Wednesday, November 21, 2012

Hewlett-Packard, Autonomy and 'Rules of the Garage'

It remains to be seen if Hewlett-Packard's investors (or the SEC and the FBI) will accept a "shift the blame" defense for an $8.8 billion charge it is taking for the $10 billion purchase of Autonomy, a Big Data firm with a big accounting problem that was the landmine in an otherwise unimpressive Q4 earnings report.

For those who missed the news from Palo Alto, here’s a brief rundown: According to CEO Meg Whitman, Autonomy had been billing low margin hardware sales as high-margin software sales and booked some deals with partners as revenue even though no money changed hands. Making matters worse, the Autonomy charge was the second acquisition-related, $8 billion+ write down in two consecutive quarters.

Shareholders quickly drove H-P down 12% to a nearly 52-week low. Now starts the finger-pointing. For his part, former CEO (for 10 months) Leo Apotheker is shocked, shocked that the deal he put together may have been massively flawed: "The due diligence process was meticulous and thorough," he says. Former Autonomy CEO Mike Lynch "flatly" rejects the allegations. An accounting firm that vetted the deal, Deloitte, "categorically denies that it had any knowledge of any accounting misrepresentations in Autonomy’s financial statements." And Meg Whitman, who as a board member voted in favor of the deal, says H-P was duped.

Maybe looking for individual bad actors is the wrong way to think about what’s going on. I think the bigger problem is a more simple one. H-P, which invented industries and a start-up culture based on simple concepts, simply forgot to take its own advice.

(Full Story)

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