Hewlett-Packard Co on Tuesday took a massive $5 billion charge, claiming a raft of improprieties, misrepresentation and disclosure failures at software firm Autonomy, which it acquired last October for $11.1 billion. HP said it discovered "serious accounting improprieties" and "a willful effort by Autonomy to mislead shareholders" after a whistleblower came forward.
The latest charge, which follows a nearly $11 billion charge last quarter for its EDS services division, is the latest blow to HP. The technology company has been roiled in the past few years by a revolving door of CEOs, overall management turnover and challenges in its core personal computer and printer businesses. Former Autonomy Chief Executive Mike Lynch, who was pushed out in May, "flatly rejected" HP's allegations. "The former management team of Autonomy was shocked to see this statement today, and flatly rejects these allegations, which are false," a Lynch spokeswoman said in a brief statement to Reuters.
HP took $8.8 billion in charges in the fourth quarter, with $5 billion tied to the problems at Autonomy. HP said it has referred the matter to the US Securities and Exchange Commission's enforcement division and the UK's Serious Fraud Office for civil and criminal investigation. It said it will take legal action to recoup "what we can for our shareholders." HP informed both the SEC and the Serious Fraud Office over the past week. Both agencies declined to comment.
HP's stock slid to a 10-year low, losing 11.2 percent to $11.81 in afternoon trading. Shares are down nearly 50 percent year to date. HP alleged that Autonomy's former management inflated revenue and gross margins. It said Autonomy executives mischaracterized revenue from low-end hardware sales as software sales and booked some licensing deals with partners as revenue, even though no customer bought the product. HP said it began an internal investigation, including a forensic review by PricewaterhouseCoopers of Autonomy's historical financial results, under HP General Counsel John Schultz after the whistleblower came forward. Net revenue fell 6.7 percent to $29.96 billion for the fourth quarter ended October 31 from $32.12 billion a year earlier. Analysts, on average, expected $30.43 billion, according to Thomson Reuters I/B/E/S.
Revenue from all of its main business units declined, with the personal computer division recording the steepest drop at 14 percent. HP reported a quarterly net loss of $6.85 billion, or $3.49 a share, versus a profit of $239 million, or 12 cents, a year earlier. The sprawling company, which employs more than 300,000 people globally, is undergoing a restructuring aimed at focusing on enterprise services in the mold of International Business Machines Corp.