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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68Comments
Nov 21, 2012 6:27PM
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Unfortunately, both is true. You can buy a new printer for the cost of 1 ink cartridge. Those ink Carts come half full in the new printer  package. Take your pick. However many printers I now own doing this! LOL! I have the latest printer, and if one breaks down there is another! And the scams will go on!
Nov 21, 2012 11:29AM
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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

Nov 20, 2012 8:04PM
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Apple isn't the cause of HP's problems.  HP built tablets, was famous for Laser Printers, and made pretty good Netbooks. Management is another story entirely.  To survive they need to make a good tablet and not necessarily based on Android and maybe not even on Windows, then again maybe so.  Whatever the case it must be slick, fast, easy to learn & use, and be priced reasonably.  Trying to beat Apple isn't a good idea.  MS tried to beat the iPod with it's Zune and that didn't happen, is dreaming that it's Surface can trick people into buying that instead of a iPad.  Hoping to flood the market and bury people with products in the hopes they are dumb enough to believe that a tablet is a tablet, is a tablet.  There are three types of consumers.  The top level folks want GOOD products.  The middle level folks want CHEAP products.  The bottom level folks don't care either way, they just buy junk and hope it will last.  They usually don't.  History has shown that Apple leads, others follow, or should get out of the way because they cannot innovate.  Steve Jobs called this "The Vision Thing".  I've long admired Apple technology even before there was a Lisa or a Mac and my faith in Apple has never wavered.  Being Apple is the most valuable company on the planet I'd say this proves my faith in them and their engineers was not misplaced.  If they weren't doing something right this wouldn't be the case.  HP needs to take a long serious look at what it is doing and is trying to do as a company.  
Nov 20, 2012 6:32PM
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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!

Nov 20, 2012 6:27PM
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It looks to me like the press release by the HP execs is the fraud. They're trying to blame their mismanagement on folks who are no longer there and it is the beginning of the end for HP. Adapt or perish.
Nov 20, 2012 6:23PM
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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 6:21PM
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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 6:13PM
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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 5:17PM
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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!

Nov 20, 2012 4:28PM
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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 4:26PM
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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 4:24PM
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Worst lap top I ever bought.  They will go out of business because of their inferior products.
Nov 20, 2012 4:23PM
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Exceo....More like instant financial GRATIFICATION, then Improvement.

 

Too many times, the sign of a failing Company. 

Nov 20, 2012 4:20PM
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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 ??

Nov 20, 2012 4:15PM
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To solve all this problems whit results we need to give rid of all cancers rhis country is having.
Cancer number one: UNIONS AND THEIR GORILAS!!!!
Cancer number two: ACLU> This organization, nobody elect; is interfering in everything and nobody know from where the money is coming to support their activities. I wonder the IRS is all over the business people and don't care about this.
Number three: the goberment   and the burocracy whit those big salaries and tons of regulations and acting as a NANNY. i FLED FROM A COMUNIST REGIMEN AND DIN'T KNOW  WHERE I'm RIGHT KNOW1111
Nov 20, 2012 4:06PM
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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 3:15PM
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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.
Nov 20, 2012 3:12PM
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Who really cares?  It is what is is. Have a huge HW plant here and they knew years ago with the "farming" techiniques.  Another huge employer is possibly done and they also knew years ago. Same deal.  What is the surprise?  It is a different time and the "bubble" is over and will not return.  Do not over-analyze it.  It is not that difficult to understand. I just enjoy enjoy watching "them" fall all over themselves...it is rather funny. 
Nov 20, 2012 3:06PM
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It's OK we don't need profiteering capitalist pigs we have Obamanomics to take care of us from cradle to grave

Nov 20, 2012 2:57PM
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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

 

 

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