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back to article HP: Autonomy overstated 2010 profits, cuts them by 81 PER CENT

HP has filed at the UK's Companies House the results of an audit of the 2010 financial results of two of Autonomy's eight divisions, which says that the UK software firm's revenues were actually just 54 per cent of its initially stated figure, and that their profit figure for the year needs to be cut by a whopping 81 per cent. " …

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Anonymous Coward

Dear HP,

When you are looking at buying a company, you have access to the books and you should have done a full audit. Either one of the following two options occurred.

1) You didn't audit the books.

2) You did a piss poor job at the audit.

Either way, you are responsible.

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"you should have done a full audit"

They are called 'audited accounts' for a reason - No one would normally complete another full audit prior to purchase. It would often takes months - it sounds like Autonomoy's accountants were likely also to blame..

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@TheVogon, Yes you most certainly would subject the accounts to forensic re-examination before making a multi-billion dollar purchase and HP indeed executed full financial and accounting due diligence and willingly went ahead with the purchase after having done so. The reality is HP for the second time in successive quarters were admitting to having to writing off billions of dollars of value (the first write down related to their EDS business, another bad purchase). The first time you do such a write-down shows careless management, the second, rank incompetence. Meg Whitman knew if she could not rustle up an excuse she would be toast. HP cast around for a scapegoat and subsequently came out with a number of slime-ball slurs against the Autonomy deal they had gone ahead with after executing full financial/accounting due diligence. It was clearly a desperate attempted excuse for their second inexcusable business write down. Additionally you yourself have given the precise reason why HP and any company involved in such a deal should execute due diligence by the fact you have said "sounds like Autonomy's accountants were likely also to blame." You don't spend billions of dollars without checking what you are buying, and checking independently, that the auditors employed by the company you are buying were doing as they were required to do it.

But in any case, so far, no evidence of impropriety has emerged. Tellingly, HP's accountants have not endorsed the company's earlier statements that financial impropriety was involed. To me that says they have adjusted the accounts as requested by Whitman (their customer) and, since they are auditors and have to maintain professional standard, have quietly but tellingly failed to back HP's position that there was fraud at play.

Look, undoubtedly Autonomy "bigged-up" the value of the company. Kevin Lynch does appear to be a salesman of the "if they buy it, that's their look-out" variety, but many would argue that he has simply proven he is a good salesman and effectively maximised the sale value of his company for his shareholders - e.g. he did his job properly. Meg Whitman, on the other hand, in buying it, clearly didn't do hers.

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Facepalm

Autonomy reported profits of £105.7m for fiscal year 2010, The real profit was just £19.6m

So those dolts at HP thought that a yearly profit of £105.7m was worth purchasing Autonomy for $10.24bn?

Doesn't matter if Autonomy actually made £19.6m or a tenner, there isn't a word to describe the overpayment of the purchase. Look at them, scrabbling to shift the blame. Pathetic. How many HP workers ended up getting shitcanned for this idiocy?

Management make a galactic size catastrofuck, lose $10bn. Useless CEO is replaced by useless CEO who orders massive layoffs.

Honestly, what a bunch of fucks.

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Re: Autonomy reported profits of £105.7m for fiscal year 2010, The real profit was just £19.6m

Plus $105M profit on $175M turnover, how come no-one called BS on that?

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Re: Autonomy reported profits of £105.7m for fiscal year 2010, The real profit was just £19.6m

"So those dolts at HP thought that a yearly profit of £105.7m was worth purchasing Autonomy for $10.24bn?"

The story goes like this: HP must become a software company, because that's where all the money is. Autonomy is a software company that seems to make money, and we don't understand what their products do, so they must be really clever. Let's buy Autonomy and PROFIT!

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Re: Autonomy reported profits of £105.7m for fiscal year 2010, The real profit was just £19.6m

"Plus $105M profit on $175M turnover, how come no-one called BS on that?"

In the world of software and intellectual property that's possible. Whilst Autonomy's business was different, consider the case of a packaged office software suite, which the code owner sells to distributors at say $150. Once they've paid for the development up front, the marginal cost of producing each new sale is the cost of a cardboard box and an installation disk (if you're lucky).

In the consumer world you've got big marketing costs and fat overheads, in the B2B world they are generally far lower. I used to work for a B2B software house (not Autonomy) and our gross margins were huge, our corporate overheads minimal, our marketing budget tiny.

Curiously enough the firm I worked for's accounts were crooked, directors fraudulent, and the firm (with turnover in excess of £100m) managed to go bust on the back of debt fuelled acquisitions, despite being the largest UK company in its field, and one of the largest in the sector in the world, with a roster of blue-chip customers. Few large software companies develop their own code from scratch, they buy smaller more innovative companies, and that means a continual trail of more (or generally) less successful acquisitions, over-hyped, over-priced deals, shed loads of debt, and both sides of the deal trying to ramp up the importance of the acquired company and its product. That's the world of software, IMHO, and it's why big companies make bad deals, and often fail to deliver on the promise of the acqusition.

