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11/20/2012
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HP Takes $8.8 Billion Charge On Autonomy Unit

HP reports bruising loss for fourth quarter, says Autonomy officials misrepresented financial position prior to 2011 acquisition.

Hewlett-Packard on Tuesday reported a $6.9 billion loss for its fiscal fourth quarter, and said it would take a charge of $8.8 billion after writing down the value of its Autonomy software unit, which it said it's investigating for "serious" bookkeeping improprieties.

For the quarter ended Oct. 31, HP said revenue was $30 billion, down 7% from the same period a year ago. The company posted a loss of $3.49 per share. For the full fiscal year 2012, HP recorded a loss of $12.7 billion, on revenue of $120.4 billion which was off 5% from the prior year.

HP attributed much of the loss to the write-down of Autonomy. It acquired the U.K.-based company in October 2011 for $11.1 billion. HP said at the time that it was attracted to Autonomy's enterprise search and knowledge management tools, which allow users to search across multiple forms of unstructured information, including audio and video files, as well as text.

[ Learn more about an HP long shot: Project Moonshot, HP's attempt to bring low power servers into the data center. ]

In its earnings report Tuesday, HP said Autonomy had misrepresented its value.

"The majority of this impairment charge is linked to serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy Corporation plc that occurred prior to HP's acquisition of Autonomy and the associated impact of those improprieties, failures and misrepresentations on the expected future financial performance of the Autonomy business over the long-term," HP said.

HP said it may pursue civil charges against Autonomy officers it believes are guilty of misrepresentation. "These efforts appear to have been a willful effort to mislead investors and potential buyers, and severely impacted HP management's ability to fairly value Autonomy at the time of the deal. We remain 100% committed to Autonomy and its industry-leading technology," HP said in a separate statement.

Former Autonomy CEO Mike Lynch, who was let go from HP following the acquisition, is "reviewing" HP's claims, a spokesperson for Lynch told Reuters.

HP saw weakness across most of its operating units in the fourth quarter. Sales of PCs and other personal systems were off 14% year-over-year, while revenue from printing products dipped 5%. Enterprise services revenues fell 6%. Sales of servers, storage and networking equipment dropped 9%. Software, the lone bright spot, saw revenue increase 14%.

"Fiscal 2012 was the first year in a multiyear journey to turn HP around," said CEO Meg Whitman, in a statement. "We're starting to see progress in key areas, such as new product releases and customer wins."

Whitman replaced Leo Apotheker as HP's CEO in September 2011. Apotheker was blamed for a number of missteps, including the release of a confusing roadmap under which HP was to abandon the PC business. He later reversed course. Apotheker initiated the transaction to acquire Autonomy, which could further tarnish his legacy if the charges against the company bear out.

Shares of HP were off 12.71%, to $11.61, in opening trading Tuesday.

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Number 6
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Number 6,
User Rank: Moderator
11/21/2012 | 7:30:52 PM
re: HP Takes $8.8 Billion Charge On Autonomy Unit
AustinIT- Meg didn't step in the door after this was done. She was on the board when Apotheker proposed it and the deal went through 3 weeks after she became CEO.
Number 6
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Number 6,
User Rank: Moderator
11/21/2012 | 7:28:38 PM
re: HP Takes $8.8 Billion Charge On Autonomy Unit
I heard Meg Whitman interviewed on APM's Marketplace radio show as I was driving home yesterday. She placed the blame squarely on Deloitte. Makes sense. Can't sue Autonomy because they're now part of HP, but HP can go after the auditor that issued the clean opinion.

Another Enron-Arthur Andersen debacle about to turn the Big Four into the Big Three? Stay tuned!
cbabcock
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cbabcock,
User Rank: Strategist
11/20/2012 | 11:29:04 PM
re: HP Takes $8.8 Billion Charge On Autonomy Unit
The purchase occurred at a time when then-CEO Leo Apotheker wanted to talk about anything except his "we should get out of the PC business" blunder. They should have listened to Larry Ellison as he mocked the purchase. Or maybe HP's own chief financial officer, Cathie Lesjak, who told the board HP was paying too much. See http://www.businessinsider.com... Charlie Babcock, InformationWeek
Number 6
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Number 6,
User Rank: Moderator
11/20/2012 | 7:36:26 PM
re: HP Takes $8.8 Billion Charge On Autonomy Unit
That was the first thing I thought of also: Where was HP's due diligence?

This opens them up to HP stockholder lawsuits, too, because it means they put their owners' investment in the company at risk. The only defense is if Autonomy cooked their books so badly that HP couldn't have possibly seen through their deception, but then I'd want to know who Autonomy's auditor was that certified the financial reports and missed a material misrepresentation.
Bob Gill
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Bob Gill,
User Rank: Apprentice
11/20/2012 | 6:35:27 PM
re: HP Takes $8.8 Billion Charge On Autonomy Unit
My business is for sale today. Next year, I believe my business will have 1000x the revenue of this year. I have no factual way of predicting the future, but I'm happy to discuss with your due diligence team.

If your team is stupid enough to agree with me, good luck, but I won't be refunding any of the inflated purchase price to you.
AustinIT
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AustinIT,
User Rank: Apprentice
11/20/2012 | 6:20:15 PM
re: HP Takes $8.8 Billion Charge On Autonomy Unit
A gambler and his money are soon parted...

HP is as much to blame as Autonomy. There is this little known concept called "due diligence" when it comes to making large acquisitions.

I imagine Whitman's first words... after stepping in the door for the first time... were "Oh God".
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