
HP takes a $8.8 billion writeoff, alleging Autonomy accounting fraud - achille
http://h30261.www3.hp.com/phoenix.zhtml?c=71087&p=irol-newsArticle&ID=1760639&highlight=
======
bugsbunnyak
I thought this sounded familiar - AlexMuir called it:
<http://news.ycombinator.com/item?id=2902749>

and score one for Larry Ellison: <http://news.ycombinator.com/item?id=3051730>

~~~
debacle
halfwit, you appear to be hellbanned on HN. You might want to take that up
with pg.

~~~
shasta
Do to the frequency with which I see people attempting to alert a hell banned
party (which obviously defeats its purpose), I wouldn't be surprised to learn
that the hell banned can't see any post that contains the word 'hell banned'.

~~~
jobu
Sorry continuing this off-topic thread, but I'm actually curious what it takes
to become 'hell banned'. I've noticed several banned users lately, and this is
another case where none of the user's comments/submissions seem overly
trollish or offensive.

------
ccozan
[disclaimer: worked for Autonomy. This view represents my personal sole
oppinion and not of the (former) employer]

I can't tell too much, but everyone I knew was in shock when they announced
the price (12$bn), this was, way, way over what I internally valued the
company ( I was counting about 2$bn max - stock was better but is a result of
offer/demand).

Either Mike was/is a good seller, or HP ( or Leo Apoteker ) was corrupt or
dumb.

~~~
rbanffy
> or HP ( or Leo Apoteker ) was corrupt or dumb

I wouldn't bet on Apotheker being dumb. In his career he probably made more
money than many of us ever will.

~~~
kitsune_
Is making money a proof for one's intelligence?

~~~
rbanffy
Money in itself is not sufficient to prove someone is smart, but Apotheker
clearly did right something I'm doing wrong ;-)

~~~
lmm
Not at all clear; maybe he just took much bigger risks than you and got lucky.

~~~
chollida1
I think we'd all agree that luck plays a big part in all of our lives, but he
did become the CEO of one of the largest companies in the world.

If you think this was due to "luck" then I'd strongly disagree. Luck provides
opportunities, but people have to take them and make the absolute most of
those opportunities to even come close to the career that this man has had.

------
objclxt
Mike Lynch (ex-Autonomy CEO) is speaking today at a start-up conference in
London. Who wants to bet he won't be taking questions?

What the HP press release doesn't mention, but what the BBC and others are
reporting[2] is that HP are both planning to refer it to the SEC/SFO and take
civil action against "various parties". It's not a huge leap of faith to
suggest Mike Lynch is probably one of the parties involved.

[1]: <http://www.wired.co.uk/news/archive/2012-10/25/mike-lynch> [2]:
<http://www.bbc.co.uk/news/business-20412186>

~~~
peteretep
From the BBC article:

> Autonomy founder Mike Lynch is a non-executive director of the BBC.

This is the beauty of a free non-commercial press.

------
danso
Back in May, ex-Autonomy CEO Mike Lynch was ousted by HP (or left out of
frustration, depending on the source)
[http://www.telegraph.co.uk/finance/newsbysector/mediatechnol...](http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/electronics/9287201/Mike-
Lynch-ousted-from-HP-after-Autonomy-disappoints.html)

I have to say, I can't recall hearing about Autonomy...not that I keep up with
all the tech news, but a $10B valuation is pretty big. Is it just accounting
fraud that's going on, or was the technology not what it was claimed to be?
$10B for tech that would encroach on what Google/Apple/the NSA would do seems
like it would make Autonomy more of a household-tech name, even if it was
based in the enterprise sector:

<http://en.wikipedia.org/wiki/Autonomy_Corporation> > _Autonomy's technology
attempts to "understand" any form of unstructured information, including text,
voice, and video, and based on that understanding perform automatic
operations, for example inferring what the user wants and on that basis
finding other information that may be of interest._

~~~
lmm
They're well-known in Cambridge circles, though mostly as a place that hires
graduates and offers a poor working environment until they leave a year later.

~~~
mst
Autonomy was one of the places I worked very early on while getting enough of
a CV to pick and choose. I was only there for a matter of months though, and
in systems, but I really rather liked that job. In the end I left fairly
rapidly because I couldn't cope with living in Cambridge (I like smaller
places and I like being near the coast).

Looking back I'm fairly sure I was woefully underpaid for the position ... but
also not nearly as good at it as I thought I was at the time. So if anybody
reading this thread remembers my work less than fondly, sorry :)

------
AlexMuir
For me, this highlights why tech investing is so frustrating.

I saw this coming and would have shorted Autonomy if I had the money. But
guess what? I'd have lost a fortune even though I was (allegedly) right.

DHH has been shorting Salesforce for a good while. He's losing that bet as
well.

Equity investing often bears no relation whatsoever to reality. The "bigger
fool" element is huge.

That said, I think this may be the end of HP. A bold claim, but they are going
to have to fight some serious allegations of corruption, incompetence and
negligence.

