The Autonomy Catastrophe: Going from Bad to Worse at HP

on November 20, 2012
Reading Time: 2 minutes

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Léo Apotheker’s brief, unhappy tenure at Hewlett-Packard is the gift that keeps taking.

The highlights of his 10-month reign, which ended in September, 2011, included a loss of $30 billion in market capitalization, the shuttering of webOS operations,  and turmoil caused by public musing about a possible sale of spin-out of the Personal Systems Group.  His big move to redirect HP: The $12.5 billion purchase of business analytics software company Autonomy.

Oops.

HP announced today, as part of its dismal fourth fiscal quarter financial report that it was writing off $8.8 billion of Autonomy’s grossly inflated value. From the HP release:

 HP recorded a non-cash charge for the impairment of goodwill and intangible assets within its Software segment of approximately $8.8 billion in the fourth quarter of its 2012 fiscal year. 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.

Looks like one of the many things Apotheker wasn’t very good at was due diligence. In an uncommonly blunt statement HP accused Autonomy of mischaracterizing “negative margin” sales (i.e., stuff sold at a loss) that made up 10% to 15% of Autonomy’s revenue and inappropriately using licensing transactions with resellers “to inappropriately accelerate revenue recognition, or worse, create revenue where no end-user customer existed at the time of sale. ” With language like “disclosure failures and outright misrepresentations,” I suspect former autonomy executives and investment bankers will be hearing from HP’s lawyers before long. Autonomy founder Mike Lynch joined HP after the acquisition, but left the company in May.