HP has had its share of troubles with its acquired Autonomy and EDS businesses, and perhaps for that very reason, potential buyers have reportedly emerged willing to take these units off HP's hands. Are they bargain hunting?
The interest in Autonomy and EDS was reported on Wednesday by The Wall Street Journal, which cited unnamed sources said to be familiar with the discussions. The paper reported that HP Chief Executive Meg Whitman "so far isn't in selling mode."
Calls from potential suitors reportedly picked up after HP stated in a securities filings late last month that "we continue to evaluate the potential disposition of assets and businesses that may no longer help us meet our objectives."
Acquired in October 2011 for more than $11 billion, Autonomy is now at the center of an accounting scandal. The company misrepresented its value before its acquisition through a series of "accounting improprieties, disclosure failures and outright misrepresentations," HP alleged in November. HP cited these alleged improprieties in writing down Autonomy's value by $5 billion as part of a larger $8.8 billion fiscal-fourth-quarter write down.
[ Want more on technology moves gone wrong? Read Top 10 Tech Fails Of 2012. ]
The Justice Department has opened an investigation into Autonomy, according to HP. Former Autonomy CEO Mike Lynch has vigorously defended the firm's accounting and has demanded, through open letters and a public Web site, that HP's board explain how such extensive misrepresentations could have gone undetected during the acquisition due diligence process. He says he's cooperating with all investigations.
Despite the accounting scandal, Whitman said during a customer Web conference earlier this month that Autonomy's IDOL (Intelligent Data Operating Layer) software remains critically important to HP. The software uses algorithms to perform search across various types of enterprise-wide data searches. It was designed to spot and provide context around unstructured data such as e-mail, voice, video, Web content and social network comments.
On Monday, HP announced a significant customer win for Autonomy: NASCAR is using the software to power a Fan and Media Engagement Center. The software is being used to monitor print, radio, video, Web and social network sources and analyze fan sentiments on races, drivers, sponsors and all NASCAR activities.
If suitors for Autonomy are, indeed, knocking on HP's door, it's a good bet they sense an opportunity to pick up the assets at a bargain. There's little doubt that the allegations of financial impropriety have tarnished the brand.
EDS is another acquired company that has struggled under HP. Acquired for $13.9 billion in 2008, EDS became the cornerstone of HP's Enterprise Services division, which is the company's second-largest unit. The acquisition was expected to drive profitable growth, but margins have been pinched in many of the outsourcing areas in which EDS specialized.
Enterprise Services has been among the targets of broad restructuring across HP, through which 29,000 employees are expected to leave the company (many through voluntary retirement) by 2014. The head of the services division was also replaced, and HP took an $8 billion write down on the unit in the third quarter.
EDS is now part of a broader unit, and it's unlikely HP could simply walk away from all of those services. Thus, reconstituting EDS would be tricky. Autonomy, on the other hand, is still a discreet business that might be attractive to any number of software companies at the right price. The Wall Street Journal did not name or speculate on potential suitors for either unit.