HP finds fraud at Autonomy - takes hit for $8.8 Billion

[SnotBoogie]

Originally Posted by C-Note

SB...
HP is doing EXACTLY what the textbook calls for in such a situation. Even if in the boardroom they KNOW that they goofed up on this deal, this is how you manage a crisis of confidence. Raise doubts about where the blame lies, this will cause a portion of their stockholders to "double down" (webOS nations is sick of THAT term too) on the stock, hoping it will rebound and they can recover their losses.

I agree with your comments about the analysts who can afford to pontificate when they have no skin in the game. But they were a lot more on the money in this case than the teams of accountants from the multiple companies which supposed audited the deal.

Well HP isn't exactly simply raising doubts about where blame lies, they are flat out blaming Automony for fabricating earnings.

"HP is extremely disappointed to find that some former members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics..."

"Although HP’s investigation is ongoing, examples of the accounting improprieties and misrepresentations include:

• The mischaracterization of revenue from negative-margin, low-end hardware sales with little or no associated software content as “IDOL product,” and the improper inclusion of such revenue as “license revenue” for purposes of the organic and IDOL growth calculations.
  • This negative-margin, low-end hardware is estimated to have comprised 10-15% of Autonomy’s revenue.
• The use of licensing transactions with value-added resellers to inappropriately accelerate revenue recognition, or worse, create revenue where no end-user customer existed at the time of sale.

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. These misrepresentations and lack of disclosure severely impacted HP management’s ability to fairly value Autonomy at the time of the deal." HP Issues Statement Regarding Autonomy Impairment Charge

as for analyst being "more right in this case" i'd disagree on that in the sense that they were NOT right about fraud and not one claimed fraud that i read at the time. They claimed that HP was paying too much. But it's a big difference between knowing HP is making a bad deal and knowing that they are making a bad deal because the underlying company is fabricating earnings. The end result is the same, a bad bargain. But those analyst were simply correct in the outcome. I remember one analyst saying how at the projected earnings it simply wouldn't be a good deal unless they kept up that rate of growth for like 8 years which was unreasonable because earnings were at the time about doubling in size or something like that. They were at least growing at a very rapid rate year over year. And I think Oracle passed on it cause the price was too high if i remember. But point is i think they thought the price even with the fake earnings was too high. Not the even worse price factoring in the fabricated earnings. check this out: Oracle Issues Statement

"After HP agreed to acquire Autonomy for over $11.7 billion dollars, Oracle commented that Autonomy had been 'shopped' to Oracle as well, but Oracle wasn't interested because the price was way too high. Mike Lynch, Autonomy CEO, then publically denied that his company had been shopped to Oracle. Specifically, Mr. Lynch said, "If some bank happened to come with us on a list, that is nothing to do with us." Mr. Lynch then accused of Oracle of being 'inaccurate.' Either Mr. Lynch has a very poor memory or he's lying. 'Some bank' did not just happen to come to Oracle with Autonomy 'on a list.' The truth is that Mr. Lynch came to Oracle, along with his investment banker, Frank Quattrone, and met with Oracle's head of M&A, Douglas Kehring and Oracle President Mark Hurd at 11 am on April 1, 2011. After listening to Mr. Lynch's PowerPoint slide sales pitch to sell Autonomy to Oracle, Mr. Kehring and Mr. Hurd told Mr. Lynch that with a current market value of $6 billion, Autonomy was already extremely over-priced. The Lynch shopping visit to Oracle is easy to verify. We still have his PowerPoint slides."

Regardless if Leo somehow was part of fabricating earnings we'll surely find out. Little guys will flip on him when faced with prison time. Should get interesting.

[SnotBoogie]

Originally Posted by C-Note

If we carry this argument forward, all HP is proving is that they should not be in business at all. (Except maybe selling overpriced printer cartridges)

And this is from a guy who prefers most of HP's networking stuff to dealing with the arrogant company Cisco has become.

The fact that they didn't do it right doesn't support Leo's contention. Nobody is saying any of that about Apple or Samsung. Besides, they are not setting the world on fire in software and services either the last time I checked.

If you are the world's #1 PC maker and you can't leverage that into mobile tech (Tablets, phones, e-readers, nothing?) what does it say about you?