HP are guilty of both gross negligence in their due diligence, but also of failure of their duties to shareholders by overpaying so outrageously even on claimed profits. And strategically they are guilty of incompetence by having no realistic plan to deliver value from the acquired business, and of strategic malfeasance by their failure to learn from their own past mistakes, or those of others in the industry.

HP bought EDS, but the parasite has now taken over the host, and HP is not in my view a technology innovator, not a software house, just a lard-bottomed, poor quality outsourcer making big promises to customers that (to judge by the unhappy experience of my current globo-corp) HP cannot deliver on, despite high outturn prices. Given those opinions, I wouldn't expect them to make a success of M&A, but it's important to remember that M&A is the last refuge of scoundrel directors, seeking a smokescreen to hide their inability to run their existing business.

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Anonymous Coward

Re: Autonomy reported profits of £105.7m for fiscal year 2010, The real profit was just £19.6m

"financial results of two of Autonomy's eight divisions"

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Re: Autonomy reported profits of £105.7m for fiscal year 2010, The real profit was just £19.6m

"So those dolts at HP thought that a yearly profit of £105.7m was worth purchasing Autonomy for $10.24bn?"

Not quite. For one, these figures are for 2 of the 8 Autonomy divisions. Secondly, according to Autonomy, these figures have been reached after HP's tax accountants have "worked their magic" on them, so to speak. So the actual revenue of Autonomy will have been much higher than this (although still not as high as they claimed, apparently).

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FAIL

Re: Autonomy reported profits of £105.7m for fiscal year 2010, The real profit was just £19.6m

They wasted 10 billion in Autonomy, similar amount in EDS and I don't remember how much in Palm. Which by the way, they ended up killing.

And this year the CEO gets a half million dollars increase. Meanwhile, along with thousands of layoffs, the about 120 000 members of HP enterprise services division get 0 (zero, nada, void) salary increase. Everything just to make a bottom line.

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Accountant wars

I am struggling to see the difference between this and other companies accounting methods such as Google, Amazon, Starbucks etc where the amount of money they make and the amount of money they make and can be taxed seem to be based on what set of accountants are looking at them.

Profit and loss in the 'old' days seem to be such simple concepts, but now they seem to exist in a parallel universe.

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Re: Accountant wars

"Profit and loss in the 'old' days seem to be such simple concepts, but now they seem to exist in a parallel universe."

Rose tinted spectacles you're wearing there! Corporate accounting fraud goes back as far as we've had companies and accounts. Polly Peck, BCCI, Enron are only a handful of non-tech companies that went "pop" on the back of made up numbers. Going back much further, read the first few lines of the abstract of this:

http://homepages.transy.edu/~gwilliams/docs/FinancialCrime.pdf

Arguably the South Sea Bubble was accounting fraud, which takes us back to the early 1700's.

The origins of the UK audit firms goes back to the need to verify accounts and prevent fraud. This works only to a limited degree, and today is made substantially worse by the corporate nature of the audit industry, cosy and long term relationships between companies and auditors, and a greater incentive to rubber stamp a company's accounts than to uncover fraud.

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Re: Accountant wars

The difference is, when you shuffle the money to reduce tax exposure, everybody still agrees on the net worth of the company.

It may be that the Irish branch with only a dozen salaried employees has $12 trillion in revenue with $11 trillion in profit with $100,000 in taxes while the US branch has $1 trillion in revenue with $1 million in profits and $200,000 in taxes, but at the end of the day the company had $13 trillion in revenue, $11.1 trillion in profits and $300,000 in taxes. Whether or not this is fair depends on whether you're a tax collector or a shareholder.

HPs claim is that the $13 trillion is more like $6 trillion. This is fair to neither the tax collector or the shareholder.

Autonomy's claim is HP is full of male bovine waste, possibly even liquified.

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Mushroom

Response to HP (and others)

Dear HP

as you have been accused of tax avoidance by your very own government, in response to you request for some UK tax refunds, FUCK OFF.

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This looks more and more like...

A "just buy the damn thing" scenario. Considering the bandwagon everyone was on in 09/10 for Analytics - this is looking more and more like Apotheker just wanted it as a fully formed business unit... no matter what the cost - hence the assumed shoddy dilligence.

Nice to see how those cows have come home to roost.

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Anonymous Coward

Re: This looks more and more like...

Seems to be a case of buy now because if a competitor does they'll make a success out of them and we'll be screwed.

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UK's notoriously tight-fisted Inland Revenue

True if you're small fry, but if you're a corporation that can afford to wine and dine senior Revenue staff, then it's: "You owe us £9 billion, but we'll settle for £1 billion."

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WTF?

At that price that's roughly 100 years to double your value on net income.

Idiots bought Fapbook on that kind of P/E.

If I were an HP stockholder who'd watch the senior management p**s away $8Bn I'd be a tad miffed to put it mildly.

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Anonymous Coward

I believe Autonomy. HP are using Hollywood accounting.

US firms really know how to take the piss, they bought a UK company for that reason alone, to exploit loopholes and make more cash.

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Anonymous Coward

The British Equivalent?

Lloyds Bank!

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Unhappy

That's about 192 000 average British houshold incomes flushed down the toilet.

using the current exchange rate of about $1.6 -->£1

Impressive.

But not in a good way.

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