But in a short phone interview with AllThingsD, CEO Meg Whitman and CFO Cathie Lesjak reiterated what they said on a conference call with analysts: Progress has been made, but there’s still a lot of work to be done.

AllThingsD: Meg, let’s talk about the state of the competitive environment. We heard some pretty tough results from Dell last week, and you said on the call that HP was choosing to pass on some deals in order to protect profit margins. Tell me a little more about that.

Whitman: For the long term, profitability remains a focus for us because we can’t afford to let our profitability crater the way Dell did. We have to have the ability to invest in the next generation of PCs and servers and software. It was a tough quarter. We walked away from several deals and lost some share. But it felt like we did the right thing in going after the deals that were the right deals for us. There were also some execution issues. We have to make sure we have the right product for the right customers at the right price point. And particularly at the low end, I think we could do a better job there. But overall I’m reasonably pleased that we made the right decisions in the PC business.

Dell was also making a lot of noise about industry standard servers and how it took some share away from HP. Was it a similar dynamic in servers as it was in PCs?

Whitman: Yeah. We saw what happened to Dell’s earnings. They were down 75 percent. If they were a publicly held company that was trading freely in absence of a buyout number, the stock would be down by 50 percent. It would be ridiculous. We are a publicly held company and we have to invest in the long haul. So we had to choose to walk away from some deals in hyperscale and industry standard servers and PCs that didn’t make sense for the company. I feel like we did the right thing, but there’s always something you can learn from these things.

How do you feel about competing against a privately held Dell versus a publicly held Dell? We saw some indication of how it might behave in the marketplace this quarter. Do you think you’re going to have more of this aggressive pricing behavior and so on?

Whitman: I don’t know exactly how their behavior is going to change. But remember, they’re loading a lot of debt onto the company. And remember how LBOs work. The key is to pay off the debt quickly so you can take the company public again and make a lot of money. We’ll see if they remain as aggressive as they have been. But frankly, this is just a competitive business. We have a lot of competition. We have shown that we can win over time whether it’s against Acer or other manufacturers that we beat out. So if it’s Dell or anyone else, we have to have continuous improvement. We have to invest in the right products. We have to streamline our go-to-market strategy, we have to constantly refine our supply chain and we have to be more agile. And that is just part of being in the business.

Lesjak: And we’ve shown that by being No. 1 in the market for industry standard servers for many, many years now, and we’ve been competing against Dell that entire time.

Cathie, there was a lot of talk on the call about reducing HP’s debt. Give me a look ahead as to what changes when that debt comes down to approaching zero, then what happens?

Lesjak: It frees us up to step back and look at what we want to do with the cash we’re generating, and we want to make sure we’re making the right kind of investments. Those investments may be in buying back shares, or capital expenditures, or research and development to get us on track for the future, or to make small M&A deals. And we want to evaluate these all on a returns basis, both in the near term and in the long term. Because you really need to do both. Some decisions will be based on the near term and with some we’ll be willing to wait a long time for the returns because they’ll be worth it. This is actually one of those moments when we’re going through a lot of product transitions, where the new style of IT products are coming in and the older style products are going away. And what we really want to be able to do, instead of having to manage big transitions, we want to get through them more quickly and that means that you have to invest for the short term and long term.

Whitman: I’ve been saying this a lot lately: You have to plant acorns before you have oak trees. And I think with a lot of the CEO transitions, we didn’t plant enough acorns. And now we’re paying that price.

So part of the impression I got from this quarter and last is that you’re able to beat the Street expectations in part because you’re able to manage your cash flow very tactically. You did well with cash flow for the first half of the year and you said on the call that you don’t expect it to remain as strong in the second half. With the macro environment remaining so weak, I come away thinking that your success is really less about products and lines of business and right now more about managing and taking out costs. Is that fair?

Lesjak: I’d sum it all up to operational excellence. You have to do this all the time. I mean, we’re in a competitive industry. Margins are tight and you have to be maniacally focused on managing your costs every minute, and making sure you’ve got the right product in the right place at the right time. I think this has to be part of the DNA of the company. There’s no moment when you exhale and then you get to spend more. This is about being focused all the time and bringing that discipline to the company. Now in the second half we have some extraordinary cash payments to make around taxes and restructuring payments. As well as some cap-ex that we think will be good investments for the future.

Is there any indication that the macro environment is going to improve? We’re seeing the worst environment for PCs pretty much ever, and IT spending generally isn’t looking so good. Do you sense any improvement in either?

Whitman: From a macroeconomic perspective, which is what drives IT spending across small businesses, medium ones and big enterprises, I think the environment remains about the same. I could be wrong here. We don’t see any improvement coming in Europe and we don’t see an improvement in the U.S. So we’re not counting on those as tailwinds or headwinds, but really more of the same. PCs are a little different. PCs are a subset of personal systems, and as you know that business is growing generally with all the tablets and mobile devices. It’s possible the PC growth rate doesn’t decline as much. It may continue or it may flatten. The objective is that when it starts to flatten out, whose is the company with the best products and the company best-positioned to gain share. We want it to be us.

Lesjak: Taking advantage of the fact that tablets are a growing segment, you really look at HP’s position in tablets, and that will improve significantly in the second half of this year. We’ve got the Slate 7 Android consumer tablet and the Elitepad commercial tablet. Those ramp in the second half, so we’ll have some help on the top line. Not so much in the PC business but personal systems.

Project Moonshot launched during the quarter and there’s a sense that there’s a lot of hope riding on that product. When does it start shipping in earnest for revenue? Is that a 2014 story?

Lesjak: It really ramps in the second half of this year but it’s more of a 2014 story. The real material benefit is 2014 and 2015. IDC has done some projections that the Web and cloud services business will grow about 19 percent in 2016. So that works out to about 8-10 million servers between now and then. So that’s the market that Moonshot is going after.

Whitman: You also have to remember that the ramp is slower with these enterprise products than with the consumer products. Big enterprises need to bring them in and do a proof of concept and see what workloads they want to run on them. And then they have to prove it out. Enterprises move more slowly, but when they move, they move big. But the ramp is slower than the the consumer product.

What’s your biggest priority for the rest of the year now, Meg?

Whitman: We continue with our restructuring program. We said it was going to be a three-year program, and we’re about halfway through that timeline. So there’s more work to do there. And to Cathie’s point, it becomes part of the DNA. This is what we do in the normal course of business. We also have to manage the transition between the new products and the older products. We’d like to accelerate the growth of the new products if we can.

And you said on the call, despite all these market headwinds, you think you can grow next year.

Whitman: We do. We continue to believe that growth is possible next year. You’ve got to remember, we’re doing this amid some of the biggest transitions that have hit the IT industry in a generation. The macro environment is not going to help. The delayed runoff in enterprise services helps this year but hurts next year. But we think we can grow. It depends on a lot of different factors. To be clear, we expect EPS growth in 2014 regardless.

What’s your latest thinking on Autonomy? Is that part of the operation where it should be?

Whitman: I think Robert Youngjohns and his team have done a great job of stabilizing Autonomy. We’ve put in some systems that were lacking and we’ve changed our go-to-market. We’ve invested in R&D jobs there. We had 50 openings for research jobs there recently and I suspect that most of them have been filled by now. So I’m pleased with the progress. That team went through a lot, so I have to give them a shout-out. They had some difficult circumstances. And I’m pleased with what they’re doing. I think you’re going to see Autonomy grow in the next few quarters.