C

From what i've read of HP that's probably been the case for a decade, that is they shouldn't be in business.

Nobody says the same thing about apple or samsung because neither of those companies are get the bulk of their earnings from declining businesses. Apple, biggest sellers are phones and tablets by a very wide margin and before those it was ipods. Apple hasn't had to live off of computer sales for a very very long time. Samsung is also not dependent on it's own computer sales. Samsung is a massive company that makes a hell of a lot more then computers. First it's the leading phone maker, like with apple that's a growth business. But samsung is also a massive supplier to other companies of chips of all kinds for every kind of electronic device there is not just computer electronics, samsung makes lcd screens and memory. So samsung makes money off when other electronic makers sell stuff. Just like it did when it was selling memory, screens and processors for the iphones before they got in a ****ing contest. But samsung also does building construction, they build supermax oil tankers, oil platforms, petrochemicals, home appliances like fridges, ovens, ranges, washers and dryers. They make flat screen tvs too. They are a wind farm contractor. They have finance arm too. Samsung is a lot closer to General Electric then it is HP in that it's does a very wide range of stuff. Much more then just phones and laptops. I even HP's on the other hand get's most of it's profits from printers, enterprise and consumer computers and servers. Two of those have fallen off a cliff in terms of earnings. Its find to be the number 1 seller of pcs, by the way they lost that to lenovo, but it doesn't mean they make a lot of profit. That's HP's problem. They sell lots of stuff a make horrible margins. That's the whole reason they wanted to go full bore services, better margins. HP is selling white wall tires in black wall world.

but you'll get no argument from me that hp shouldn't be in business. but i figured that out when my year old laptop died on me because of an irreplaceable defective graphics card, days out of warranty and HP wouldn't do anything about it. Screw them. They make crap laptops anyways.

[gbp]

Originally Posted by SnotBoogie

Regardless if Leo somehow was part of fabricating earnings we'll surely find out. Little guys will flip on him when faced with prison time. Should get interesting.

This will happen. Leo was a salesman, he probably knows about the way Autonomy was charging. Once the investigations picks up speed, we will find the under the table deal between the European cohorts i.e. Lynch and Leo.

[k4ever]

I agree with your post. As I read more and more about this debacle, I too am looking for those in this forum who thought this was a good idea. Who thought that this was better than "wasting money" investing in webOS. Who actually thought this was a better strategy for HP then staying in the mobile market?

HP's stock is getting killed and for good reason. They have no strategy for competing in the mobile market. The future of computing is in mobile. Anyone who thinks that putting all your eggs into the Windows Mobile basket is a strategy needs to have their head examined. The Zune, Kin, and Nokia should have been warning enough. Now tech journalist are talking about adding Windows 8 to that list of failures. HP gave up on webOS for that debacle.

They have/had no strategy for Autonomy, unless losing money is a strategy. They threw $10 billion at that company. They killed their mobile division (webOS hardware) and tried to spin off their personal computing division in order to "save money" for it. They complained about webOS costing an additional $3 billion to penetrate the market, then wasted almost 4 times that amount on Autonomy. Now they are taking an $8.8 billion write down on a company that was supposed to be worth $10 billion?

HP needs to quit chasing these so called "sure thing" pipe dreams and invest in the one thing they control and can set the future for, webOS. It still has validity in the mobile market. It just needs new and exciting hardware and an actual commitment from HP to its future.

Sent from my MB855 using Tapatalk 2

[k4ever]

Agreed.

Sent from my MB855 using Tapatalk 2

[C-Note]

Originally Posted by SnotBoogie

Well HP isn't exactly simply raising doubts about where blame lies, they are flat out blaming Automony for fabricating earnings.
[INDENT]"HP is extremely disappointed to find that some former members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics...

as for analyst being "more right in this case" i'd disagree on that in the sense that they were NOT right about fraud and not one claimed fraud that i read at the time. They claimed that HP was paying too much. But it's a big difference between knowing HP is making a bad deal and knowing that they are making a bad deal because the underlying company is fabricating earnings. The end result is the same, a bad bargain. But those analyst were simply correct in the outcome. I remember one analyst saying how at the projected earnings it simply wouldn't be a good deal unless they kept up that rate of growth for like 8 years which was unreasonable because earnings were at the time about doubling in size or something like that. They were at least growing at a very rapid rate year over year.

