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.
Updated 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.
More from Top Stocks
- After Otellini, Intel better aligned with market trends
- Starbucks puts greater emphasis on tea
- Europe's impact is diluted
Find the money trail and it will lead to swiss banks.. I am also curious how much the great Leo got out of the deal
For those of you that ALWAYS want to make this a political issue...you 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!
Lockheed 122,000 (cool how the takers hid this just before the election), Hostess Brands 18,500. Why not HP and how many thousands??? Good job Barry!
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.
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.
Exceo....More like instant financial GRATIFICATION, then Improvement.
Too many times, the sign of a failing Company.
I'm really not fond of any of the scenarios.......
I have a desk full of their latest and greatest, from about about a year or so ago....
Of course will it last as long as my old Dell stuff did, probably not ??
It's OK we don't need profiteering capitalist pigs we have Obamanomics to take care of us from cradle to grave
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
Copyright © 2014 Microsoft. All rights reserved.
'We're not exactly in a uniformly strong market,' says the notably pessimistic newsletter publisher.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.