Why HP Took an $8 Billion Charge for 2011 Autonomy Deal

By Chris Preimesberger  |  Posted 2012-11-20 Print this article Print


Continued from Page 1

Autonomy founder and former CEO Mike Lynch defended himself, telling Reuters that mismanagement of Autonomy by its new owners was to blame for the decline in its value.

Lynch said he was confident he would be absolved on any wrongdoing. He said he had not been notified by HP about the allegation before it was made public, nor had he been contacted by any authorities.

"We are shocked, this is a big surprise, it's completely and utterly wrong and we reject it completely," he said in the Reuters interview.

"We have not heard anything from HP, they have not been in touch and we don't know what they are on about," he said. "I fear that this is a bit of a distraction on the day when they produce their worse set of results in the 70-year history of the company."

Whitman 'Brutally Honest'

Last month, Whitman laid out a multi-year turnaround strategy to financial analysts and investors.

"She was brutally honest," Gartner analyst and Vice President Neil MacDonald told eWEEK. "She basically said, 'It's not going to get better in 2012, it won't get better in 2013; finally, you should see some results from our turnaround, from a financial perspective, in 2014.' She put the bad news out on the table."

MacDonald continued: "What she didn't do, and likely could not because the investigation was ongoing at the time, was talk about Autonomy. This was the other shoe that was left waiting to drop."

During this Thanksgiving week, the Autonomy shoe has now officially dropped.

Gartner's team, like HP's, had respect for Autonomy's 15-year-old history and IT before the acquisition, MacDonald said, but there was a catch.

"[Autonomy founder] Mike Lynch ran a very tight ship at the top and was involved personally in nearly every decision that was made at Autonomy; he has a very strong personality, and it is unlikely that there was financial misconduct without his being aware of it," MacDonald said.

That was one of the problems once Autonomy was acquired by HP, MacDonald said.

"You can't scale that. If every decision has to go through one person, you can't scale out to be a multibillion business within HP—if you're still managed by one person," MacDonald said. "After the acquisition in October 2011, he [Lynch] had a good six months [within HP], but he did not deliver results."

Lynch, a former professor at Cambridge—where he came up with Autonomy's platform to control, secure and store unstructured data in a usable way for line-of-business users—apparently shopped his company to Oracle and a few other companies before HP bought it.

Autonomy is a multifaceted IT provider that put itself on the global storage map by acquiring Iron Mountain's digital archiving, e-discovery and online backup business for $380 million in cash in May 2011. At the time of the acquisition, Apotheker had described it as one of the "oldest and most established IT companies to compete successfully and profitably for new business in the cloud computing sector."

What HP Needs to Do Now

Still, HP has a long history—73 years, to be exact—in business and has hundreds of thousands of customers all over the world. Despite the stock price and all the shenanigans involving its suspect leadership during the last decade, HP still has a lot of loyalty capital that it is spending to ride out its current problems.

"Aside from the Autonomy debacle, and though HP's past quarter was fairly grim, we don't expect the results to seriously impact the loyalty of many enterprise customers," Pund-IT analyst Charles King wrote in his weekly advisory. "The 14 percent increase in software revenues suggest that that company's strategy there is developing traction.

"What does HP need to do now?  The goal is for HP to be transparent about what's going on and to address any issues or insecurities those clients might have. Just as important: The company must do everything it can to manage the narrative around these events. Why? If it doesn't, competitors will be more than happy to step in and do it for them.

"Finally, HP needs to be clear about where it's going from here and what customers can expect from and during that journey. To date, Meg Whitman has proven that she's capable of taking on unenviable tasks and making difficult, sometimes dreadful decisions," King wrote.

"If she's smart enough, tough enough and has time enough to bring the company back from this particular brink, her tenure will be remembered fondly by HP customers and shareholders alike," he added.

Chris Preimesberger

Chris Preimesberger is Editor of Features and Analysis at eWEEK.


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