Regardless if Leo somehow was part of fabricating earnings we'll surely find out. Little guys will flip on him when faced with prison time. Should get interesting.

All of what you are saying is potentially viable, but you are assuming that there was, in fact, fraud. A claim of fraud is much different from fraud. When someone ends up on the wrong end of a civil or criminal verdict, THEN and only then will any of the charges be valid. If it is in fact fraud, there are clear legal methods to seek redress.

If it turns out they (Autonomy) merely put a better face on a less than stellar product, they will be no different than the car salesman who steams the engine and touches up the scratches to make it look better. Crafty, perhaps even sleazy, but not criminal... "caveat emptor"... If that sames sales person rolls back the odometer, THAT is considered fraudulent.

Besides, the whole fraud claim is based on the fact that they are not getting the value they thought they were getting. There is no claim that Autonomy is worthless, and isn't that exactly what the analysts were saying. HP in doing their 'due dilligence' assumed that they saw something which justified a higher valuation that most industry people saw.

So the question centers on a matter fraud or bad judgement. I'd bet that the things HP is accusing of Autonomy of doing and characterizing as "fraud" , they are doing in some sales divisions as well.

[C-Note]

Originally Posted by SnotBoogie

From what i've read of HP that's probably been the case for a decade, that is they shouldn't be in business.

Nobody says the same thing about apple or samsung because neither of those companies are get the bulk of their earnings from declining businesses. Apple, biggest sellers are phones and tablets by a very wide margin and before those it was ipods. Apple hasn't had to live off of computer sales for a very very long time. Samsung is also not dependent on it's own computer sales. Samsung is a massive company that makes a hell of a lot more then computers. First it's the leading phone maker, like with apple that's a growth business. But samsung is also a massive supplier to other companies of chips of all kinds for every kind of electronic device there is not just computer electronics, samsung makes lcd screens and memory. So samsung makes money off when other electronic makers sell stuff. Just like it did when it was selling memory, screens and processors for the iphones before they got in a ****ing contest. But samsung also does building construction, they build supermax oil tankers, oil platforms, petrochemicals, home appliances like fridges, ovens, ranges, washers and dryers. They make flat screen tvs too. They are a wind farm contractor. They have finance arm too. Samsung is a lot closer to General Electric then it is HP in that it's does a very wide range of stuff. Much more then just phones and laptops.

but you'll get no argument from me that hp shouldn't be in business. but i figured that out when my year old laptop died on me because of an irreplaceable defective graphics card, days out of warranty and HP wouldn't do anything about it. Screw them. They make crap laptops anyways.

We mostly agree is substance but perhaps not in style. Certainly on HP as a company in a death spiral.

But if you contend that Samsung is able to compete in the phone market because they can subsidize the business with other arms of the company, that is kind of the argument many were making about HP. You can't bail out 60 days into your mobile campaign after you release a less than stellar product because YOU (HP) chose to cut corners on both the phone and the tablet you released. (Their cutting corners is a matter of record). And I'm not sure on how much Samsung has dumped into mobile tech for the profits they have made. I'd love to see those numbers if they are available, it would be fascinating. I don't imagine that it would be an amount out of the reach of HP if they chose to go for it.

The Apple example is even more compelling. If the Apple brass were still stuck on making iMacs and iPods - because " that is where we have had our greatest success to date", while the rest of the tech world had moved on to Tablets and smartphones, they would be what HP is now.

HP was one of a handful for companies with enough "scale" that if they made a concerted and intelligent effort to diversify into mobile tech, they could have has success. A year and half down the road, what do they have to show for their decisions? Not just now, but more importantly, as future potential?

C

[SnotBoogie]

Originally Posted by C-Note

We mostly agree is substance but perhaps not in style. Certainly on HP as a company in a death spiral.

But if you contend that Samsung is able to compete in the phone market because they can subsidize the business with other arms of the company, that is kind of the argument many were making about HP. You can't bail out 60 days into your mobile campaign after you release a less than stellar product because YOU (HP) chose to cut corners on both the phone and the tablet you released. (Their cutting corners is a matter of record). And I'm not sure on how much Samsung has dumped into mobile tech for the profits they have made. I'd love to see those numbers if they are available, it would be fascinating. I don't imagine that it would be an amount out of the reach of HP if they chose to go for it.