You still having fun, Meg?

It is fun. The senior team feels like they’re making a difference. The turnaround is on schedule. Obviously there are lessons learned every quarter, but we feel good about where we are.

The Times report quotes SAP co-CEO Bill McDermott as saying that HP had asked if SAP might be interested in buying Autonomy. The story isn’t clear on when the conversation between HP CEO Meg Whitman and McDermott took place, other than to say it was before Whitman visited London last month and said that Autonomy was not for sale.

I just got this statement from HP on the matter:

“Contrary to reports in the media, HP has no interest is selling Autonomy. During the past year, we’ve received inquiries from SAP about purchasing HP software assets, and time and again we’ve said ‘no.’ We believe Autonomy will play an important role in HP’s long-term strategy.”

I also reached out to SAP spokesman Jim Dever, who tried to walk back what the Times reported based on what he says McDermott actually said in the interview with reporter Nic Fildes:

“If you look at the quote, Bill doesn’t say anything other than we were aware when Autonomy was on the market. I was part of the conversation, and he never mentioned discussions with HP. In fact, he never said we were approached by HP.”

Sources familiar with the conversations tell me that since HP is such a big SAP customer — something its operational head John Hinshaw mentioned in a recent interview with AllThingsD — Whitman and other HP execs routinely meet with McDermott and his co-CEO, Jim Hagemann Snabe, CTO Vishal Sikka. She’s also met with founder Hasso Plattner, where they also discussed, among other things, HP’s naming rights to the HP Pavilion, home of the National Hockey League’s San Jose Sharks.

These sources tell me that the conversations on the topic of Autonomy potentially changing owners, if you could even call them conversations, were so informal as to be almost meaningless. “Autonomy was never shopped to SAP,” one source told me emphatically.

It’s not the first time chatter has emerged about potential buyers interested in taking Autonomy off HP’s hands. In January, there were reports that HP was getting “expressions of interest,” but HP quickly slapped them down.

And there is indeed a school of thought that Autonomy would have a more natural home within SAP. Former HP CEO Léo Apotheker had previously been a co-CEO at SAP, and before he was fired had steered HP toward becoming more of a software company. If SAP is trying to engage HP on the subject of selling Autonomy, it may be because it simply doesn’t like the idea of HP being in the software business.

HP is still a relatively new player in software, which accounted for a little more than $4 billion in sales last year, or 3.3 percent of HP’s total revenue of $120.4 billion. Small, but growing enough to constitute being considered a rare bright spot at HP. HP’s sales grew 43 percent from 2010 to 2012, though that includes the addition of the Autonomy business.

Update: After further reporting, I’ve updated the story above to reflect which SAP executives Whitman has met with. It turns out she hasn’t met with Jim Hagemann Snabe after all.

But the only thing any of the assembled journalists she’s had contact with have wanted to discuss is Autonomy, the British software firm that HP acquired in 2011 and on which it blamed the majority of an $8.8 billion write-down.

The magnitude of the accounting improprieties, Whitman said in interviews with The Guardian and The Telegraph, were such that HP had to report its findings to regulators on both sides on the Atlantic. She also ruled out any notion that HP is interested in selling off Autonomy — such rumors are apparently still in the air in the U.K. — calling it “critical to our strategy.”

Here’s Whitman in an interview she did with the BBC, which starts with her being asked whether it was “wise” for HP to attack Lynch and the rest of Autonomy’s former management team.

CEO Meg Whitman will make a presentation, essentially reiterating her plan to rebuild and repair HP’s foundations in 2013, and to nudge it back over the line to revenue and profit growth in 2014 and beyond. Analysts have generally turned cautiously optimistic toward HP, especially since its last quarterly earnings report.

Numerous shareholders are seeking to rattle both HP management and its board of directors by opposing the reelection of as many as five of those directors. One powerful proxy advisory firm, Institutional Shareholder Services, is urging shareholders to vote against Chairman Ray Lane and directors John Hammergren and G. Kennedy Thompson. Another proxy firm, Glass Lewis, is opposing four directors, including Hammergren and Thompson, as well as Marc Andreessen and Rajiv Gupta.

Calpers, the powerful California pension fund, has vowed to vote against all five: Lane, Andreessen, Hammergren, Thompson and Gupta, and will also vote against ratifying Ernst & Young as HP’s auditor.

The most likely outcome is that the directors under fire will survive the proxy vote, though of the five directors catching the most heat, Hammergren and Thompson are generally seen as the most vulnerable.

Of course, the day of HP’s shareholder meeting wouldn’t be complete without some fireworks from Mike Lynch, the former CEO of Autonomy, the British software company for which HP paid $11 billion in 2011, only to write its value down about half a year later.

In an open letter to HP shareholders, Lynch reiterated complaints, and asked some interesting questions about HP’s accusations that he and his lieutenants essentially inflated Autonomy’s value before HP acquired it. The text is below:

Open letter from Mike Lynch to the shareholders of Hewlett-Packard

20 March 2013

Today HP will hold its annual shareholder meeting. This meeting provides a moment of accountability for HP’s Board of Directors to all its stakeholders, and is an appropriate time for the Board to address material questions.

A significant issue for HP’s stakeholders is the allegations HP has made against the former management team of Autonomy in relation to the acquisition of that company, and the related impairment charge of $8.8 billion taken against shareholder funds. As a member of the former management team of Autonomy I have a shared interest with the shareholders of HP (of which I am not one) in getting to the bottom of those allegations, understanding exactly what happened within HP related to this situation and resolving it as soon as possible.

We therefore put forward some questions that we believe HP’s Board of Directors needs to answer at the shareholder meeting:

1. Can the Board provide details and evidence of the allegations it has made against the former management team of Autonomy to shareholders and to the people it has accused, so that everyone can understand the allegations that are being made and how it relates to the decisions and statements the Board has made? Can the Board confirm when it first became aware of these specific allegations? Will the Board provide the report from PwC on which its allegations are based to the former Autonomy management team so that this issue can move toward resolution? Will the Board also make available the conclusions of the findings of the recently appointed committee investigating the circumstances of the acquisition?

2. How did HP calculate the impairment charge it has taken against Autonomy? Several qualified commentators, including a former Chief Accountant of the SEC, have questioned how the alleged irregularities in Autonomy’s accounting could generate such a large write-down. How much of the impairment charge was related to the operating performance of Autonomy post-acquisition?

3. Did HP approach the UK Takeover Panel at any stage in an attempt to rescind its offer to buy Autonomy before completion? If so what was the reason it gave and why was this material change of view not communicated to shareholders?

4. The former management of Autonomy began alerting Ms Whitman as early as December 2011 to significant problems with the integration of Autonomy into HP that were negatively impacting its performance. When did Ms Whitman acknowledge that Autonomy was not performing against expectations? Why was this not communicated to shareholders at that time?

5. Will HP commit to behaving in a transparent manner in providing information about these allegations and the legal processes that have been set in motion? This includes not pre-empting announcements by regulatory authorities and not waiting long periods to disclose information.

