Agile Computing Authors: Elizabeth White, Rich DeFabritus, Kevin Benedict, Carmen Gonzalez, John Mertic

Related Topics: Containers Expo Blog, Java IoT, Microservices Expo, Agile Computing, Log Management, @CloudExpo

Containers Expo Blog: Article

[Update] HP Charges Autonomy with Massive Fraud

It claims it was the victim of accounting improprieties and disclosure failures made by the publicly held British company

HP Tuesday morning charged its Autonomy acquisition with massive fraud.

It claims it was the victim of accounting improprieties and disclosure failures made by the publicly held British company prior to its acquisition last year by HP and downright misrepresentations made to HP in connection with the ultimately $12 billion and something acquisition.

As a result HP will write off most of the inflated purchase price and take an $8.8 billion non-cash charge, worse than the $8 billion goodwill charge HP took this summer on its EDS acquisition.

HP has turned the case over to the SEC and the UK's Serious Fraud Office for civil and criminal prosecution. HP CEO Meg Whitman said the company would also press its own civil and criminal charges against certain unnamed individuals seeking redress for its benighted stockholders. She expects it all to take years.

HP said that after Autonomy founder Mike Lynch was fired earlier this year because the unit was significantly underperforming an unidentified senior member of Autonomy's staff blew the whistle on the company's inflated margins and phony growth rates, and the slight-of-hand that got it so overvalued.

A seven-month internal investigation ensued, leading HP to conclude that Autonomy was overvalued all along.

That investigation is still going on but it found that Autonomy misstated its financial performance, including its revenue, core growth rate and gross margins, and misrepresented its business mix.

Margins were inflated from 28% to 45% by passing low-end hardware sales off as IDOL software license sales; VAR license fees were paraded as revenue when no end customer existed at the time of the sale; VARs paid high up-front fees in exchange lower future fees; and revenues were pulled forward. The idea was to suggest better growth than existed.

"This 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," HP said in a statement. "These misrepresentations and lack of disclosure severely impacted HP management's ability to fairly value Autonomy at the time of the deal."

Whitman said HP's board, which voted to make the Autonomy acquisition, "feels terribly" about all this but depended on financials audited by Deloitte and re-audited by KPMG before doing the deal. "You have to depend on audited results," she said, although neither accounting firm tumbled to what had been going on.

Apparently PricewaterhouseCoopers' forensics team finally caught it after in was brought in in May.

According to Meg, "blogs" at the time of the acquisition questioned Autonomy's revenue recognition and what it called a sale but Autonomy's management was allowed to run the reports to ground with the pair of original auditors and claimed there was nothing to them.

After listening to the HP conference call Tuesday morning Lynch "flatly rejected" HP's allegations, "which are false."

Meg blamed her predecessor Leo Apotheker and former head of R&D and strategy Shane Robison. Due diligence at HP no longer reports to M&A, as it was when Apotheker was therem but it's kind of late in the day to give it to the CFO.

Robison has yet to be heard from, but Apotheker, who orchestrated the Autonomy acquisition, issued a statement to the Wall Street Journal saying he was "stunned and disappointed" to learn of thr alleged accounting improprieties and defended HP's due diligence as "meticulous and thorough."

He pointed out that since Autonomy was a public company "much of the process relied on public financial reports - accounting statements approved, filed and backed by Autonomy's leadership, board and auditors" and offered to make himself available "to assist HP and the appropriate authorities to get to the bottom of this."

Autonomy's shenanigans account for $5.3 billion of the charge; the rest stems from HP's declining stock price, which has been in free fall since Apotheker said it was buying Autonomy and disposing of HP's PC unit in order to turn HP into a software company. The company quickly disposed on Mr. Apotheker, replacing him with Whitman, who went through with the Autonomy acquisition and decided to keep PCs. Most outsiders couldn't understand the Autonomy buy.

Although Autonomy's long-term financial performance is expected to be impacted by the mess, Whitman says the company is "100% committed to Autonomy" and expects it to play a "significant role" in HP's recovery.

The disclosure was part of Hewlett-Packard's quarterly report. It lost $6.85 billion, or $3.49 a share, compared to a profit of $239 million, or 12 cents a share, this time last year. Revenue was $29.96 billion, down 4%. Adjusted EPS was $1.16. Analysts were expecting adjusted earnings of $1.14 a share, on revenue of $30.44 billion.

