HP takes $8.8 billion hit over Autonomy irregularities
Investigation uncovered accounting problems at Autonomy that "wilfully" misrepresented value
HP has announced that its software unit will take a charge of $8.8 billion for the fourth quarter, after uncovering serious accounting irregularities in its Autonomy business.
The company said in a statement that "the majority of this impairment charge, more than $5 billion, is linked to serious accounting improprieties, misrepresentation and disclosure failures" at enterprise software specialist Autonomy, before its acquisition by HP.
The irregularities came to light after an Autonomy employee tipped off HP following the departure of Autonomy founder Mike Lynch in May this year. HP said it had no awareness of the problems prior to the acquisition, and that the irregularities "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". HP paid $10.2 billion for Autonomy in August 2011.
An internal investigation found misrepresentation of misrepresented revenue, core growth rate and gross margins, and the misrepresentation of business mix at Autonomy, specifically related to mischaracterization of revenue from negative-margin, low-end hardware sales with little or no associated software content as ‘IDOL' product, which represented 10-15% of Autonomy's revenue, and pushing product into channel partners to claim revenue, even when end customers did not exist.
HP said the matter has now been referred to the US Securities and Exchange Commission's Enforcement Division and the UK's Serious Fraud Office.