The Apple example is even more compelling. If the Apple brass were still stuck on making iMacs and iPods - because " that is where we have had our greatest success to date", while the rest of the tech world had moved on to Tablets and smartphones, they would be what HP is now.

HP was one of a handful for companies with enough "scale" that if they made a concerted and intelligent effort to diversify into mobile tech, they could have has success. A year and half down the road, what do they have to show for their decisions? Not just now, but more importantly, as future potential?

C

no that's not the argument i'm making. Nothing to do with subsidizing phones. Leo was saying get out of the computing business. Sell it off. You said why don't they say that about Samsung and Apple. What people say about HP is get out of the computer and printer business because it's declining in profitability and it's like 70% of your business.

The argument i was making is it's not 70% of samsung's business. They don't need to get out of the pc and printer business. They are not dependant on making those things in the way HP is. Samsung is diversified. Apple either. Samsung makes money on a hell of a lot more then just pcs and printers. And apple isn't dependant on pcs either, they are dependant on tablets and phones.

"scale" blah blah blah. look if the phones and computers aren't what people want they won't buy. scale won't matter if they aren't what consumers want and that's what HP makes. Apple makes what people want. It's why they make money hand over fist and HP computers aren't selling like before.

[SnotBoogie]

Originally Posted by C-Note

All of what you are saying is potentially viable, but you are assuming that there was, in fact, fraud. A claim of fraud is much different from fraud. When someone ends up on the wrong end of a civil or criminal verdict, THEN and only then will any of the charges be valid. If it is in fact fraud, there are clear legal methods to seek redress.
That is the claim from hp has filed. I know very well, more than most, the difference between a legal claim of fraud and a determination of fraud by court. All i've done is quote HP's claim. Either way valid or not Leo is not implicated in anything yet by any party. People have made an assumption.

If it turns out they (Autonomy) merely put a better face on a less than stellar product, they will be no different than the car salesman who steams the engine and touches up the scratches to make it look better. Crafty, perhaps even sleazy, but not criminal... "caveat emptor"... If that sames sales person rolls back the odometer, THAT is considered fraudulent.

Besides, the whole fraud claim is based on the fact that they are not getting the value they thought they were getting. There is no claim that Autonomy is worthless, and isn't that exactly what the analysts were saying. HP in doing their 'due dilligence' assumed that they saw something which justified a higher valuation that most industry people saw.

So the question centers on a matter fraud or bad judgement. I'd bet that the things HP is accusing of Autonomy of doing and characterizing as "fraud" , they are doing in some sales divisions as well.

but bottom line. if there was a fraud or not, either way, based on what's know now, nobody but precentral people have levied a claim against Leo and they are utterly biased. Until i see a real claim reported from HP, FBI, SEC, UK Dept of Fraud. I'll believe them before webosnation. Sorry. So i'll hold off on accusing Leo until someone credible does.

But i've never heard an analyst claim Autonomy is worthless just not worth what they paid.

But it's not fraud or bad judgement. It's a matter of fraud or not. Even if they did pay too much, the a material misrepresentation is still a crime. Courts don't care if they made a bad investment. They care did Autonomy commit wire fraud, did they commit securities fraud. They aren't investigating cause HP is losing money.

[eblade]

I don't think anyone has blamed Leo for anything criminal, but I've seen plenty of talk in financial and tech circles that he may end up as the death of HP, unless someone after him manages to plug the drain.

[C-Note]

Originally Posted by SnotBoogie

no that's not the argument i'm making. Nothing to do with subsidizing phones. Leo was saying get out of the computing business. Sell it off. You said why don't they say that about Samsung and Apple. What people say about HP is get out of the computer and printer business because it's declining in profitability and it's like 70% of your business.

The argument i was making is it's not 70% of samsung's business. They don't need to get out of the pc and printer business. They are not dependant on making those things in the way HP is. Samsung is diversified. Apple either. Samsung makes money on a hell of a lot more then just pcs and printers. And apple isn't dependant on pcs either, they are dependant on tablets and phones.

