HP: Autonomy had us believing in a false IDOL
'Negative margin, low-end, little or no software'
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. ®