We continue to reject the allegations made against us by HP and believe it is in the interests of all parties that these questions be addressed directly by the Board so this issue can be resolved as swiftly as possible. HP has acted in an aggressive and unusual manner throughout this episode, making highly damaging public accusations without providing any supporting evidence, either to the public or to the people they have accused.

As we have said before, we believe the problem with the Autonomy acquisition by HP lies in the mismanagement of that business by HP under its ownership, making it impossible for Autonomy to deliver on HP’s expectations. Autonomy’s accounts were fully audited by Deloitte throughout the period in question and Deloitte has confirmed that it conducted its audit work in full compliance with regulation and professional standards. We refuse to be a scapegoat for HP’s own failings.

Dr Mike Lynch

In the filing, HP discloses that it has been told by the Serious Fraud Office in the United Kingdom that the SFO has opened an investigation into the allegations that HP has leveled at Autonomy, the British software company for which it paid about $11 billion in 2011, only to write down its value by $5.5 billion in 2012.

HP had previously said it had reported its findings to the SFO, but this constitutes the first official disclosure that an investigation by that agency is under way.

It further explains a report by the Daily Mail last week, saying that Mike Lynch, Autonomy’s founder and former CEO who is at the center of many of the accusations, has hired Reid Weingarten of Steptoe & Johnson as his defense lawyer. Weingarten is know for having represented filmmaker Roman Polanski and Enron executive Richard Causey.

It also makes the SFO the second regulatory body in that country to have Autonomy in its sights. Last month the U.K.’s Financial Reporting Council launched its own probe into the matter. The U.S. Department of Justice has been investigating it since last fall.

Here’s what HP says about it:

Autonomy-Related Legal Matters
Investigations. As a result of the findings of an ongoing investigation, HP has provided information to the U.K. Serious Fraud Office, the U.S. Department of Justice and the SEC related to the accounting improprieties, disclosure failures and misrepresentations at Autonomy that occurred prior to and in connection with HP’s acquisition of Autonomy. On November 21, 2012, representatives of the U.S. Department of Justice advised HP that they had opened an investigation relating to Autonomy. On February 6, 2013, representatives of the U.K. Serious Fraud Office advised HP that they had also opened an investigation relating to Autonomy. HP is cooperating with the three investigating agencies.

RELATED POSTS:

• More From Mike Lynch: HP’s Autonomy Accusations Are Getting Weaker
• Mike Lynch Punches Back at Today’s HP Filing: Whither $5B Writedown?
• HP Confirms DOJ Is Investigating Alleged Fraud in Autonomy Deal
• Yes, There Are Layoffs Pending at HP’s Autonomy Unit in the U.K.
• Former HP CEO Shifts Blame for Autonomy Deal to Chairman
• Dell Passed on Autonomy Before HP Bought It
• Why Mike Lynch Is Playing PR Hardball With HP
• Autonomy Founder Lynch Asks Board to Explain HP Allegations
• Autonomy Founder Lynch Blames Accounting Standards in HP Flap
• The Red Flags That Were Obvious — To Some — In the HP-Autonomy Deal
• Oracle’s Ellison Vindicated in Autonomy PR Flap by HP’s $8.8 Billion Writedown
• Autonomy Founder Mike Lynch Rejects HP Charges, Alleges Mismanagement
• What Exactly Happened at Autonomy?
• HP Explains Its $8.8 Billion “Oops”
• HP Beats Street Amid Sales Declines, Takes $8.8 Billion Charge
• HP Names Microsoft Exec Robert Youngjohns to Run Autonomy
• Search Under Way at HP for Autonomy’s Next Chief
• Autonomy’s Mike Lynch Talks About Being HP’s Speedy Tiger Cub (Video)
• Britain’s First Software Billionaire Now Reports to HP CEO Meg Whitman
• Oracle Launches Exalytics Machine, Probably Ending Spat With Autonomy
• Autonomy: When All Else Fails, Blame the Bankers
• Mike Lynch to Oracle: Oh, You Mean Those Slides
• Oracle: You Have a Very Bad Memory, Mr. Lynch
• HP Reportedly Close to $10 Billion Buyout of Autonomy, PC Unit Spinoff
• Will Oracle and Microsoft Bid on Autonomy?

Institutional Shareholder Services, which advises big investors how to vote in corporate elections, criticized Mr. Lane and HP’s two longest serving directors, John Hammergren and G. Kennedy Thompson, for how the big computer maker handled the acquisition, which was approved on Mr. Lane’s watch and then largely written off.

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That was a point that IBM CEO Ginni Rometty made today in remarks at the company’s investors day in San Jose, Calif. IBM is known for making numerous acquisitions over the years, a recent example being StoredIQ.

What does IBM look for in an acquisition? Rometty boiled it down to three questions the company asks before every deal: “Does it extend a capability we have? Does it have scalable intellectual property? Can we extend it to 173 countries around the world?”

In a perhaps not-so-veiled shot at rival Hewlett-Packard, given its combined $16 billion in write-downs on the acquisitions of EDS and Autonomy last year, Rometty said IBM feels strongly that “companies get in trouble when they acquire something that takes them into a new space.”

But just as important to Big Blue’s success in recent years has been its decisions to get out of certain businesses. Examples include the PC business, which it sold to Lenovo in 2004, and, more recently, its retail point-of-sale business, which it sold to Japan’s Toshiba last year.

“Over the last decade, we have divested $15 billion worth of revenue,” Rometty said. “If we had not, we would be a larger company, but we would also be a lesser-margin company, and we would have capabilities that our clients would be less interested in.”

Rometty also said that IBM expects to continue its big bets on technologies like Big Data and analytics. “Data will be the basis of competitive advantage for every company, for every industry in the coming decade.”

To that end, she said that IBM now expects revenue from business analytics to account for as much as $20 billion in annual revenue by fiscal 2015. The prior target was $16 billion. And if Big Blue hits that goal it would amount to a doubling of analytics revenue from 2010.

The moves were disclosed by some HP directors in a private meeting with big investors on Monday, according to a person who attended the meeting. The efforts appeared to be aimed at demonstrating that the board has put management on a shorter leash following a string of blunders at the Palo Alto, Calif., company.

Read the rest of this post on the original site »

HP shares are rising after hours on word that the company rather handily beat its own expectations and those of the Street. The consensus view called for it to report 71 cents a share in per-share earnings. HP came in at 82 cents. Sales were also ahead of the consensus, despite the fact that revenue fell in nearly every significant business segment.

Still, don’t harsh HP’s buzz with too many details. There’s more to crow about: Net debt of the operating company came down by $1 billion to $4.7 billion, and it’s looking like HP will be close to zero debt for the operating company this year.

The results if nothing else buy Meg Whitman and her team some time to quiet the critics who say HP should be split into two or more companies in order to unlock value. That buzz was prominent late in the trading session as rumors flew that a breakup announcement might accompany earnings. As careful AllThingsD readers might have already guessed, a breakup isn’t in the cards, at least not for the time being.

The conference call with analysts is about to get under way momentarily and I’m listening in. Expect lots of questions about the balance sheet, and probably more chatter about the breakup idea.

One bit of housekeeping: Since I’m in New York, the time stamps are set to Eastern Standard Time.

Earlier:
5:05 pm: Joining the call in progress. CEO Meg Whitman is speaking. She says the restructuring program put in place last year is having the desired effect.

