HP takes whopping $8.8B charge over Autonomy accounting issues

HP barely squeaked by analyst expectations in its fourth quarter earnings, but the bigger news today is that the company was forced to take a $8.8 billion charge over accounting irregularities with its enterprise software outfit Autonomy.

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Yes, that’s after HP paid $11.1 billion for UK-based Autonomy last year, and it’s on top of the $8 billion goodwill write off the company announced back in August. Altogether, HP announced almost $17 billion worth of charges this year over companies purchased by past CEOs.

The company said the Autonomy charge was over “serious accounting improprieties” — and I’m sure this isn’t the last we’ve heard of this story. It could have been worse, if HP was completely unaware of the accounting issues, or if it tried to bury the story, investors would have even less faith in the software giant.

Update: In a later statement on the Autonomy situation, HP said that it launched an internal investigation after a senior-level member of Autonomy’s management team came forward and noted that there had been “a series of questionable accounting and business practices at Autonomy prior to the acquisition by HP.”

And for the kicker, the accounting issues may have led to HP paying a lot more for Autonomy than it was actually worth. From HP’s statement: “As a result of that investigation, HP now believes that Autonomy was substantially overvalued at the time of its acquisition due to the misstatement of Autonomy’s financial performance, including its revenue, core growth rate and gross margins, and the misrepresentation of its business mix.”

On its earnings call with investors this morning, HP chief executive Meg Whitman said “the two people who should have been responsible for the problems are gone” — referring to former HP CEO Leo Apothekar and chief strategy officer Shane Robinson. She later added that HP’s internal investigation is ongoing, and it has also turned over the case to the SEC in the U.S., and the Serious Fraud Office in the United Kingdom. While a solution will likely take some time, Whitman said the company will figure out a way to make it up to investors.

On the bright side, HP’s earnings per share for Q4 were $1.14, slightly up from analyst estimates of $1.12 per share. Revenues were $30 billion for the quarter, down 7 percent from a year ago, and around $500 million less than what analysts were expecting.

Here’s HP’s official statement on the Autonomy fiasco:

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 of the company, prior to Autonomy’s acquisition by HP. These efforts appear to have been a willful effort to mislead investors and potential buyers, and severely impacted HP management’s ability to fairly value Autonomy at the time of the deal. We remain 100 percent committed to Autonomy and its industry-leading technology.

Photo: Devindra Hardawar/VentureBeat

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