth
  • Ha ha haa... Rogue Chemist

    The German word for chemist or pharmacy is Apotheke.
    Vbitrate
  • HP overpaying

    Remember HP under Carly Fiorina agreed to buy PWC for $17B, the deal fell through due to HP shares falling and IBM bought PWC (called Monday) for $3,5B. HP had no clue what it was worth.
    lojolon
  • Apparently HP sacked the management team, and lost most of the staff

    Most of a businesses' value is the team of people running it!
    Software without development gets progressively weak compared to competition, patents run out. You need to keep developing new technology and software if you're a software company.

    When you see what this software company make, keeping the key people in place should have been screaming out at HP.

    Sounds to me like HP made the same error it made internally, when it sacked all it's engineers, and now seek to blame others.
    Plus, it beggars belief that £70m of accountants doing due diligence wouldn't have noticed a hole in the finances.

    No that just doesn't wash. I think HP just destroyed the business, and now seeks to blame others.
    stevey_d
  • CompaQ?

    This is not the first misstep the company makes, a lot more than just the Autonomy deal happened. Autonomy was supposed to be all about software, as is WebOS.

    But there was a reason Carly F got fired, and it goes back to perhaps the decision to take CompaQ. Nothing good ever comes from one PC brand taking another PC brand - You just add more headache to the one you already got.
    madfry
  • Sad story of HP

    Well, they didn't HAVE to FAIL. For example, I think the Lenovo acquisition of IBM's ThinkPad seems to have come out pretty well. However, the Chinese seems to be rather more dynamic than HP is now.

    There was a time when HP seemed to be perhaps the best high-tech company in the world. Unfortunately, that was a long time ago.

    I'm trying to think of something nice to say, but I can only think of one... I feel like HP never went evil--but maybe that's why they are going down. The American laws are mostly written by the cheapest politicians working for the least ethical businessmen.
    shanen0