Whitman: We improved operating company net debt position for the fourth consecutive quarter.

Whitman: Revenue from converged storage products was up 18 percent.

Whitman: In servers, business stabilized. We expect to grow market share by 1 percentage point this year.

Whitman: Networking showed continued growth, up 6 percent. I was also pleased with performance improvements in printing. New business models and new printers helped boost operating margins.

One thing that changed in developing markets is that the price of hardware has increased while the price of ink has dropped. That’s the Ink Advantage program she’s talking about.

Whitman: PCs gained 1.4 percentage points of share world wide, and 4 points in the U.S.

Whitman: Total enterprise services exceeded expectations. There is still a long way to go, but I believe that ES (the former EDS) will deliver on the recovery plan put in place last year.

Whitman: We are making significant investments to improve our channel partner programs.

Whitman: If we can mobilize HPs 300,000+ employees there is nothing we can’t do.

Whitman: Turnarounds happen when old and new customers believe. In HP’s case customers are really starting to believe. We saw a number of big wins including one with the U.S. Department of Veterans Affairs. Another is eyewear company Luxottica (sorry if I misspelled that), which hired HP to run its data centers.

Whitman: We clearly still face a long road ahead. I don’t like that we saw revenue declines in all our business lines. Restoring growth is a priority and we’re on it.

Whitman: It will be toward the end of the year before the recovery plan starts showing up on the top line.

5:14 pm: Whitman: There are a lot of reasons we are in the PC market. She’s addressing again why there won’t be a spinoff of the PC business.

Whitman: Pricing continues to be very competitive.

In Enterprise Group, we are seeing a tepid market in Europe for servers.

Whitman: We will now be breaking out converged storage from traditional storage to better show the growth there.

5:17 pm: Now Whitman is talking about the hiring of Larry Stack to reignite sales in the Enterprise Services group. (Wonder where you read about that first? You got it: AllThingsD.)

Whitman: Now talking about HP Labs under its new head Martin Fink.

Whitman: Talking about Project Moonshot. We expect this to truly revolutionize the economics of the data center.

Whitman: If just 10 large web services switched to Moonshot servers, they could save $120 million a year, and 100 million (?) metric tons of CO2 released into the atmosphere, because it consumes so much less power than prior models.

Whitman: I’m pleased about Q1 and feel good about the rest of the year.

Now CFO Cathie Lesjak is speaking.

Lesjak: At the highest level, I would characterize this quarter as one more data point in our consistent, but not linear, recovery plan.

Lesjak: Now she’s talking about some new reporting information disclosures.

Lesjak: (Going through the numbers again.) From a global economic perspective, we are still seeing headwinds, but some healthier pockets.

5:23 pm: R&D spending declined, though it was because of some tax credits and some contract accelerations in Q4.

Lesjak: Europe was a challenge, but we continue to see good signs in Asia-Pacific and Japan.

Lesjak: Decline in printer revenue is partially due to a shift toward higher-end printers and away from lower-priced ones.

Lesjak: Again, solid growth in server sales in Asia, especially in China.

Lesjak: Talking more about the storage business. Q1 was the fourth consecutive quarter where margins expanded. Now Business Critical Servers. Phase two of the trial with Oracle is expected in Q2, which will address Oracle’s breach of contract and damages.

(Though Oracle lost the first phase of the trial, it has promised to appeal the decision.)

Lesjak: In services, we have moved away from unprofitable contracts.

Lesjak: We saw strong growth in security and big data software offerings.

Now talking about cash and capital allocation. $253 million went back to shareholders through share repurchases, and $258 million via the dividend. Net debt is now $4.7 billion at the operating company level.

Lesjak: As we’ve said, 2013 is a fix-and-rebuild year. There are market and macro pressure and some of the ES changes are being delayed.

And now we’re heading into Q&A.

Question from Bill Shope of Goldman Sachs; he’s asking about the breakup idea.

Whitman: We have no plans to break up the company. (Heard that??) HP is better and stronger together.

Whitman: We have a terrific set of assets. When you think about our brand, our scale, our distribution, and importantly the customers want this company to be together. We feel strongly it’s better together.

Katy Huberty of Morgan Stanley: Earnings on the back half of the year look like they may come down. What else makes you cautious about the back half of the year?

Lesjak: It’s really about Enterprise Services not having the runoff in Q1 that we expected.

There’s also some challenges about the timing of signings.

Lesjak: There’s some cautious optimism there.

5:44 pm: Toni Sacconaghi of Bernstein: Where are you in your cost savings?

Lesjak: The non-labor savings are coming in later this year.

Question from Ben Reitzes of Barclays: I understand why you want to keep guidance in place, but why not raise the free cash flow target above $5 billion?

Lesjak: Glad you pointed out the operating cash flow. We’re happy with it, up 115 percent. We’ve really gotten a lot of discipline. We don’t typically update our cash flow mid year. Best way to think about it is that it was a very big deposit on the year.

Question from Shannon Cross: How will you judge the success of the OfficeJet ProX printer platform? How do you think about this versus your laser platform?

Whitman: This is an exciting opportunity because it prints at the speed and quality of a laster. We’re going to drive it as hard as we can. We’re going to measure the units installed. With regard to laser we have a great laser lineup, but if there is cannibalization; that’s the way business goes. If there’s going to be cannibalization, better we do it to ourselves than someone do it to us.

Missed a question there. Sorry about that.

5:53 pm: Question about Enterprise systems sales.

Whitman reminds us that BCS sales got whacked again. But there’s a good product lineup coming. Waiting for another mention of Moonshot.

Whitman: We have to make the right investments because it’s a big piece of HP’s profitability. (Lesjak just mentioned in the answer to the previous question that PSG accounts for only 10 percent of HP’s operating profitability.)

Another question, this one from Mark Moskowitz of J.P. Morgan. Clearly your net debt position is improving nicely. How are you thinking about investment internally from R&D and acquisitions?

Whitman: For 2013, we’re still focused on rebuilding the balance sheet and offsetting dilution. We’re going to stay focused on fixing what we have. You never say never, maybe there’s a tuck-in acquisition we have to have, but there’s nothing in the plan. Also, one thing we have to stop doing at HP is increase R&D and then pulling it back, and then repeating that. We’re going to stay on the plan that we have.

Question from Brian Marshall at ISI about the software business, where he’s seeing some deceleration of growth.

Whitman: The bright spots in software are Vertica and security. Apps and ops are not where we want them to be. We need to make some changes that will kick in by 2014. We have some basic blocking and tackling there.

Steve Milunovich asking about PC supplies and inventory.

Lesjak: Channel inventory on PCs, overall it’s good. On the consumer side, despite the fact we gained share in consumer we ended a bit higher than we would like. The real star is the channel inventory in printing. We have been dogged by ink supplies inventory being too high for several quarters. Now its down 27 percent since the peak. We’ve had dollar declines over the last six quarters.

Whitman: One of the things we’ve asked the business groups to do is limit discounting to get products out the door. It’s healthier for us and better for the channel. It also allows us to differentiate our ink and toner product and get away from the commoditization we were expecting about 18 months ago.

Final question from Credit Suisse: About free cash flow. Given the improvement, it looks like you will pay down most of your debt. If you are generating $6 billion to $7 billion in free cash flow each year, how dedicated are you to increasing dividends and buybacks?

