HP Still Fighting Battle With Autonomy Founder

NEWS ANALYSIS: Autonomy founder Mike Lynch criticized HP for failing to provide detailed information on the alleged accounting impropriety.

Hewlett-Packard, which revealed Jan. 2 that it is again considering trimming businesses that aren't bringing in positive cash flow, is still fighting a nightmarish battle with the founder and former CEO of its most expensive recent acquisition, Autonomy.

Until the iconic IT company resolves this problem—either by wrestling with Autonomy to make the division profitable, selling it off or closing it down completely—this conflict will not go away.

HP filed its requisite 10-K with the Securities and Exchange Commission on Dec. 27, and in it, CEO Meg Whitman said the company is continuing "to evaluate the potential disposition of assets and businesses that may no longer help us meet our objectives."

However, it said little about the $8.8 billion write-off of the $11.3 billion Autonomy acquisition that closed back in October 2010—one of the biggest problems the company currently faces.

Autonomy was supposed to be the long-term answer for HP's software business, but instead it has been one headache after another.

HP Claims 'Serious Accounting Improprieties'

HP claimed during its quarterly earnings conference call last November that Autonomy had committed "serious accounting improprieties, disclosure failures and outright misrepresentations ... 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."


Among other things, Autonomy makes search engines that help companies find vital information stored across computer networks. Acquiring it was part of an attempt by HP to strengthen its portfolio of high-value products and services for corporations and government agencies.

Among the tricks used at Autonomy, Whitman said on the conference call, was that it had been booking the sale of servers as software revenue and claiming the cost of making the machines as a marketing expense. Revenue from long-term contracts also was booked up front, instead of over time, Whitman said.

Founder Criticizes HP in Letter to Media

After the 10-K was filed last week, Autonomy creator Mike Lynch criticized HP in a letter to media, stating that HP in the report "again failed to provide any detailed information on the alleged accounting impropriety, or how this could possibly have resulted in such a substantial write-down."

Although HP won't dare say it at this time, Autonomy is probably on the table as one of the divisions that might eventually be sold off or even axed completely. After all, the huge all-purpose IT company basically admitted it made an $11 billion mistake when it claimed the $8.8 billion charge on its quarterly earnings reports in November, citing "serious accounting and credibility problems."

Although HP did not specifically name any of its numerous divisions as candidates for the recycling bin, drastic measures might be expected of a company whose stock has slipped more than 70 percent in less than three years.

(See page 2 for Lynch's letter and additional comments from HP.)

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 15 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...