HP said revenue from its PC unit was down 14% since commercial revenues dropped 13% and consumer revenue plunged 16%. Revenue in the enterprise, servers, storage and networking segment dropped about 9%. Printing sales fell about 5%. Services fell about 6%. Software revenue was up 14%.

HP's battered shares were down 12.48% to $11.64 in pre-market trades on the news, dropped further as the market woke up and then recouped slightly to $11.87, down 10.68%. Its stock has lost over 48% this year and the company had $21.8 billion in long-term debt at the end of its fiscal fourth quarter

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

Comments (0)

Share your thoughts on this story.

Add your comment
You must be signed in to add a comment. Sign-in | Register

In accordance with our Comment Policy, we encourage comments that are on topic, relevant and to-the-point. We will remove comments that include profanity, personal attacks, racial slurs, threats of violence, or other inappropriate material that violates our Terms and Conditions, and will block users who make repeated violations. We ask all readers to expect diversity of opinion and to treat one another with dignity and respect.

@ThingsExpo Stories
Smart Cities are here to stay, but for their promise to be delivered, the data they produce must not be put in new siloes. In his session at @ThingsExpo, Mathias Herberts, Co-founder and CTO of Cityzen Data, will deep dive into best practices that will ensure a successful smart city journey.
More and more brands have jumped on the IoT bandwagon. We have an excess of wearables – activity trackers, smartwatches, smart glasses and sneakers, and more that track seemingly endless datapoints. However, most consumers have no idea what “IoT” means. Creating more wearables that track data shouldn't be the aim of brands; delivering meaningful, tangible relevance to their users should be. We're in a period in which the IoT pendulum is still swinging. Initially, it swung toward "smart for smar...
19th Cloud Expo, taking place November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, will feature technical sessions from a rock star conference faculty and the leading industry players in the world. Cloud computing is now being embraced by a majority of enterprises of all sizes. Yesterday's debate about public vs. private has transformed into the reality of hybrid cloud: a recent survey shows that 74% of enterprises have a hybrid cloud strategy. Meanwhile, 94% of enterpri...
Two weeks ago (November 3-5), I attended the Cloud Expo Silicon Valley as a speaker, where I presented on the security and privacy due diligence requirements for cloud solutions. Cloud security is a topical issue for every CIO, CISO, and technology buyer. Decision-makers are always looking for insights on how to mitigate the security risks of implementing and using cloud solutions. Based on the presentation topics covered at the conference, as well as the general discussions heard between sessi...
The Internet of Things can drive efficiency for airlines and airports. In their session at @ThingsExpo, Shyam Varan Nath, Principal Architect with GE, and Sudip Majumder, senior director of development at Oracle, will discuss the technical details of the connected airline baggage and related social media solutions. These IoT applications will enhance travelers' journey experience and drive efficiency for the airlines and the airports. The session will include a working demo and a technical d...
The Internet of Things (IoT), in all its myriad manifestations, has great potential. Much of that potential comes from the evolving data management and analytic (DMA) technologies and processes that allow us to gain insight from all of the IoT data that can be generated and gathered. This potential may never be met as those data sets are tied to specific industry verticals and single markets, with no clear way to use IoT data and sensor analytics to fulfill the hype being given the IoT today.
@ThingsExpo has been named the Top 5 Most Influential M2M Brand by Onalytica in the ‘Machine to Machine: Top 100 Influencers and Brands.' Onalytica analyzed the online debate on M2M by looking at over 85,000 tweets to provide the most influential individuals and brands that drive the discussion. According to Onalytica the "analysis showed a very engaged community with a lot of interactive tweets. The M2M discussion seems to be more fragmented and driven by some of the major brands present in the...
DevOps is being widely accepted (if not fully adopted) as essential in enterprise IT. But as Enterprise DevOps gains maturity, expands scope, and increases velocity, the need for data-driven decisions across teams becomes more acute. DevOps teams in any modern business must wrangle the ‘digital exhaust’ from the delivery toolchain, "pervasive" and "cognitive" computing, APIs and services, mobile devices and applications, the Internet of Things, and now even blockchain. In this power panel at @...
