HP takes a $8.8 billion writeoff, alleging Autonomy accounting fraud
h30261.www3.hp.com
h30261.www3.hp.com
and score one for Larry Ellison: http://news.ycombinator.com/item?id=3051730
Edit: I just went to check their stock price - it's down 12%. Hmmm, I thought, has Autonomy cast a shadow on UK techs? Wait a minute - who's this grimmacing at me down the bottom?
http://markets.ft.com/research/Markets/Tearsheets/Summary?s=...
It's only Dr Mike Lynch, Non-Executive Director. Who'd have thunk it?
We never dived too deep, and never pursued, so no evidence to present, just a theory we had internally.
I can't tell too much, but everyone I knew was in shock when they announced the price (12$bn), this was, way, way over what I internally valued the company ( I was counting about 2$bn max - stock was better but is a result of offer/demand).
Either Mike was/is a good seller, or HP ( or Leo Apoteker ) was corrupt or dumb.
I wouldn't bet on Apotheker being dumb. In his career he probably made more money than many of us ever will.
If you think this was due to "luck" then I'd strongly disagree. Luck provides opportunities, but people have to take them and make the absolute most of those opportunities to even come close to the career that this man has had.
Namely, we can't judge a person’s intelligence by their wealth. Just because someone is successful now doesn’t mean that success wasn’t generated in a risky, inconsistent manner.
Can you explain how that is relevant in anyway to the point the poster is trying to make?
On a side note, Apoteker did a lot of unhealthy stuff for HP, like webOS, PC division are one of the biggest. So adding Autonomy bluff on the list seems natural. Nice for him, he got about $25m in compensations. So, no, money is not a measure of intelligence, but good lawyers ;-).
What the HP press release doesn't mention, but what the BBC and others are reporting[2] is that HP are both planning to refer it to the SEC/SFO and take civil action against "various parties". It's not a huge leap of faith to suggest Mike Lynch is probably one of the parties involved.
[1]: http://www.wired.co.uk/news/archive/2012-10/25/mike-lynch [2]: http://www.bbc.co.uk/news/business-20412186
Rock and a hard place for Mike Lynch.
> Autonomy founder Mike Lynch is a non-executive director of the BBC.
This is the beauty of a free non-commercial press.
I have to say, I can't recall hearing about Autonomy...not that I keep up with all the tech news, but a $10B valuation is pretty big. Is it just accounting fraud that's going on, or was the technology not what it was claimed to be? $10B for tech that would encroach on what Google/Apple/the NSA would do seems like it would make Autonomy more of a household-tech name, even if it was based in the enterprise sector:
http://en.wikipedia.org/wiki/Autonomy_Corporation > Autonomy's technology attempts to "understand" any form of unstructured information, including text, voice, and video, and based on that understanding perform automatic operations, for example inferring what the user wants and on that basis finding other information that may be of interest.
(Of course, that doesn't preclude them being super-shady; Enron was a household name)
Looking back I'm fairly sure I was woefully underpaid for the position ... but also not nearly as good at it as I thought I was at the time. So if anybody reading this thread remembers my work less than fondly, sorry :)
Frankly, I expect this to cause huge problems for HP, possibly even sound a death knell. HP has been fucked for some time, but the real problem here is that they had no fucking clue what they were buying. I could have told them, if they'd asked, that there's no market for a Baysian search pack. I think anyone here could have said as much to them, but HP wasn't really paying attention to anything except the Autonomy people.
If I was an HP share holder, I would be on the phone to a lawyer right now, creating a class action suit.
I saw this coming and would have shorted Autonomy if I had the money. But guess what? I'd have lost a fortune even though I was (allegedly) right.
DHH has been shorting Salesforce for a good while. He's losing that bet as well.
Equity investing often bears no relation whatsoever to reality. The "bigger fool" element is huge.
That said, I think this may be the end of HP. A bold claim, but they are going to have to fight some serious allegations of corruption, incompetence and negligence.
I think it's like any other kind of investing: You have to diversify your doom and gloom. DHH was short Zynga too, and he claims that his last short of Salesforce ended up in positive territory:
http://www.horsesaysinternet.com/people/dhh-vs-the-stock-mar... (Don't miss DHH's recent comment at the bottom.)
Because a share represents part ownership of the company.
Shouldn't you have shorted HP rather than Autonomy? They're the ones who were making the mistake.
Looking at HPQ's chart, the stock is down about 60% since Apotheker decided to put it out of its misery.
I have no comment on Autonomy's finances. We did however evaluate it's product vs Google's search appliance. The Google Appliance we pretty much plugged in and let it do it's thing. After a few days it was giving excellent results on our massive (80,000 people) company intranet.
The Autonomy server had to be constantly tweaked and fiddled with to even get it near to the relevance of the results.
Unfortunately, Autonomy had flogged a loads of licenses to another part of the business for peanuts, so we had to go with their inferior product.
"Fourth quarter and full year fiscal 2012 results include a non-cash goodwill and intangible asset impairment charge of $8.8 billion relating to the Autonomy business within the Software segment"
"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. The balance of the impairment charge is linked to the recent trading value of HP stock. There will be no cash impact associated with the impairment charge."
Essentially they "guessed" a year ago Autonomy was worth 10bn, now they are guessing its worth its yearly sales cash income - ie no goodwill at all.
Given that at the time of purchase it had 1bn in sales, and now they have lopped that (plus deprecation) to the same suggests the problem is to do with allocation of revenue than the actual viability of the software
Is it just me, or does this kind of stuff scream "the system itself, allows massive fraud to occur" ?
It seems to me that they valued it one-way a year ago, based mainly on intangible value. But now, they are valuing it another way, based on actual sales, that gives it a lower value that looks like a capital loss for HP.