Lesjak: At the end of the year we’ll be thinking about how we allocate capital around the time of the next analyst meeting. We are committed to returning cash to shareholders. Our view around dividends is that over the long term, our payout ratio should improve as well. We are aligned and working with the board to determine the mix.

6:05 pm: Closing remarks from Whitman: The turnaround is on track and we did better than we expected we would. We have to deliver and continue to execute as an organization.

And we’re done. See you next quarter!

The U.K.’s Financial Reporting Council announced the investigation today in a statement on its website. This would make it the second regulatory body in the U.K. — the first is the Serious Fraud Office — to begin investigating the company. Correction: Actually not true. While HP has reported its findings to the UK’s Serious Fraud Office, that agency has never confirmed an investigation. The U.S. Department of Justice is also said to be investigating Autonomy’s books. HP alleged last year that Autonomy had used accounting tricks to inflate its value.

HP paid north of $11 billion for the company in 2011, then turned around and wrote down about $5 billion of its value as part of a larger $8.8 billion write-down announced in the fall. It was the second of two significant write-downs at HP during 2012, the first being the $8.9 billion write-down for the IT services firm EDS, acquired in 2008.

The council said it will investigate Autonomy’s accounting statements for the period between Jan. 1, 2009, and June 30, 2011. HP announced the deal to acquire Autonomy on Aug. 18 of that year.

The regulator is responsible for, in its words, “promoting high quality corporate governance and reporting to foster investment,” and also sets corporate governance and accounting standards in the U.K.

Brunswick Group’s Michael Buckley, who has been working with Facebook on a range of corporate and other PR issues over the last several years, will be joining the social networking giant as VP of business communications.

Buckley is essentially taking the job held by well-known Washington, D.C., player Joe Lockhart, who left the company last fall.

In his new job, Facebook said that Buckley would be in charge of the company’s international, monetization, corporate, consumer and policy communications.

Buckley has been with the global strategy and communications consultancy Brunswick Group, one of Facebook’s outside agencies, for a decade, most recently as a U.S. managing partner, where he represented a number of clients at once. In tech, that has included Groupon’s Andrew Mason, as well as Mike Lynch of Autonomy, which is battling Hewlett-Packard right now.

At Facebook, he will report to Elliot Schrage, who is VP of communications and public policy, where Buckley will be one of three top execs in that organization. The others are VP of tech communications Caryn Marooney, and Marne Levine, VP of global policy.

During a call with an HP delegation, outside auditors for British software maker Autonomy Corp. mentioned that an executive there had raised an allegation of improper accounting at the firm, according to people familiar with the call, who said the auditors added that the allegation was found to be groundless.

The HP executives never passed this mention on to their board or chief executive, one of the people said.

Read the rest of this post on the original site »

Dow Jones just reported minutes ago that HP is receiving “expressions of interest” from potential buyers. But according to sources familiar with the matter, HP receives such incoming interest on a regular basis.

However, the normal flow of incoming interest, these sources say, has picked up in recent weeks in the wake of two developments. First, the rumors, since confirmed, that HP rival Dell is in advanced talks to go private in a leveraged buyout, spurred additional interest, primarily from other technology companies as well as private equity firms, in buying either unit or both. “Dell has everyone in a tizzy,” one source said.

The second and more important development is new language found in HP’s most recent 10-K filing with the U.S. Securities and Exchange Commission, first sniffed out by Bloomberg News, saying the company continues to “evaluate the potential disposition of assets and businesses that may no longer help us meet our objectives.”

That language, sources say, was inserted in the latest filing at the insistence of HP’s lawyers and doesn’t reflect Whitman’s view, which she has reiterated often, that HP will remain intact as a single entity. The sources stressed that Whitman’s view on this is unchanged: Her turnaround plan calls for every significant business unit inside HP to remain part of HP.

The sources also said that recent rumors suggesting that HP had quietly set up “working teams” to assess the sale of certain assets are not true.

“We get incoming on this sort of thing almost every day. We may even take some calls or meetings, but every time the answer is the same: No,” one source told me.

Whatever the case, HP shareholders like the rumor: HP shares rose nearly 4 percent to $17.15 on the news.

“The narrative lags the reality,” Whitman said in an interview at The Wall Street Journal’s CIO Network conference in San Diego. But the narrative will only change as the company delivers on results that she has promised. Having taken more than $17 billion in combined write-downs for the acquisitions of EDS and Autonomy, 2012 has been portrayed by Whitman and HP CFO Cathie Lesjak as the year during which all the bad news was tackled, and 2013 is to be the year when the arduous work of repairing the company begins in earnest. Whitman sounded a note of confidence: “We’ve got the right people in the right jobs at the right time, and you can feel it. … But we have to be patient.”

Whitman also said that HP “paid too much” for Autonomy, the British software company for which it spent north of $11 billion in 2011. About $5.5 billion of HP’s $8.8 billion write-down announced in November was attributed to that acquisition. Whitman reiterated HP’s argument that Autonomy misrepresented itself, making it appear to be more valuable than it was, and fooled auditors at Deloitte who were vetting Autonomy’s books. “The auditor wasn’t exactly a Brand X auditor, and did you ever dream that the financials would have represented the true financial state of the company?”

Below are some video highlights:

]]> http://allthingsd.com/20130116/the-narrative-lags-the-reality-in-hp-turnaround-effort-ceo-whitman-says/feed/ 0 http://allthingsd.com/20130114/hp-memo-confirms-layoffs-and-new-directions-at-autonomy/ http://allthingsd.com/20130114/hp-memo-confirms-layoffs-and-new-directions-at-autonomy/#comments Mon, 14 Jan 2013 19:23:12 +0000 Arik Hesseldahl http://allthingsd.com/?p=285276 Hewlett-Packard just let employees in its Autonomy business unit know that there are going to be some layoffs and some further changes to the business, including a boost to research and development spending.

I just received this internal memo, shared by an HP spokesman, from Robert Youngjohns, the newly appointed head of Autonomy, to his team. The highlights include confirmation — but no specific number — of coming layoffs at Autonomy. AllThingsD reported in December that about 70 people, most of them in sales roles, would be getting the ax.

The layoffs in the sales jobs are coinciding with a boost in R&D spending and the hiring of some 50 new engineers at Autonomy. Additionally, Youngjohns announced big plans to tie an Autonomy product, Aurasma 2.0, to HP’s massive printing and personal systems group. The point is to make printing a “cloud citizen,” the memo reads. However, some of the job cuts will be coming within the group that builds Aurasma.

From: Robert Youngjohns — HP Software Autonomy IM
Sent: Monday, January 14, 2013 7:50 AM
Subject: HP Autonomy Increases R&D Investments & Refocuses Aurasma

Team,

As we enter 2013, the focus of the HP Autonomy team is to position our business for growth and success. We have three priorities: making customer success the heart of everything that we do; building great products with a clear, funded roadmap; and leveraging the rest of HP to gain access to markets and customers. Our priorities are aligned with both HP Software as well as the larger HP, and I am pleased with the progress we’ve made so far and very optimistic about the future of the business.

In the spirit of being open and transparent, I want to let you know about two changes we’re making in the business:

First, we continue to invest in HP Autonomy and are aligning our resources with the priorities for HP Software overall. As part of this, we are continuing to invest in our R&D capabilities around the world; in fact, we expect to hire at least 50 additional engineers for Autonomy in the near term to lead new initiatives and further our technical prowess.