If you had a chance to enter on the ground level of the largest e-commerce market in the world – would you? China is the world’s most populated country with the second largest economy and the world’s fastest growing market. It is estimated that by 2018 the Chinese market will be reaching over $30 billion in gaming revenue alone. Admittedly for a foreign company, doing business in China can be challenging. Often changing laws, administrative regulations and the often inscrutable Chinese Interne...
Enterprise IT has been in the era of Hybrid Cloud for some time now. But it seems most conversations about Hybrid are focused on integrating AWS, Microsoft Azure, or Google ECM into existing on-premises systems. Where is all the Private Cloud? What do technology providers need to do to make their offerings more compelling? How should enterprise IT executives and buyers define their focus, needs, and roadmap, and communicate that clearly to the providers?
SYS-CON Events announced today that Streamlyzer will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Streamlyzer is a powerful analytics for video streaming service that enables video streaming providers to monitor and analyze QoE (Quality-of-Experience) from end-user devices in real time.
You have great SaaS business app ideas. You want to turn your idea quickly into a functional and engaging proof of concept. You need to be able to modify it to meet customers' needs, and you need to deliver a complete and secure SaaS application. How could you achieve all the above and yet avoid unforeseen IT requirements that add unnecessary cost and complexity? You also want your app to be responsive in any device at any time. In his session at 19th Cloud Expo, Mark Allen, General Manager of...
SYS-CON Events announced today that Pulzze Systems will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Pulzze Systems, Inc. provides infrastructure products for the Internet of Things to enable any connected device and system to carry out matched operations without programming. For more information, visit http://www.pulzzesystems.com.
Cloud based infrastructure deployment is becoming more and more appealing to customers, from Fortune 500 companies to SMEs due to its pay-as-you-go model. Enterprise storage vendors are able to reach out to these customers by integrating in cloud based deployments; this needs adaptability and interoperability of the products confirming to cloud standards such as OpenStack, CloudStack, or Azure. As compared to off the shelf commodity storage, enterprise storages by its reliability, high-availabil...
One of biggest questions about Big Data is “How do we harness all that information for business use quickly and effectively?” Geographic Information Systems (GIS) or spatial technology is about more than making maps, but adding critical context and meaning to data of all types, coming from all different channels – even sensors. In his session at @ThingsExpo, William (Bill) Meehan, director of utility solutions for Esri, will take a closer look at the current state of spatial technology and ar...
The IoT industry is now at a crossroads, between the fast-paced innovation of technologies and the pending mass adoption by global enterprises. The complexity of combining rapidly evolving technologies and the need to establish practices for market acceleration pose a strong challenge to global enterprises as well as IoT vendors. In his session at @ThingsExpo, Clark Smith, senior product manager for Numerex, will discuss how Numerex, as an experienced, established IoT provider, has embraced a ...
In past @ThingsExpo presentations, Joseph di Paolantonio has explored how various Internet of Things (IoT) and data management and analytics (DMA) solution spaces will come together as sensor analytics ecosystems. This year, in his session at @ThingsExpo, Joseph di Paolantonio from DataArchon, will be adding the numerous Transportation areas, from autonomous vehicles to “Uber for containers.” While IoT data in any one area of Transportation will have a huge impact in that area, combining sensor...
In the next forty months – just over three years – businesses will undergo extraordinary changes. The exponential growth of digitization and machine learning will see a step function change in how businesses create value, satisfy customers, and outperform their competition. In the next forty months companies will take the actions that will see them get to the next level of the game called Capitalism. Or they won’t – game over. The winners of today and tomorrow think differently, follow different...
“Media Sponsor” of SYS-CON's 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. CloudBerry Backup is a leading cross-platform cloud backup and disaster recovery solution integrated with major public cloud services, such as Amazon Web Services, Microsoft Azure and Google Cloud Platform.
Ask someone to architect an Internet of Things (IoT) solution and you are guaranteed to see a reference to the cloud. This would lead you to believe that IoT requires the cloud to exist. However, there are many IoT use cases where the cloud is not feasible or desirable. In his session at @ThingsExpo, Dave McCarthy, Director of Products at Bsquare Corporation, will discuss the strategies that exist to extend intelligence directly to IoT devices and sensors, freeing them from the constraints of ...