Is this the beginning of the end for HP?

The iconic tech company takes an $8.8 billion impairment charge related to accounting improprieties at Autonomy. The rest of its quarter was dismal as well.

By Jonathan Berr Nov 20, 2012 11:21AM

Kyu Oh Photodisc Getty ImagesUpdated 11:10 a.m. ET

Shares of Hewlett-Packard (HPQ) were trading down nearly 10% Tuesday after the Silicon Valley stalwart reported that it took an $8.8 billion charge upon finding "serious accounting improprieties, disclosure failures and outright misrepresentations" at Autonomy, a company it acquired in 2011. Oh, let's not forget that the Palo Alto, Calif. company also reported earnings that were god-awful.

HP's announcement regarding Autonomy is simply mind-blowing. Though the company wasn't using the word, CNBC's David Faber described it as "massive fraud." If that's true, it's huge, not Enron- or Worldcom-huge, but enormous nonetheless.

This raises many disturbing questions. How could have HP, its investment bankers, auditors and lawyers been so thoroughly snookered by Autonomy? The first clue that something was amiss came in May when HP CEO Meg Whitman fired Autonomy CEO and founder Mike Lynch, who originally was supposed to stay on and run the company after it was acquired. At the time, investors linked the ouster to Autonomy's poor performance, CNET reported.

Whitman wasn't responsible for the Autonomy deal. That distinction belongs to Leo Apotheker, one of three HP CEOs who have been ousted. Apotheker had argued that the Autonomy deal was needed to enable the company to break its dependence on the PC. In that respect, the acquisition was a dismal failure.

Now that its accounting has come into question, HP should immediately try to recoup some, if not all of the $25 million golden parachute that Apotheker received, according to CNNMoney. CNBC reported that HP has contacted law enforcement officials in the U.K, where Autonomy is based. The Securities and Exchange Commission and the U.S. Department of Justice may get involved as well.

Most investors will probably overlook the HP's quarterly results in the wake of the accounting bombshell. Unfortunately, there wasn't much good news there either. The company reported a net loss of $6.85 billion, or $3.84 per share, an improvement from a loss of $8.86 billion, or $4.49 per share, according to the company's earnings press release. Revenue fell 7% to $30 billion. Excluding one-time items, the company earned $1.16 per share. For those keeping score, HP was forecast to earn $1.14 per share on revenue of $30.4 billion.

Going forward, the company is expected to earn between 68 cents and 71 cents in the first fiscal quarter, way under the 85 cents that analysts had expected. Earnings per share for the year are seen at $3.40 to $3.60. Analysts' expectations were for $4.04 per share.

HP's big problem is hardly a secret: the company has failed to adapt to the post-PC world. This is painfully obvious. Hardware volumes plunged 20% and both desktops and notebooks units were down 12%. Apple (APPL), among others, continues to decimate HP.

Meg Whitman has been tasked with cleaning up the mess that her predecessors made. She's already announced plans to slash 29,000 workers by the end of fiscal 2014, Bloomberg reported. With Tuesday's news about potential massive fraud, her job just got much more difficult. HP may eventually be forced to find a suitor but it seems unlikely that will happen until the Autonomy issues are resolved.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter@jdberr.

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Nov 20, 2012 1:47PM
Massive fraud is everywhere. The U.K. is the center of fraud for the world. Unfortunately, HP is going the way of the Dodo bird. That being said, this is just another example of the impending collapse of the economy, when economies are in collapse, fraud becomes rampant and in the coming months you will see many other company's earnings and results are based on lies, funny accounting, and outright fraud. We will also see that no one will be charged, arrested, or imprisoned thus green lighting even more fraud. How many criminals have gone to jail in the financial crisis or MF Global theft? When fraud is tolerated and even encouraged it will lead to economic Armageddon. This is where we find ourselves today.
Nov 20, 2012 1:35PM
This is embarrassing. This is not the HP Way. I miss the old HP. Where did that company go?
Nov 20, 2012 1:17PM

I remember about 5 years ago I went to the store to replace my ink cartridge, it was used up.  I saw the price was $95.00, seemed way to high, I then noticed a new printer was $110.00.  I told a near by store clerk that landfills are going to be full of my old printers as I might as well by a new one for the price difference, she looked at me and said I get much more value out of buying just the cartridge.  I asked how do you figure that?  She said they only fill the cartridges in the new printers half full..............

So to me it seems like the company has been a bit dirty all along so no surprise that it goes all the way to the top.  Ussually comes from the top doesn't it?

Guessing they don't like the "paperless society" idea.

Nov 20, 2012 1:20PM
Why bash MW?  She had nothing to do with the acquisition of Autonomy, or the fraud surrounding it.  She inherited the rather large mess that is HP.
Nov 20, 2012 2:57PM

What happened to ETHICS?


Just another example of why the little guy will no longer invest in the market.

 Another case of massive fraud that seems very similar to Enron/Wordcom.

I guess regulations like Sarbanes-Oxley are not reallydoing any good after all.


Today's drop in the market is most likely due to the fact that people have just realized that the Pols were just making nice on the fisca cliff so that they could start shorting stocks before the average American caught on.