~~~
ChuckMcM
It is sad that there isn't a "better" way to bet against (or for) a company.
Per pg's startup ideas though it does seem to suggest a small opportunity.
Sort of a variation on the sports book where you get to bet for or against
company outcomes. The tricky bit would be to capture this sort of event
(purchase then giant write down) as a wager.

~~~
adam
You could use prediction markets for something like this (disclaimer: i
founded a prediction market software company) but unfortunately using real
money isn't allowed in the States which would limit the interest of more
serious traders.

~~~
ChuckMcM
Presumably because this is classified as a form of gambling right? (how the
stock market gets away with it I'll never know.) Given that options are a
financial instrument that converts a prediction market into something you can
invest in, I wonder if there is some other financial instrument you could work
out here.

~~~
jacques_chester
> how the stock market gets away with it I'll never know

Because a share represents part ownership of the company.

------
gadders
Cross-posted from the other Autonomy thread:

I have no comment on Autonomy's finances. We did however evaluate it's product
vs Google's search appliance. The Google Appliance we pretty much plugged in
and let it do it's thing. After a few days it was giving excellent results on
our massive (80,000 people) company intranet.

The Autonomy server had to be constantly tweaked and fiddled with to even get
it near to the relevance of the results.

Unfortunately, Autonomy had flogged a loads of licenses to another part of the
business for peanuts, so we had to go with their inferior product.

------
achille
The paragraphs in question:

"Fourth quarter and full year fiscal 2012 results include a non-cash goodwill
and intangible asset impairment charge of $8.8 billion relating to the
Autonomy business within the Software segment"

"The majority of this impairment charge is linked to serious accounting
improprieties, disclosure failures and outright misrepresentations at Autonomy
Corporation plc 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. The balance of the impairment charge is linked to the recent
trading value of HP stock. There will be no cash impact associated with the
impairment charge."

------
lifeisstillgood
This is an "intangibles and goodwill" writeoff - its not nothing but it is
also a "guesstimate" of value.

Essentially they "guessed" a year ago Autonomy was worth 10bn, now they are
guessing its worth its yearly sales cash income - ie no goodwill at all.

Given that at the time of purchase it had 1bn in sales, and now they have
lopped that (plus deprecation) to the same suggests the problem is to do with
allocation of revenue than the actual viability of the software

------
patrickgzill
Deloitte (large accounting firm) signed off on the independant auditor's
report... summary here:
[http://www.zerohedge.com/news/2012-11-20/deloittes-2011-auto...](http://www.zerohedge.com/news/2012-11-20/deloittes-2011-autonomy-
independent-auditor-all-clear-sign)

Is it just me, or does this kind of stuff scream "the system itself, allows
massive fraud to occur" ?

~~~
enraged_camel
Given the nature of the economic meltdown we had just a few years ago, I think
the system allowing massive fraud to occur is a given. The question is, what
can be done about it, short of letting it all burn and rebuilding from
scratch?

------
lupatus
This looks like a huge capital loss for HP. But, is it actually a move to
lower HP's tax burden ahead of the expiring Bush tax cuts?

It seems to me that they valued it one-way a year ago, based mainly on
intangible value. But now, they are valuing it another way, based on actual
sales, that gives it a lower value that looks like a capital loss for HP.

In real terms though, what capital has been lost? They still have all the
Autonomy resources they paid for a year ago.

~~~
twoodfin
I was unaware the Bush tax cuts had any effect on corporate tax rates
(excluding things like S corporations that pay individual rates).

