updated 09:57 am EST, Tue November 20, 2012
Fraud accusation overshadows HP's fifth losing quarter
Today, HP announced that it would take an $8.8 billion write-down on Autonomy, the British software company HP bought last year, claiming that Autonomy had misrepresented its finances considerably. HP bought the company for more than $10 billion last year in the midst of an abortive shift away from computer hardware production. The company now holds that Autonomy's balance sheets contained "serious accounting improprieties, disclosure failures, and outright misrepresentations" occurring prior to HP's acquisition of the firm.
The Autonomy acquisition was carried out under now-former HP CEO Leo Apotheker, with HP paying a 58 percent premium above Autonomy's share price at the time, and it found support from Apotheker's successor, Meg Whitman. Prior to the acquisition, Autonomy had never made more than $1 billion in annual revenue.
In a conference call this morning, though, Whitman said that HP had discovered accounting fraud after a senior Autonomy manager came forward to reveal it. Consultation with a third party revealed that Autonomy had indeed lied about its history and its prospects.
Whitman says the company has informed both the Securities and Exchange Commission and the UK's Serious Fraud Office. In a statement, HP said that there appears "to have been a willful 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." Whitman said today that the company will "seek regress against various parties" in the appropriate legal venues. Neither Mr. Apotheker nor Autonomy founder Mike Lynch were available for comment.
For the fourth quarter, HP reported a loss of $6.9 billion on $30 billion in revenue. That revenue figure was down seven percent from the year previous and fell slightly short of analysts estimates. This quarter marks the fifth consecutive quarter of falling sales for HP.