"scale" blah blah blah. look if the phones and computers aren't what people want they won't buy. scale won't matter if they aren't what consumers want and that's what HP makes. Apple makes what people want. It's why they make money hand over fist and HP computers aren't selling like before.

Samsung and particularly Apple did not leave the computing business, they just evolved. As I said already, before the iPad and iPhone and iPod... what was Apple? A computer company - and they still are. They are just not wedded to the computer in the PC form. What is a tablet or smartphone? Just a computer in a 'non-traditional' form. And Apple transformed themselves into a 'new' computing company on a much smaller budget than HP has.

If Leo said "we are getting out of the PC business" - I have no problems with that. If he's getting out of computing business, he's pretty much an *****. Especially when you don't have a clear alternate strategy, and if Leo as CEO didn't see the difference,,,(see the sentence before the this one)

When Samsung realized they rolled out a dog of a tablet on their earlier attempt into the market, what did they do? (rhetorical question)

Once again the argument of "scale" is being misunderstood. It is not about how big you are, but what resources one has. Of course you have to make a decent product, but if you have a decent product and don't have any means of distribution, no financial backing, no marketing strategy, etc, you will never be successful anyway. There are lots of could be successful companies that could take it to the proverbial next level if they had HP's resources. It is why venture capitalists exists and continue to prosper even in a tough economy.

HP was able to get crappy product out into the market because of the channels they built up with their other businesses. But apparently the HP brass defined scale as you might be mistaking me to: "We are big, so we are bound to be successful" But you NEVER heard me say that.

C

[C-Note]

Originally Posted by SnotBoogie

but bottom line. if there was a fraud or not, either way, based on what's know now, nobody but precentral people have levied a claim against Leo and they are utterly biased. Until i see a real claim reported from HP, FBI, SEC, UK Dept of Fraud. I'll believe them before webosnation. Sorry. So i'll hold off on accusing Leo until someone credible does.

But i've never heard an analyst claim Autonomy is worthless just not worth what they paid.

But it's not fraud or bad judgement. It's a matter of fraud or not. Even if they did pay too much, the a material misrepresentation is still a crime. Courts don't care if they made a bad investment. They care did Autonomy commit wire fraud, did they commit securities fraud. They aren't investigating cause HP is losing money.

The claims against Leo in this forum are just the speculation of people who cannot believe a highly paid CEO could be THAT stupid. I wouldn't get that worked up over them. If you want hear an credible analyst who publicly questioned the real value of Autonomy as far back as 2001 (yes, ELEVEN YEARS AGO) listen to this:

HP Mired In Messy Allegations : NPR

The more I hear, the more incredible it becomes and the less of an excuse Leo has. And CFRA is not a fly-by-night organization.

Either Autonomy did commit fraud (I'll wait for that too) or they didn't. And if there WERE known credible questions, why didn't anyone really investigate them. I haven't heard anyone but HP accuse Autonomy of fraud... and how credible are they? Do you really expect them to say " No fraud here... we were just stupid "

By the way, A CEO who grossly fails to look out for the fiduciary interests of his shareholders is at least civilly liable, maybe more depending on the level of the negligence.

C

[C-Note]

Nothing like a good cat-fight as the falling out continues. But I'd have to agree with Leo (gasp!), they all have to share part of the responsibility.


Ex-HP CEO Apotheker Pushes Back at Criticism Over Autonomy Deal

[geekpeter]

Originally Posted by C-Note

The claims against Leo in this forum are just the speculation of people who cannot believe a highly paid CEO could be THAT stupid.

well he DID scrap webOS devices amazingly fast with no winddown, peeving off all their partners making the devices and spares, 1 device was even canned on its launch day and he also tried his best to abandon their entire PC division while they were still the no1 sellers of PC's in the world.

if thats not stupid, how far does he actually have to go before he is? surely not far.

[OldSkoolVWLover]

Originally Posted by C-Note

Nothing like a good cat-fight as the falling out continues. But I'd have to agree with Leo (gasp!), they all have to share part of the responsibility.


Ex-HP CEO Apotheker Pushes Back at Criticism Over Autonomy Deal

I still can't believe the severance package they gave this guy