Secondly, with the announcement of Aurasma 2.0, we are ready to move to the next stage of this exciting business and focus on commercialization and revenue generation, including plans to feature Aurasma in products from other parts of HP – notably PPS, where the technology is key to PPS’s strategic intent to link print back to the Internet making it an equal mobile, social, and cloud citizen with digital display technologies (e.g., smartphones, tablets, PC’s, and TV). For instance, our close collaboration with the team on the ‘HP Live Photo’ app for iOS is one of the first instances of product integration in action.

This transition will require some changes to the Aurasma business as we to move to the next stage. While a number of roles will remain largely unaffected by this, other roles within Aurasma will no longer be required going forward and some work force reduction is likely.

We will of course hold individual discussions with employees who may be potentially affected, although the timing will vary by country, and will follow the appropriate legal processes relative to reorganizing and workforce reductions. Where applicable, we have consulted with all appropriate Workers’ Councils.

We will be working with affected employees to redeploy as many as possible into other job opportunities across our business where skill sets and interests align with our business priorities.

Thank you for your continued professionalism and for your ongoing efforts in helping us build the HP Autonomy business into a tremendous success story.

My staff and I are available should you have any questions or needs.

Robert

]]> http://allthingsd.com/20130114/hp-memo-confirms-layoffs-and-new-directions-at-autonomy/feed/ 0 http://allthingsd.com/20121231/the-pressure-is-on-hp-to-stand-and-deliver-in-2013/ http://allthingsd.com/20121231/the-pressure-is-on-hp-to-stand-and-deliver-in-2013/#comments Mon, 31 Dec 2012 16:20:21 +0000 Arik Hesseldahl http://allthingsd.com/?p=281475 Today marks the end of what has been without a doubt the worst year in Hewlett-Packard’s corporate history. You could argue that 2011, marked by the brief period that Léo Apotheker was CEO, was worse in many ways, and that the difficulties the company struggled to correct in 2012 were created in the prior year. But by all the metrics that count, the year now ending was a whopper: Sales on an annual basis fell by more than 5 percent to $120.4 billion, and on a GAAP basis it swung from a $7 billion profit to a $12.6 billion loss.

Much of those losses can be attributed to a combined $17 billion in write-downs taken during the second half of the year. The biggest was the $8.8 billion write-down announced on Nov. 20, of which $5.7 billion was attributed to Autonomy, the British software firm HP acquired for north of $11 billion in 2011. Another $8 billion was the result of an impairment charge related to EDS, the IT services concern HP acquired in 2008 for $14 billion.

If 2012 was the year that HP sought to package up all the toxic accounting and financial disclosures it could find, then 2013 either will or won’t be the year where it starts down the path toward recovery and turnaround. While HP is technically shut down now for the holidays, people I’ve talked to there in recent days tell me that the internal message being broadcast to employees at all levels is consistent: This year, everyone has to deliver.

Investors frustrated by the decline in value in HP’s shares in 2012 — at $13.68, as of Friday’s close, the shares are down nearly 49 percent this year — have largely come to terms with the notion that HP had to suffer through a horrible year in order to begin the arduous process of rebuilding its business and balance sheet, though the company and its CEO, Meg Whitman, have essentially exhausted their indulgences.

At a meeting of financial analysts in October, Whitman portrayed 2013 as a “fix and rebuild” year, and so the fixing and rebuilding will, a year from now, have to be apparent. The problem with that is that in the very same speech, Whitman projected profit declines in 2013.

The difficulty is clear in nearly every single line of HP’s business. While each line of business remains profitable — take out the combined $20.3 billion in impairment and restructuring charges on HP’s financial statements, and you see a $7.7 billion operating profit — sales in practically all of them declined by a range of 2 percent (services) to 10 percent (PCs). That’s unlikely to change in the face of an uncertain global economy. HP makes about 65 percent of its sales outside the U.S., and has historically had the widest exposure to Europe of all the major tech companies.

So, if 2013 goes according to Whitman’s recovery plan, what does it look like? For one thing, expect a boost in research-and-development spending. Whitman has made it clear that she thinks that R&D spending as a percentage of sales has been trimmed further in recent years than it should have been. In 2004, R&D spending at HP amounted 4.5 percent of sales. By fiscal 2010, it was 2.3 percent. In 2012, it was 2.8 percent. CFO Cathie Lesjak has said spending will be boosted in 2013, along with increased spending on internal IT infrastructure.

Also, expect more restructuring. The bulk of the 29,000 jobs cut at HP will take place during 2013, which will incur about $1.5 billion worth of restructuring charges.

All in all, it’s going to make 2013 a tough year for HP, though if it has any good luck at all, it will be less difficult and drama-filled than 2012. Analysts expect HP’s sales in its 2013 fiscal year (ending in October) to decline again to just north of $112 billion and, on average, they expect per-share profits on a non-GAAP basis to be $3.31.

By October it should be clear if the repair work undertaken is having any effect. Costs will be decreased. Most of the restructuring will be complete and, with luck, the global economic picture will have improved, if only slightly. If HP’s official guidance for fiscal 2014 doesn’t begin to look optimistic, that’s when talk of an endgame — really only speculative now — will begin in earnest.

So far, Whitman’s argument has been that HP is stronger as a combined unit than it could ever be if split into two or more pieces. If results and guidance aren’t looking up by late 2013, shareholders will start looking for alternatives, and a breakup will be at the top of their list.

One person who might lead that discussion is director Ralph Whitworth. An activist investor with a history of pushing companies into breakup strategies, Whitworth’s Relational Investors LLC owns about 34.5 million HP shares. That investment is about $318 million under water as of Friday’s closing price. Late in 2013, a two-year agreement he has with HP not to seek a breakup or sale of any significant assets will expire. If his patience with HP’s management and strategy wavers at all, expect the breakup conversation to get serious quickly, and to dominate media coverage about it into 2014.

]]> http://allthingsd.com/20121231/the-pressure-is-on-hp-to-stand-and-deliver-in-2013/feed/ 0 http://allthingsd.com/20121228/more-from-mike-lynch-hps-autonomy-accusations-are-getting-weaker/ http://allthingsd.com/20121228/more-from-mike-lynch-hps-autonomy-accusations-are-getting-weaker/#comments Fri, 28 Dec 2012 20:48:19 +0000 Liz Gannes http://allthingsd.com/?p=281215 While Hewlett-Packard may have struck the first blow in its fraud charges around its Autonomy acquisition, former Autonomy CEO Mike Lynch hasn’t stopped swinging since.

Today, Lynch asserts that HP is “backtracking” on its claims against him and the Autonomy management team — because its latest statements can be read as less broad and assertive than those of the past.

On Nov. 20, HP blamed Autonomy’s former management team for more than $5 billion worth of write-downs regarding the 2011 acquisition. Yesterday, it disclosed in a financial filing that it had persuaded the U.S. Department of Justice to officially look at the issue. Lynch quickly responded with a lengthy public statement reiterating his defense, demanding more information from HP, and attesting that he had yet to be contacted by any regulatory authorities.