In real terms though, what capital has been lost? They still have all the Autonomy resources they paid for a year ago.
For a real example of corporate maneuvers around the 'fiscal cliff', see Wal-Mart, which is moving up its dividend to help its investors avoid a potentially higher rate:
http://www.reuters.com/article/2012/11/19/walmart-dividend-i...
If anyone of you are in the enterprise software space as an engineer, you really ought to consider working in pre-sales. You get to build a highly valuable skill set that compliments what you know already.
Why? for making a bad business decision?
The board approved it. That's why there is a board. The finance department at HP signed off on it. The tech department at HP looked at the tech and signed off on it.
Everyone signed off on it, it didn't' work out.
http://www.businessinsider.com/meg-whitman-hp-autonomy-blame...
"Why didn't the HP board question the purchase price in the first place? That's what Benjamin Reitzes, an analyst for Barclays Capital, asked on the call. Whitman's answer: The board wasn't responsible. The two people who were responsible, in her view, are now gone: her predecessor, Léo Apotheker and HP's longtime strategy chief, Shane Robison, who retired in November 2011, shortly after the Autonomy deal went through. "
It's true that the buck stops with the CEO. It was after all, his decision to make the deal.
My point was what are you going to sue him for? He did the right thing. He made up his mind, ran it past the board for approval, ran it past finance for approval, got an outside auditor to do due diligence.
All approved. The deal went through.
It turned out to be a stupendously bad business decision.
Should twitter be able to sue the developer who made the incredibly bad design decision to use ruby on rails and architect their system as a blog rather than than a message queue?
Bad decisions happen, people loose their jobs over them. it's much harder to sue someone when they've done the due diligence and had the decision signed off by many other people.
And in the end, it was not something that was done hidden from other people, if it was a bad decision they should have stood their ground.
edit: http://news.ycombinator.com/item?id=2902749 I just stumbled upon this comment by AlexMuir, it was the most upvoted comment on the HN discussion about HP's acquisition of Autonomy
AlexMuir pretty much called it.
They are clearly part of the problem. HP's vaunted culture isn't what they think it is and that's part of the problem too. They are too big for their britches, literally, need to cut some pieces off and get smaller again before they become smaller.
The answer I got was that for a large company, hiding things on the balance sheet is like getting a home inspection and finding out later that the house has some big problems with it. The point being is that inspections find somethings but can never find all issues.
What they meant was that if you dig deep enough you can always find out the problems, but when your going through the aquisition, you often don't have the proper access to the records you want, or the time to do the entire audit.
HP has owned autonomy for over a year and just found out this quarter. There is no way they would have had such access to autonomy's books during the due diligence phase nor is there anyway that autonomy would have let them take over a year to do their due diligence
I think we all are this morning. Unfortunetly the chatter we are hearing is that this type of accounting cover up, if true, would require help from their auditor.
Which means we may be down another accounting firm by the time this is over.
CNBC is reporting that Autonomy was booking losses on hardware sales as marketing expense, and that its arrangements with resellers amounted to kickbacks. That may reflect improper accounting and practice. But any serious understanding of how the company goes to market and wins business should locate these expenses and arrangements no matter where they reside on the income statement -- and having located them, realized their implications for the value of the business. Clearly HP missed these items, which means they didn't understand the business model. The End.
Maybe Deloitte did a poor job on Autonomy's books. But anyone spending this kind of money at these multiples on the basis of an auditor's opinion is an idiot. And it does not speak well of HP that they are trying to place responsibility for this on someone outside their organization.
If HP are prepared to pass on their information to the SEC and SFO, as well as talk about potential civil action, it would suggest they believe they have a valid case and this isn't just pomp and bluster for the benefit of shareholders.
I'm not saying the acquisition wasn't a stupid idea, or that HP's auditors couldn't have spotted these problems sooner - but if what HP claim is true then you can't hold it entirely against HP and the auditors.
HP is essentially saying "They didn't tell us X was in the marketing costs!" Well, then HP weren't asking the right questions about marketing strategy and drivers, and about relationships with customers and partners.
I don't think HP escape culpability, but for all we know someone at the auditors or HP were asking the right questions, and were being deliberately misled.
Or trying to save face.
The responsibility is, of course, HP's. And they know that, which is why they took the writedown. But the blame for crime falls on the criminals.
Possibly, but consider my analogy of buying a house.
When you do a house inspection you get a professional to do it for you. You have to trust his opinion in a lot of cases and in even more cases you understand that he can't vouch for some things.
ie wiring behind walls, mold checks on hidden surfaces, foundation cracks behind finished walls.
if you wanted to do all this on your house inspection you'd have to kick out the tenants for 3-4 weeks and tear the house down to the studs to be 100% sure there were no problems.
Now go back and consider the purchase of a company by another. If they wanted to know every detail it would take 2 years and shut down the company being aquired while they do it.
No sane company would ever agree to that so you have the situation we currently have where you negotiate what the acquiring company can see and what the break fee is if they walk away.
Sadly the diligence phase is often farmed out to an IB who has no interest in seeing the deal break.
Fraud detection is a lot more work aka forensic accounting.
This kind of stuff is everywhere.
Disclaimer: worked at ex-competitor.
And, of course, there's the standard business mantra that business is war, and all's fair in love and war. These guys tell themselves that they're just crazy slick and smart, not criminals.
http://www.amazon.com/Snakes-Suits-When-Psychopaths-Work/dp/...
You know those charmingly manipulative psychopathic serial killers? It turns out many people like that just aren't violent. Instead, they like money and power.
A person like this probably feels just fine about what they did. "Psychopaths are without conscience and incapable of empathy, guilt, or loyalty to anyone but themselves."