HP's big problem isn't Autonomy: It's HP

With Hewlett-Packard's cash cows drying up and its mobile strategy in ruins, CEO Meg Whitman has a huge rebuilding job on her hands

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Autonomy to analysts: Shut up or else
Owens wasn't the only analyst who was stonewalled. A damning account in the Guardian newspaper recounts how Autonomy tried to punish financial and technology analysts who raised questions about the performance of the company and its products.

Alan Pelz-Sharpe, an analyst at the 451 Group, was banned from speaking to company staff. He told the Guardian, "I was essentially blacklisted by them, so in theory nobody there could talk to me. If I wrote anything critical, I would have a threatening note come back saying my report was riddled with inaccuracies and there was no way it could go to press."

Michael Lynch, the former CEO of Autonomy, disputes the charges against him, saying in a written statement: "Autonomy's finances, during its years as a public company and including the time period in question, were handled in accordance with applicable regulations and accounting practices. ... I utterly reject all allegations of impropriety." In any case, HP says it fired Lynch, and much of the Autonomy executive team reportedly went with him.

Without going into a lot of detail, I should also note that some analysts wonder how several hundred millions of dollars in alleged accounting errors (deliberate or not) translate into an $8.8 billion write-down. For its part, HP says the accounting errors led the company to pay far too much for Autonomy, accounting for $5 billion of the charge. Additionally, the issue and subsequent loss of goodwill may cause HP's stock to lose even more value, accounting for the remaining $3.8 billion.

Lynch has told several reporters that he believes the underlying issue may be differences in U.S. and European accounting rules that somehow HP, its bankers, and its accounting firm didn't think to reconcile. I can't say if the argument holds water, but I know that the big accounting firms auditing companies like Autonomy are prone to terrible mistakes and misrepresentations. Remember -- before Enron blew up, Arthur Andersen, its Big Five accounting firm, gave it a clean bill of health. The explosion totaled Andersen, which is why we now talk about the Big Four.

Good deal or stupid deal, Wall Street wins
As the Guardian points out, both UBS and Goldman Sachs, the investment banks that advised HP on the Autonomy purchase, had access to damning information about it but never raised a red flag. Like the accounting firms, the big investment banks have a vested interest in making these blockbuster deals happen, so it's not surprising that they cover their eyes and hold their noses when a bad smell drifts toward them.

This whole business really stinks, and there's lot of blame to go around.

As far back as the lunatic acquisition of Compaq Computer by failed CEO and failed Senatorial candidate Carly Fiorina, HP's record on major acquisitions is terrible. The shareholder value of the company has been decimated, and tens of thousands of employees (I'm not exaggerating) have lost their jobs.

If the company is serious about cleaning up this mess, at the very least the current board members who were there when Autonomy was purchased need to go. As to Whitman, "give her the benefit of the doubt," says Chowdhry. "But a culture that punishes innovation and rewards politics has got to change."

I welcome your comments, tips, and suggestions. Post them here (Add a comment) so that all our readers can share them, or reach me at bill@billsnyder.biz. Follow me on Twitter at BSnyderSF.

This article, "HP's big problem isn't Autonomy: It's HP," was originally published by InfoWorld.com. Read more of Bill Snyder's Tech's Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.

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