~~~
lupatus
Yeah. IANA lawyer or tax professional, but it seems to me that capital gains
and dividend taxes for C Corporations will be going up if the Bush tax cuts
expire: [http://www.deanmead.com/deanmead-newsletter/effects-of-
tax-r...](http://www.deanmead.com/deanmead-newsletter/effects-of-tax-rate-
changes-after-extension-to-bush-tax-cuts-end-2/)

~~~
twoodfin
C Corporations don't pay capital gains and dividend taxes. Their investors do.
Unless this announcement has a positive effect on HP's stock, there are no
additional gains or dividends to be had ahead of the tax rates going up.

For a real example of corporate maneuvers around the 'fiscal cliff', see Wal-
Mart, which is moving up its dividend to help its investors avoid a
potentially higher rate:

[http://www.reuters.com/article/2012/11/19/walmart-
dividend-i...](http://www.reuters.com/article/2012/11/19/walmart-dividend-
idUSL4N08Z3CB20121119)

------
ry0ohki
The other big acquisition in the enterprise search space around that time
(Fast, bought by Microsoft for $1.2 billion) had similar problems, kind of
odd. [http://techcrunch.com/2008/07/03/did-the-enron-of-norway-
pul...](http://techcrunch.com/2008/07/03/did-the-enron-of-norway-pull-a-fast-
one-on-microsoft-more-details-about-the-mess-at-fast-search-transfer/)

~~~
hboon
I can't comment on the 2 companies financials, but as an ex-FAST employee, I
can vouch that working there in a pre-sales role was fun times for me. I have
only heard of people saying it's horrible to work in Autonomy, but it might be
selection bias.

If anyone of you are in the enterprise software space as an engineer, you
really ought to consider working in pre-sales. You get to build a highly
valuable skill set that compliments what you know already.

------
kitsune_
What about due dilligence? The fact that this can happen boggles my mind.

~~~
chollida1
I once asked this when I started at the hedge fund I currently work at.

The answer I got was that for a large company, hiding things on the balance
sheet is like getting a home inspection and finding out later that the house
has some big problems with it. The point being is that inspections find
somethings but can never find all issues.

What they meant was that if you dig deep enough you can always find out the
problems, but when your going through the aquisition, you often don't have the
proper access to the records you want, or the time to do the entire audit.

HP has owned autonomy for over a year and just found out this quarter. There
is no way they would have had such access to autonomy's books during the due
diligence phase nor is there anyway that autonomy would have let them take
over a year to do their due diligence

~~~
cperciva
I understand that due diligence is hard and there's always going to be things
which get missed... but I have trouble understanding how it's possible to miss
8.8 billion dollars.

~~~
chollida1
> but I have trouble understanding how it's possible to miss 8.8 billion
> dollars.

I think we all are this morning. Unfortunetly the chatter we are hearing is
that this type of accounting cover up, if true, would require help from their
auditor.

Which means we may be down another accounting firm by the time this is over.

------
hboon
For the ones who say due diligence is constrained by time and the company not
showing visible signs of fraud, accusations have been flying around for a long
time. See [http://email-museum.com/2010/04/22/autonomy-creative-
account...](http://email-museum.com/2010/04/22/autonomy-creative-accounting/)
for example. And note that HP and Autonomy were close partners, HP sells and
deployed Autonomy's software. It's not like they have only worked together
occasionally.

This kind of stuff is everywhere.

Disclaimer: worked at ex-competitor.

------
trimbo
Also note that _all of their business units except one_ are down or flat year
over year.

------
paraschopra
Wow, what would anyone do with billions of dollar if their reputation is hit
so hard? I'm actually curious about moral position of people who engage in
such frauds. Is there any research on such white-collar "crime"? What
motivates them and why?

~~~
raverbashing
Why would you care about your reputation when you're in a five star hotel at
the Caribbean with billions in your bank account?!

~~~
VonGuard
Pretty much. That kind of money is "fuck you" money. You can go somewhere away
from the business, and pay people to pamper you for the rest of your life. Who
would even be able to get close enough to you to tell you yer a shithead?

And, of course, there's the standard business mantra that business is war, and
all's fair in love and war. These guys tell themselves that they're just crazy
slick and smart, not criminals.

------
mark-r
Any chance this is just a smokescreen for other problems at HP?

~~~
gsibble
The thought occurs, but lying to investors of a publicly traded company (ie.
HP lying about accounting fraud) would in and of itself be massive fraud that
would open HP and its officers and board to incredible penalties. I can't
imagine how any scenario would make it worthwhile, especially if you consider
the personal ramifications for the officers.

~~~
mark-r
I'm not saying they're lying, but certain things like timing are under their
control. I also wonder how much leeway they have for the amount of the
writedown. Certainly the numbers need justification but you can always tilt
the evidence to support your desired outcome.