But what’s one statement about a statement about a statement when you can make two? Today, Lynch’s PR team sent another lengthy comment from Lynch, this time dissecting the language used in HP’s 10-K filing on Thursday.

Lynch claims there’s hidden meaning in the succinct legalese of the financial filing that backtracks from what HP originally said on Nov. 20.

For instance, the Nov. 20 statement — which was given in the form of a press release and conference call — blamed the majority of the multi-billion-dollar write-down on “serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy Corporation that occurred prior to HP’s acquisition of Autonomy.” The Dec. 27 filing explains that estimates of lowered value for Autonomy “incorporate HP’s analysis of what it believes were accounting improprieties, incomplete disclosures and misrepresentations at Autonomy.”

For Lynch at least, that’s a smoking gun. The alleged fraud has been downgraded from driving the “majority” of the write-down to just being “incorporated” as a part of it.

Update: HP responded to these latest charges with a statement of its own, saying its position has not changed. Here’s that:

HP has been very transparent about the issues relating to Autonomy and the reasons why we announced an $8.8 billion non-cash impairment charge on November 20th. As we have said previously, the majority of this impairment charge, more than $5 billion, is linked to serious accounting improprieties, disclosure failures and outright misrepresentations discovered by HP’s internal investigation into Autonomy’s practices prior to and in connection with the acquisition.

Our Form 10-K for fiscal 2012 is meant to provide the necessary overview of HP’s financial condition, including our audited financial statements, which is what our filing does. As disclosed in the filing, the U.S. Department of Justice advised HP that they have opened an investigation relating to Autonomy. HP is cooperating with the Department of Justice, the Securities and Exchange Commission and the UK’s Serious Fraud Office in this matter. We continue to believe that the authorities and the courts are the appropriate venues in which to address the wrongdoing discovered at Autonomy.

And here’s Lynch’s full statement:

HP is backtracking.

In a message posted on this website a week ago today, we urged Meg Whitman to use HP’s annual 10-K filing to provide a full explanation of the allegations of accounting impropriety at Autonomy which she made on November 20. Unfortunately, she did not do so. HP finally filed its 10-K yesterday, more than a week later than usual, but again failed to provide any detailed information on the alleged accounting impropriety, or how this could possibly have resulted in such a substantial write down.

HP’s failure to provide us and its own shareholders with clarity on these crucial issues does not come as much of a surprise. Ever since putting out those very serious but non-specific allegations last month, HP has refused to disclose either the substance of its allegations or any supporting evidence.

In fact, HP’s 10-K filing appears to raise many more questions than it answers. Having had further time to study HP’s filing since it was released near midnight last night (UK time), it is apparent that a number of the statements contained within the filing are materially different from HP’s previous commentary on these issues. It also appears that the company is back-tracking on a number of key points that under-pinned its original allegations:

1. How much of the Autonomy write down is actually being blamed on accounting improprieties?

In its November 20 statement, HP stated that “The majority of [the Autonomy] impairment charge, more than $5 billion, is linked to serious accounting improprieties, misrepresentation and disclosure failures” committed by “former members of Autonomy’s management team”. However, HP’s 10-K filing refers much more equivocally to a $5.7 billion goodwill impairment charge that “incorporates” the alleged accounting improprieties at Autonomy. So, how much of the $5.7 billion is being directly attributed by HP to accounting improprieties, and how much should in fact be attributed to other changes in business performance, earnings projections and discount rate?

2. Does HP have facts or beliefs?

In its November 20 statement, HP was definitive in accusing “former members of Autonomy’s management team” of “serious accounting improprieties, misrepresentation and disclosure failures”, stating these matters as fact. However, HP’s 10-K filing is materially weaker, referring to its interpretation of accounting improprieties which it “believes” to have taken place at Autonomy. Why did it make such definitive assertions before any independent assessment of the matter, and why is it less confident now than it was a month ago?

3. Why does the 10-K contain less detail than its last statement?
HP’s November 20 statement clearly leveled the accusations at “former members of Autonomy’s management team”. However, HP’s 10-K filing does not repeat – let alone expand upon – this specific detail, or indicate who it is accusing of wrongdoing. Every time we ask for more information, we get less.

Today we renew the call for HP to release the PwC report on which its allegations are based, along with any other relevant supporting evidence that was behind the statements of November 20, and explain the material differences between those statements and the 10-K.

It is time for Meg Whitman to stop making allegations and to start offering explanations.

RELATED POSTS:

• More From Mike Lynch: HP’s Autonomy Accusations Are Getting Weaker
• Mike Lynch Punches Back at Today’s HP Filing: Whither $5B Writedown?
• HP Confirms DOJ Is Investigating Alleged Fraud in Autonomy Deal
• Yes, There Are Layoffs Pending at HP’s Autonomy Unit in the U.K.
• Former HP CEO Shifts Blame for Autonomy Deal to Chairman
• Dell Passed on Autonomy Before HP Bought It
• Why Mike Lynch Is Playing PR Hardball With HP
• Autonomy Founder Lynch Asks Board to Explain HP Allegations
• Autonomy Founder Lynch Blames Accounting Standards in HP Flap
• The Red Flags That Were Obvious — To Some — In the HP-Autonomy Deal
• Oracle’s Ellison Vindicated in Autonomy PR Flap by HP’s $8.8 Billion Writedown
• Autonomy Founder Mike Lynch Rejects HP Charges, Alleges Mismanagement
• What Exactly Happened at Autonomy?
• HP Explains Its $8.8 Billion “Oops”
• HP Beats Street Amid Sales Declines, Takes $8.8 Billion Charge
• HP Names Microsoft Exec Robert Youngjohns to Run Autonomy
• Search Under Way at HP for Autonomy’s Next Chief
• Autonomy’s Mike Lynch Talks About Being HP’s Speedy Tiger Cub (Video)
• Britain’s First Software Billionaire Now Reports to HP CEO Meg Whitman
• Oracle Launches Exalytics Machine, Probably Ending Spat With Autonomy
• Autonomy: When All Else Fails, Blame the Bankers
• Mike Lynch to Oracle: Oh, You Mean Those Slides
• Oracle: You Have a Very Bad Memory, Mr. Lynch
• HP Reportedly Close to $10 Billion Buyout of Autonomy, PC Unit Spinoff
• Will Oracle and Microsoft Bid on Autonomy?

]]> http://allthingsd.com/20121228/more-from-mike-lynch-hps-autonomy-accusations-are-getting-weaker/feed/ 0 http://allthingsd.com/20121227/mike-lynch-punches-back-at-todays-hps-filing-whither-5b-writedown/ http://allthingsd.com/20121227/mike-lynch-punches-back-at-todays-hps-filing-whither-5b-writedown/#comments Fri, 28 Dec 2012 01:32:29 +0000 Kara Swisher http://allthingsd.com/?p=281075

Autonomy founder Mike Lynch is still not backing down in his ongoing battle with Hewlett-Packard.

“Simply put, these allegations are false, and in the absence of further detail we cannot understand what HP believes to be the basis for them,” he said in a statement, as well as aiming at $5 billion in writedowns the company has taken related to the controversial deal. “We continue to reject these allegations in the strongest possible terms.”

Lynch’s latest volley was prompted by a regulatory filing HP made earlier today, noting that the U.S. Department of Justice was indeed investigating its acquisition of British software company, for which it is trying to write down about $5 billion in expenses due to alleged “serious accounting improprieties.”

