HPQ and Autonomy – Caveat emptor

 

 

 

 

 

  • Hewlett Packard is painting itself as the honest victim of fraud, when it comes to the acquisition of Autonomy, but an honest fool is still not fit to run a big company.
  • Just 14 months ago, HPQ announced that it would spend almost all of its available cash to acquire Autonomy for £6.3bn ($10bn).
  • Yesterday it wrote off almost 90% of that acquisition, alleging that the directors of Autonomy had wilfully misrepresented the company’s financial position in order to obtain a higher valuation at the time of acquisition.
  • At the same time, the company reported disappointing results and guided weakly for the coming year.
  • Revenues will remain under pressure in fiscal year 2013 with full year / Q1 EPS expected $3.40-$3.60 / $0.68-$0.71. This compares unfavourably with consensus at $3.37 / $0.74.
  • As usual, the weakness is near term with the balance expected to be made up towards the end of the year.
  • This does not inspire confidence that the full year estimates will be met.
  • I view the mess surrounding Autonomy as the strongest signal yet that the board of HPQ is not fit for purpose.
  • The main reason for this is that noise around accounting irregularities at Autonomy is nothing new.
  • Autonomy’s detractors have been writing about this for years and there has been the occasional obvious sign that things were not quite right.
  • The most common red flag was that cash flow in some quarters often did not match profit. This is quite unusual in a software company.
  • The balance was often made up in subsequent quarters but critically, this and other issues caused people to wave the red flag.
  • To any reasonably prudent person, this would have made him doubly cautious when looking into the financial position of Autonomy.
  • History has shown that a determined person can deceive a competent auditor without too much difficulty because it is simply not economical or timely to look under every single rock or pebble.
  • In this case, there were more than enough red flags and so much money at stake to warrant a due diligence that went beyond the audited figures.
  • This case is also unusual as most of the time, the alleged perpetrators head for the hills but this time they are standing their ground.
  • This raises questions regarding HPQ’s allegations that only the FBI and the Serious Fraud Office will be able to answer.
  • To me, whether or not the management of Autonomy duped HPQ into paying way too much is irrelevant.
  • It has happened, shareholders have already paid the price and there is very limited scope to get any of the money back.
  • What is much more important is what this really says about the board of directors of HPQ and the long term outlook for the company.  
  • Management who were responsible for the deal have long since paid with their heads but the board who signed off on this deal are largely still there.
  • Meg Whitman was, at the time, one of those directors.
  • This adds considerable weight to my view that the management and directors of HPQ do not have what it takes to turn this company around.
  • HPQ needs vision, audacity and above all a new board of directors.
  • Until there is a complete clear out, I think that this company will lumber from one quarter to the next and present no real vision about how it becomes a proper technology company again.
  • I see its rivals who are adapting to the realities of the changing market, wearing it down and whittling away its market share.
  • The old English saying: a fool and his money are soon parted remains as true today as it was in the 16th century.

 

 

8 thoughts on “HPQ and Autonomy – Caveat emptor

  1. Pingback: HP’s figures reveal bigger problems than Autonomy | Charles Arthur | Tech News

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  4. Pingback: Autonomy accounts and business model was suspect, analysts say | Latest News ChannelLatest News Channel

  5. Pingback: Autonomy accounts and business model was suspect, analysts say | Tech & Comms News

  6. Pingback: HP’s figures reveal bigger problems than Autonomy | Charles Arthur | PennyStockPayCheck.com

  7. Pingback: Autonomy accounts and business model was suspect, analysts say | Apple

  8. Pingback: HP’s figures reveal bigger problems than Autonomy | Charles Arthur | Russia Today1 Россия сегодня

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