As the said in the 50's-DUCK and COVER



Nov 20, 2012 12:51PM
As technology changes, those who do not create the products that will drive society forward will be left in the dust bins of history.  PCs are being left behind in favor of tablets and integrated smart phones using cloud computing. Either HP reinvents itself or it will also become a symbol of what once was.
Nov 20, 2012 1:22PM
I can recall when the same dismal sentiments were expressed about IBM. HP will survive and flourish., but I'm not sure that Meg Whitman is the right person for the task. The Directors could have done a better job. Instant financial improvement from wage reduction is not a solution - just a band-aid with future labor problems.- a standard MBA approach.
Nov 20, 2012 4:28PM

It's not just HP, but everyone trying to sell USB cables for $20 to $45, that cost a few cents in large lots, sell ink for $15 to $50 that cost a few cents.  Ever few months I order cables, ink, toner, drums, etc. and give them to the kids and grand kids and anyone else that need them, and I don't even order in large lots. Years ago a man bought 8 printers on sale, I ask him what kind of business he had for that many printers,  he said " I don't want the printers, just the ink in them"

   Things that cost a few cents, retailing for hundreds of times the cost of manufacture.

   Something is wrong with our distribution system.


Nov 20, 2012 1:13PM

Well, "What did you expect?" or "Of course another TBTF company is in trouble." Take your pick. No American business really concentrates seriously on the business of doing business.  Its all about politics. It's all about giving people the business. There probably hasn't been any old-fashioned, serious, business conducted by American companies in over 45-years,


Business is all about politics. Union busting. Employee busting. Customer busting. Lobbying to bust unions and employees. running away from standing behind the product produced. Special interests organized to skirt the consequences of producing poisons that kill people, that kill the land, that kill the world, that kill the planet. Why else would a company advertise itself as "We bring good things to life . . . ." if  the exact opposite wasn't actually  taking place. Gotta love that old PR.
Business is all about politics. Downsizing. Butt-sizing. Pay-check-sizing. Out-sourcing. In-sourcing, creating H1B visa systems to kick Americans out of their jobs by foreigners right here at "home." Globalization, which is nothing more than making a moveble plague of Capitalism. Jobs for some, starvation for the many.

No American company knows how to either run a business or even do business unless it is giving the business to as many people as it can. Phony accounting practices. Non-existent safety practices. Obscene bonuses. Fraud. Theft. Cronyism. Bullyism. Thugism. Non-existent accounting practices.  Under-funded (read "raided") pension plans. Non-existent health insurance plans. Phony bankruptcies. The list of criminal behavior is endless.

Meanwhile, the whole world goes off a cliff. 

Nov 20, 2012 4:26PM

Messiahs....Don't usually offer spending cuts or tax increases...

That's why they are Messiahs....


As for the rest....Congress had better get off their fat over-paid azzes.

Nov 20, 2012 6:32PM

For those of you that ALWAYS want to make this a political again do not know what you are talking about.  HP has been on the decline since at least 2000 when they split off their Test & Measurement part of the business, calling it Agilent Technologies.  The decision was made to only focus on printers, laptops, and pc's.  A very BAD decision!  When they were more diverisified it was better ecomonics.  Never put all your eggs in one basket. .  Test & Measurement was always the bread and butter of the company and it’s roots.  CEO’s making bad decisions and then walking off with big bonuses.  Nothing to do with Democrats or Republicans!   Just very POOR LEADERSHIP WITHIN THE COMPANY!

Nov 20, 2012 6:13PM
Meg Whitman is not the answer for HP.  She needs to be canned just like the previous 3 CEOs were.  I am not blaming this mess on her by any means I just dont think shes a leader.  Shes slashing 20,000+ jobs, guess what the last CEO did the same thing and it didnt help.  If that is the companies focus to becoming profitable again they may as well close their doors because its not employment costing them sales.  Its not have future thinkers in the company. 
Nov 20, 2012 4:06PM
HP has too many middle managers, with overlapping or vague responsibilities, soaking up too much money and creating woeful inefficiency.  But they'll keep laying off rank-and-file workers.  Already so heavy with non-productive managers, it's no wonder HP's profits are tanking.
Nov 20, 2012 6:23PM
HP- I bought one of the printers they had on sale- with rebate and discount it only cost 75.00- worked great- had fax, scanner, copier etc.  I was amazed at all the stuff it could do for 75.00.  Then the inker went dry very quickly- went back to the dealer -Office Max, and the clerk told me the inkers were only partially filled on the new units and HP made all their money on selling ink.  Then in the next sentence the Office Max kid says" but we can refill the inkers for you really cheap! Great I thought, so they re-fill the inkers I re-install them and voila- a message pops up on the printer screen that a " counterfeit cartridge" is detected.  The printer stops working altogether- just continually goes through the " cleaning printhead" cycle.  Calls to customer service go no-where and an online search finds hundreds of  others with the same problem.  HP's online response was to offer a $10.00 trade-in toward a different printer.  Boxed it up and mailed it to  Ms Whitman marked " For suppository use only "
Nov 20, 2012 12:48PM
Meg better fire those 29.000 employees today and not wait till 2014.     I'm sure Obama can have them employed by a UNION  making solar panels, wind mills or fairy dust somewhere.
Meg Whitman was unqualified to lead the company in the first place, do you really think she will do anything creative to help HP,  no she'll just slash jobs and pump her salary.
Nov 20, 2012 1:58PM
I realize it would affect people's lives, probably a lot of good people, but it is hard for me to feel any empathy for the company or its executive management.  Their product quality and customer support has gone down the tubes over the last several years and the board has made several plain stupid decisions.  I would never buy another crappy ink hog printer from them again anyway.
Nov 20, 2012 6:21PM
I'm sure the employees are to blame for hp down fall.  The last 3 CEOs have nothing to do with it at all
Nov 20, 2012 4:23PM

Exceo....More like instant financial GRATIFICATION, then Improvement.


Too many times, the sign of a failing Company. 

Nov 20, 2012 3:15PM
She better not run for public office... Doing what she has to do to save the company will get spun by Dems to make her look like a demon.
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