HP: Autonomy had us believing in a false IDOL
'Negative margin, low-end, little or no software'
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HP has laid out the "accounting improprieties and misrepresentations" allegedly used by Autonomy to inflate its value just before HP bought the British biz.
Hapless Hewlett-Packard yesterday took an $8.8bn bath on the acquisition following the findings of an internal probe. It said a senior member of Autonomy's leadership team sparked that investigation by accusing the company of "questionable" practices.
HP pulled in bean counters at PricewaterhouseCoopers to conduct a "forensic review" of the numbers, under the gaze of HP exec veep John Shultz, and that revealed numerous issues.
In summary, HP claims software maker Autonomy "mischaracterised revenue from negative-margin, low-end hardware sales with little or no associated software content" as its Intelligent Data Operating Layer (IDOL) product, and "the improper inclusion of such revenue as 'license revenue' for purposes of the organic and IDOL growth calculations".
This low-end kit constituted roughly ten to 15 per cent of Autonomy's turnover.
The other major bone of contention is the reporting of licensing deals with resellers rather than with end-customers. HP said this was to "inappropriately accelerate revenue recognition, or worse create revenues where no-end user customer existed at the time of sale".
"This appears to have been a wilful effort on behalf of certain former Autonomy employees to inflate the underlying financial metrics of the company in order to mislead investors and potential buyers," stated the Palo Alto-based tech vendor.
It added: "These misrepresentations and lack of disclosure severely impacted HP management's ability to fairly value Autonomy at the time of the deal. HP now believes Autonomy was substantially overvalued at the time of its acquisition."
The case has been referred to the Serious Fraud Office in the UK and the SEC financial watchdog in the States. HP said it is preparing to "seek redress" against various parties in the civil courts.
Autonomy founder Mike Lynch, who quit as the company's CEO in the summer, has disputed HP's claims. He said 300 people were involved in carrying out due diligence checks, and questioned the timing of the announcement ahead of some pretty nasty Q4 financial results from HP. ®
COMMENTS
Question of maginitude
Is HP honestly expecting people to believe that if the channel stuffing and hardware resell did not occur that $10 billion would have been a fair price, but now that a few million of hardware was sold on software contracts and some revenue was potentially booked early by selling it to the channel, they think a fair price is $1 billion. These two, relatively minor, discrepancies account for $9 billion or so worth of value? HP massively overpaid for this company as everyone said from day one. Now they are trying to make people look at a few trees so they don't see the forest.
The HP track record
Wasn't CF on the verge of buying three executive jets for herself? Then there's the webOS fiasco, EDS, the near sell off of the PC division, and now this. I imagine Autonomy's defence is going to be "this is HP we're talking about, mLud, self-extraction from wet paper bag with sharp knife not guaranteed".
Re: A friend of mine from school days got a job with KPMG
A school friend of mine went off to PricewaterhouseCoopers, and despite trying to get in touch over 10 years, he's ignoring me too. Maybe something happens when you join these types of corporations, like, disappearing up your own arse?
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