HP Takes Autonomy Writedown, Citing Financial Improprieties

HP CEO Meg Whitman needs to pull off a corporate turnaround.

Hewlett-Packard will take an $8.8 billion writedown on Autonomy, the data-analytics firm it acquired in 2011.

“HP is extremely disappointed to find that some former members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company,” HP wrote in a Nov. 20 statement, which emphasized that the supposed malfeasance took place prior to the acquisition.

“These efforts appear to have been a willful effort to mislead investors and potential buyers,” the statement added, “and severely impacted HP management’s ability to fairly value Autonomy at the time of the deal.”

An unnamed member of Autonomy’s leadership team apparently alerted HP to the irregularities, sparking an internal investigation. As a result of that investigation, which included a forensic review by PricewaterhouseCoopers, HP came to the conclusion that Autonomy had been “substantially overvalued at the time of its acquisition.” Autonomy founder Mike Lynch had already left HP by the time the investigation kicked off.

Among the various improprieties and misrepresentations, HP claims that Autonomy used “licensing transactions with value-added resellers to inappropriately accelerate revenue recognition” and create revenue “where no end-user customer existed at the time of sale.”

HP also wants vengeance. In addition to bringing the matter to the attention of the Security and Exchange Commission’s Enforcement Division and the United Kingdom’s Serious Fraud Office, the company is planning civil suits against the unnamed parties it views as responsible for the trouble.

That wasn’t the only bad news coming out of HP, which reported another quarter of multibillion-dollar losses. Quarterly revenue fell 6.7 percent, driven by declines in virtually every business division. In the past several months, the company has slashed thousands of jobs.

HP acquired Autonomy last year for roughly $10 billion. The latter’s technology can analyze massive amounts of structured and unstructured data for meaning; products range from data archive and e-discovery tools to intelligent process automation.

Despite its current issues with Autonomy, HP can’t abandon the data analytics business—that would leave the field wide open for rivals such as IBM and SAP, which earn significant revenues from their own Big Data platforms.

 

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