HP Autonomy: The Beat Goes On and On and On
November 27, 2013
I read “HP’s Meg Whitman Ordered to Face Autonomy Charges.” Hard on the heels of Hewlett Packard’s quarterly results, the company has to explain to one disgruntled shareholder why the Autonomy deal went south.
The write up states:
In the latest $1 billion (£647m) lawsuit, HP shareholders accused HP’s management team of ignoring warnings before it bought Autonomy for $11.3 billion (£7.3bn) in 2011 and that the company’s financial numbers had been exaggerated. It is also claimed that HP tried to get out of the deal before it closed. The company later took a nearly $9 billion write-down largely connected with the purchase.
The deal put a burr under some digital cowpokes’ saddles. HP paid $11 billion for Autonomy. At the time of the deal, Autonomy was an $800 to $900 million a year company. Some months after the deal closed, the canny HP management took an $8 billion write down on the Autonomy deal.
According to the Tech Week Europe article:
The investors allege that HP’s management was negligent because of the $8.8 billion (£5.7bn) write-down on the deal HP announced in November 2012. HP officials blamed ‘accounting irregularities’ by Autonomy executives in the months leading up to the deal. The investors allege that the resulting drop in HP’s stock price effectively wiped billions of dollars from the company’s market value. The FBI are said to be investigating the allegations, as is the UK’s Serious Fraud Office (SFO).
In the meantime, the HP deal has not generated the big time payoff that someone at HP assumed would result from the deal. HP, like many other search vendor buyers, seems to be learning that:
- Search is an expensive business to fund. Those marketing, research, and support costs are brutal. Most of the failed search vendors ran into financial trouble despite the ministrations of different CEOs. Maybe Autonomy was managed better? Interesting question.
- Search, by itself, is not a compelling product or service to many potential customers. As a result, search is no longer search. Search embraces dozens of functions from text mining to the ubiquitous and fuzzy Big Data. HP is now trying to market lots of search related products and services. My hunch is that this is a bigger job than trying to sell $11 billion worth of key word search licenses.
- Companies that are not really software centric do not understand the oddities of the enterprise search sector. My view is that MBAs at outfits like HP assume that their Swiss Army knife budgeting and managing skills are going to “fix up” an outfit like Autonomy. Billions will flow as a result of the MBA approach. Who needs a PhD with an aptitude for math to run a mere search company. HP is coming to grips with its own shortcomings in the vision and motivation departments of Autonomy.
An ironic twist to the tale is that HP licensed the hugely complex, expensive, and cumbersome Verity system. With the purchase of Autonomy, HP became the owner of Verity’s technology. The six figure license deal for Verity is now free when viewed one way. On the other hand, that Verity technology cost HP billions of dollars.
And what about the founder of Autonomy? Dr. Michael Lynch has set up an investment company called invoke capital. The company took an interest in Darktrace, a security firm. Dr. Lynch, according to the Financial Times,
…is also a defendant in a suit by HP’s shareholders relating to the acquisition. A court in San Francisco this month gave HP a deadline of January to complete an internal audit, a decision welcomed by Mr Lynch.
The year 2014 may hold more fodder for business school case studies about Hewlett Packard and Autonomy. I am eager.
Stephen E Arnold, November 27, 2013
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