From H.P., a Blunder That Seems to Beat All | Hacker News Reader

From H.P., a Blunder That Seems to Beat All

nytimes.com

"Hewlett-Packard’s acquisition last year of the British software maker Autonomy for $11.1 billion “may be worse than Time Warner,” Toni Sacconaghi, the respected technology analyst at Sanford C. Bernstein, told me, a view that was echoed this week by several H.P. analysts, rivals and disgruntled investors.

Last week, H.P. stunned investors still reeling from more than a year of management upheavals, corporate blunders and disappointing earnings when it said it was writing down $8.8 billion of its acquisition of Autonomy, in effect admitting that it had overpaid by an astonishing 79 percent."

Doesn't that mean they overpaid by 482 percent? It is true that the acquisition lost 79 percent of its value, but the editor seems to have gotten the math wrong here.

Almost correct - actually 382 Percent overpayment. 0% overpayment would have been 2.3 Billion. ($11.1 - $8.8).

Did you send in a correction to the Editor?

What the article should say to keep the 79% number in place is that '79% of the price was overpayment'. What you are saying is that 'they paid 482% of what they should have'. If they want to keep the structure of what they have written, I think ghshephard's formulation is right. They overpaid by 382%. Aren't percentages fun?

It depends on how you calculate the percentages. "Percents" are only useful as a tool for small numbers, say less than 10%: 90% is not far from 1/110%, so no matter how you calculate 10% loss or gain, you'll get numbers that don't stray too far apart.

Probably the author means that 79% of the money they paid (8.8/11.1) was thrown away, thus it was only worth 21% of what they paid.

Stating they paid almost five times too much is much clearer.

"From H.P., a Blunder That Seems to Beat All"

"The dubious title of worst corporate deal ever had seemed to be held in perpetuity by AOL’s acquisition of Time Warner in 2000"

No mention of Bank of America's acquisition of Merrill Lynch? Within 15 days of the acquisition's close, Merrill recorded an operating loss of $21.5 billion... Leading to a market capitalization loss of $108 billion.

The article makes a point of comparing the mergers to the broader economic conditions at the time. HP acquired Autonomy and lost money at a time when the computer industry was (and still is) growing.

On the other hand, AOL and Time Warner merged right before the bubble burst and BoA acquired Merrill Lynch at the same time the economy was crashing. Without the acquisition, Merrill would have gone bankrupt anyway and BoA's market cap would have cratered anyway because the entire financial sector was cratering at the same time. In fact, the US government heavily pressured (threatened) BoA into acquiring Merrill (http://www.washingtonpost.com/wp-dyn/content/article/2009/04...).

So no, they're much different cases.

Of course they are "different cases" - there are always separate macroeconomic conditions, and there was government intervention in the acquisition, but the fact still remains on the "worst corporate deal ever" front, BAC acquired a company that lost $20+ billion in the first post-acquisition quarter.

They are not comparable. Its good info and context, but you're overselling it as a comp. "worst corporate deal ever" is shorthand for executive decision. ML was too policy infected to be considered a "real deal" with other options on the table. If you take the "choice" away from the transaction, you are no longer takling about a "deal" in the common sense of the term, IMHO.

True, but everyone else on Wall Street was having similar problems around that time :-)

Yeah, I should have left out the market capitalization delta. There were definitely other factors involved besides the acquisition. The quarterly loss by Merrill was pretty astounding though. Definitely large enough to be involved in any "worst corporate deal" discussion.

IT is a good point, but HP does not have the Fed to backstop their losses, nor to loan them money at almost no cost.

BoA got 20B in TARP funds specifically to offset that loss. It's hard to know how much of their further 118B of Federal guarantees against losses and Geithner-knows how much free money from the discount window and Fed purchases of terrible securities can be attributed to their agreeing to buy Merrill.

But I think it's fair to say BoA didn't lose anything close to even 8B by the time the deal was done.

The TARP money wasn't a gift, nor is the money borrowed from the Fed.

It's not easy to know how much BofA actually lost on the deal because much of the reported losses at the time result from marking down assets according to market prices. I have no idea what they are worth now.

The TARP money wasn't a gift

But it included one: when a trade is not FMV the delta is/was the "gift"

Yes, but obviously not the nominal amount. Also, many banks were forced to take it.

