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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Tags: AAPLHPQ
68Comments
Nov 20, 2012 2:51PM
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Maybe Best Buy can hire Whitman for like $100 million a year.

Nov 20, 2012 2:06PM
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They need Bain capital to get in there and tell everybody "we`re looking out for ".The next

day the pink slips are passed out, then the assets are sold to China and Bain gets big

checks.The American way!!!!

Nov 20, 2012 1:58PM
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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.
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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 1:47PM
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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
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This is embarrassing. This is not the HP Way. I miss the old HP. Where did that company go?
Nov 20, 2012 1:22PM
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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 1:20PM
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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 1:17PM
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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 1:13PM
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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 12:55PM
Nov 20, 2012 12:51PM
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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 12:51PM
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The great Apple steamroller strikes again.

Good Riddance


Sincerely

The Invisible Hand

Nov 20, 2012 12:48PM
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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.
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