“We tried really hard to make this work,” the former Autonomy executive said. “Instead of doing it the Autonomy way, which is to sweep problems out of the way and move full steam ahead, we got bogged down in H.P. process.”

I have no words.

Having seen Autonomy's products and support in action, I can vouch for their seemingly preternatural ability to brush off problems as if they didn't exist.

The Autonomy debacle aside, what has Meg Whitman accomplished since she took over HP ? After a long tortured process that needn't take so long, she enshrined WebOS's abandonment. And with her at the helm, HP continues to fail to innovate in the consumer electronics space. No decent phones, No compelling tablet, not even a laptop worth glossing over. Zilch.

When is she going move on from blaming her failed predecessors for their missteps & actually put an imprint of her own.

I don't know who's worse at H.P. The CEOs who effectively run the company to the ground or the board that picks them.

They did try to open source WebOS. And yea cleaning up that mess takes time. I think Meg said that before.

And they succeeded. Enyo is a nice, stable cross platform JS framework, and Open webOS has a decent sized hacker community around it (webOS Ports).

With how much % marketshare ? I don't mean to be snarky but that question is essential to drive home the point on WebOS's current irrelevancy however good or superior it is as a software platform in vacuum. Software is meant to be used & despite all its shortcomings, marketshare is as good a metric as we'll ever get to measure an ecosystem's health. WebOs fails that test.

And as soon as they get the Galaxy Nexus port into a state that's stable enough to be a daily driver I'm going to pick one up. Until then I'll be sticking with my Pre2.

Sure if you look at the demos, and quickly read the docs all is fine and dandy. But did you try at least to code something with that junk? I did, and wasn't pretty. JS as currently stands is not mature enough to support something complex as an UI kit. Let's see if the next iteration takes us there, and then maybe Enyo can live up to our expectations.

I don't know what you're expecting. When Steve Jobs became CEO of Apple in 1997, it also took more than a year for any products he influenced to launch. And presumably his predecessor hadn't gutted research and development of hardware...

Not only did Jobs bring with him the trunk of what effectively would become OSX. Within months of his return , Jobs had slimmed down Apple's product portfolio to a handful of products then immediately started executing on that vision. As flawed as he was as a human being, Jobs was decisive.

She took forever to make a decision about the fate of the PSG (personal systems groups,) Agonized months over what to do with (granted, a fatally wounded) WebOs. I'm not saying she wasn't dealt a tough hand. I couldn't agree more. Her predecessors strategic blunders were atrocious, but she could have acted with more urgency.

I disagree (HP employee here). I was actually pleased to see these decisions being made with due deliberation. Quite an encouraging change from Apotheker's loose-cannon style. Seriously -- killing the TouchPad after six weeks?

It's actually kind of funny to hear you talk about this.

Meg Whitman "enshrined WebOS's abandonment", "After a long tortured process", "Agonized for months".

Steve Jobs on the other hand "Within months [...] slimmed down Apple's product portfolio to a handful of products".

Is it just me, or are you describing fundamentally the exact same actions? I sense a spin doctor in the house.

No, I just remember listening to the investor calls over a couple quarters & she was unable to give a straight answer on either issue ( WebOS, PSG)

The issues are totally different. Meg is an ex board-member doing triage after a series of clusterfucks. She has to sort-out the politics and vision thing that has been left over from the previously aborted pet projects of more than one "administration". In that sense, its similar to the Yahoo situation with Marissa Mayer. What you want to see is think-fast+move slow...not more haphazard whiplash. That being said, she still may not be all that great. Time will tell. The automony thing is a complete embarassment, and she was on the board that approved it.

Jobs also demanded and got the full resignation of all but 2 of the prior BODs after he came back. Dump the past troublemakers. That won't work here since Meg is one of those previous bad HP BODs members.

For what it's worth, she joined the BoD a few months before she became CEO.

I really don't have an opinion on her, but it seems like the OP of this thread was using a not very sound argument to attempt to pillory the woman.

Reminds me of the "3 envelopes" story.

Does anyone take HP seriously as a modern software company? Although I haven't looked into their operations and financials, my impression is that they sell plenty of servers (going on the Compaq legacy); a certain amount of ill-regarded desktops, laptops, and peripherals; probably lots of scientific equipment like oscilloscopes, gas chromatographs, etc.; and networking hardware. Of course there are also printers, but their once-wonderful reputation has dropped precipitously since the 1990s.

The scientific equipment business was spun off into a new company, Agilent, in 1999. Some argue that Agilent is the 'real' HP.

Nope, and I work there (for now, briefly).

HP desktops and networking hardware is good. I don't know about their laptops but they were horrible 4 or 5 years ago. Their printer division has been resting on its laurels for almost a decade and its not clear if the hardware is any good because the software that ships with HP printers is SO bad its impossible to say.

I print a few pages a week, scan something occasionally, and almost never fax, but I like to have the option to do these things. When I but a cheap-ish all-in-one printer, I specifically avoid HP. My expectations for cheap-o printers are low, but the last two HP printers felt way too flimsy, they installed too much bloatware, and on the last one I could never get the scanner to work. I've had much better luck with Brother and Epson products.

HP's software division is actually doing pretty well except for Autonomy. Of their other recent acquisitions, Vertica is doing great, ArcSight is doing pretty well, Fortify (where I work) is doing pretty well.

But HP Software accounts for only 3% or 4% of HP's revenue.

Vertica is a great product, probably the only thing I like about HP at the moment.

ill-regarded desktops, laptops

While their consumer and low end stuff is pretty crap, Their top end line of workstations (Z-series) and laptops (Mobile Workstation) are pretty good. We use them at work and they are certainly no worse than anybody else and better than most.

The article isn't perfect but the conclusion is:

> Just as Autonomy was supposed to transform H.P. into a software powerhouse, AOL was meant to transform old-media Time Warner into an Internet darling. So-called transformative thinking by some board members and top management rendered traditional valuations irrelevant and silenced critics.

In both cases, that thinking proved delusional.

The reminds me of when eBay bought Skype and sat on it for half a decade. Big companies rarely get transformed as a result of acquiring a smaller company.

Would love counter-examples to this idea if anyone can think of any :).

Why do they keep referring to the company as "H.P." when it's "HP".

The New York Times style guide recommends periods after the letters if you pronounce the letters individually. [1]

http://en.wikipedia.org/wiki/Acronym#Pronunciation-dependent...

And yet they write "AOL" in this article.

That's because the company's name is AOL, Inc.[1], and not an abbreviation. It doesn't have anything to do with the pronunciation. AOL used to be known as America Online, but when it bought Time Warner, the new company was called "AOL Time Warner"[2].

The Times also writes "I.B.M." instead of IBM, because it is officially "International Business Machines". They also used to write "A.T.&T." for "American Telephone and Telegraph" [3], but now write "AT&T" when AT&T changed their name to the former acronym.

[1] http://www.google.com/finance?q=AOL

[2] http://www.nytimes.com/2000/01/11/business/media-megadeal-ov...

[3] (google-cache) http://webcache.googleusercontent.com/search?q=cache:ByumNxy...

Don't you hate it when people pick standards, and then actually stick with them?

And that's why the New York Times writes "I.Q." when the whole world of psychology writes "IQ" without any periods.

> an eye-popping multiple of 12.6 times Autonomy’s 2010 revenue

Is 12.6 really "eye-popping"? It seems that similar companies (SAP, Oracle) go for about 4 times sales (Microsoft is just 3 times sales, probably because they are seen to be in decline). Expecting a growing company to quadruple sales (presumably also quadrupling the number of salesmen) isn't really that crazy, is it?

And it's a good way for HP to push their new sales + consulting strategy.

It sounds more like a perma-bear whinge about over-priced IT companies. There's good arguments about why IT companies are often overpriced (they do tend to be risky), but I can see where HP was coming from.

I don't know how much they paid, but it seems like the acquisition of Vertica was a great move. I use it everyday and it is a fantastic product.

I assume that Autonomy probably does all its sales via sales people long personalised processes, but I have to say their website isn't particularly good at all. Given the money involved you would think they would have invested in a more modern website, telling people who do happen to visit it in less abstract terms exactly what they do and why people should care.

This is not a blunder.

Be more specific, please?

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