HP had taken the case to U.S. federal authorities in the first place, but now it’s official.

This caused Lynch, who has been vociferously battling the Silicon Valley tech giant over the allegations and rejecting HP’s claims of fraud in the $12 billion acquisition, to respond again.

In his statement, he presented a laundry list of arguments about how HP is trying to fool investors by pointing the finger at him.

Here’s his whole thing, so you can read for yourself:

It is extremely disappointing that HP has again failed to provide a detailed calculation of its $5 billion write-down of Autonomy, or publish any explanation of the serious allegations it has made against the former management team, in its annual report filing today.

Furthermore, it is now less clear how much of the $5 billion write-down is in fact being attributed to the alleged accounting issues, and how much to other changes in business performance and earnings projections. This appears to be a material change in HP’s allegations.

Simply put, these allegations are false, and in the absence of further detail we cannot understand what HP believes to be the basis for them.

We also do not understand why HP is raising these issues now given that Autonomy reported into the HP Finance team from the day the acquisition completed in October 2011, there was an extensive due diligence process and Autonomy was audited as a public company for many years.

We would particularly make the following points:

* HP’s CFO Cathie Lesjak and her team, plus a number of outside advisors, had access to all Autonomy accounts and documents from October 2011 onwards, and raised no issues.

* Beginning in November 2011, HP and KPMG reviewed Autonomy’s closing balance sheet in detail, and Ernst & Young reviewed Deloitte’s audit work papers.

* Beginning in October 2011, HP studied in detail Autonomy’s tax structure and transfer pricing as well as its revenue recognition practices (led by Paul Curtis, HP’s worldwide head of revenue recognition).

* An independent, third-party valuation of Autonomy’s assets was carried out in January 2012.

* Quarterly business reviews were held with Autonomy management, Meg Whitman and Cathie Lesjak to discuss Autonomy’s financial performance.

* HP has continued to sell and account for hardware alongside Autonomy software in the same way that Autonomy did for the year since the acquisition completed.

* Regarding differences between IFRS and US GAAP accounting standards, which appear to have a role in some of the allegations HP has made, Autonomy’s accounting policies were made clear in Autonomy’s 2010 annual report.

We also note the statement in HP’s annual report that it received confirmation from the US Department of Justice on 21 November 2012 (the day after HP’s first public statement), that the Department had opened an investigation. We can confirm that we have as yet had no contact from any regulatory authority. We will co-operate with any investigation and look forward to the opportunity to explain our position.

We continue to reject these allegations in the strongest possible terms. Autonomy’s financial accounts were properly maintained in accordance with applicable regulations, fully audited by Deloitte, and available to HP during the due diligence process.

We remain deeply concerned about how this process has been conducted, and believe it is in everyone’s interest for it to be resolved as soon as possible.

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• More From Mike Lynch: HP’s Autonomy Accusations Are Getting Weaker
• Mike Lynch Punches Back at Today’s HP Filing: Whither $5B Writedown?
• HP Confirms DOJ Is Investigating Alleged Fraud in Autonomy Deal
• Yes, There Are Layoffs Pending at HP’s Autonomy Unit in the U.K.
• Former HP CEO Shifts Blame for Autonomy Deal to Chairman
• Dell Passed on Autonomy Before HP Bought It
• Why Mike Lynch Is Playing PR Hardball With HP
• Autonomy Founder Lynch Asks Board to Explain HP Allegations
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• The Red Flags That Were Obvious — To Some — In the HP-Autonomy Deal
• Oracle’s Ellison Vindicated in Autonomy PR Flap by HP’s $8.8 Billion Writedown
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• What Exactly Happened at Autonomy?
• HP Explains Its $8.8 Billion “Oops”
• HP Beats Street Amid Sales Declines, Takes $8.8 Billion Charge
• HP Names Microsoft Exec Robert Youngjohns to Run Autonomy
• Search Under Way at HP for Autonomy’s Next Chief
• Autonomy’s Mike Lynch Talks About Being HP’s Speedy Tiger Cub (Video)
• Britain’s First Software Billionaire Now Reports to HP CEO Meg Whitman
• Oracle Launches Exalytics Machine, Probably Ending Spat With Autonomy
• Autonomy: When All Else Fails, Blame the Bankers
• Mike Lynch to Oracle: Oh, You Mean Those Slides
• Oracle: You Have a Very Bad Memory, Mr. Lynch
• HP Reportedly Close to $10 Billion Buyout of Autonomy, PC Unit Spinoff
• Will Oracle and Microsoft Bid on Autonomy?

]]> http://allthingsd.com/20121227/mike-lynch-punches-back-at-todays-hps-filing-whither-5b-writedown/feed/ 0 http://allthingsd.com/20121227/hp-confirms-doj-is-investigating-alleged-fraud-in-autonomy-deal/ http://allthingsd.com/20121227/hp-confirms-doj-is-investigating-alleged-fraud-in-autonomy-deal/#comments Fri, 28 Dec 2012 00:15:31 +0000 Liz Gannes http://allthingsd.com/?p=281047 Hewlett-Packard said today that the U.S. Department of Justice is investigating its acquisition of Autonomy, for which it is trying to write down about $5 billion in expenses due to alleged “serious accounting improprieties.”

The investigation confirmation came as part of HP’s annual report filed with the Securities and Exchange Commission. But this move was entirely expected given HP took its case to the FBI/DOJ and the SEC in the United States as well as the Serious Fraud Office in the U.K.

HP said it was alerted by the DOJ on Nov. 21 that it had officially opened an investigation about Autonomy.

Former Autonomy CEO Mike Lynch has strenuously rejected HP’s claims and has demanded to see evidence for them.

A spokesman for HP declined to comment on the matter.

RELATED POSTS:

• More From Mike Lynch: HP’s Autonomy Accusations Are Getting Weaker
• Mike Lynch Punches Back at Today’s HP Filing: Whither $5B Writedown?
• HP Confirms DOJ Is Investigating Alleged Fraud in Autonomy Deal
• Yes, There Are Layoffs Pending at HP’s Autonomy Unit in the U.K.
• Former HP CEO Shifts Blame for Autonomy Deal to Chairman
• Dell Passed on Autonomy Before HP Bought It
• Why Mike Lynch Is Playing PR Hardball With HP
• Autonomy Founder Lynch Asks Board to Explain HP Allegations
• Autonomy Founder Lynch Blames Accounting Standards in HP Flap
• The Red Flags That Were Obvious — To Some — In the HP-Autonomy Deal
• Oracle’s Ellison Vindicated in Autonomy PR Flap by HP’s $8.8 Billion Writedown
• Autonomy Founder Mike Lynch Rejects HP Charges, Alleges Mismanagement
• What Exactly Happened at Autonomy?
• HP Explains Its $8.8 Billion “Oops”
• HP Beats Street Amid Sales Declines, Takes $8.8 Billion Charge
• HP Names Microsoft Exec Robert Youngjohns to Run Autonomy
• Search Under Way at HP for Autonomy’s Next Chief
• Autonomy’s Mike Lynch Talks About Being HP’s Speedy Tiger Cub (Video)
• Britain’s First Software Billionaire Now Reports to HP CEO Meg Whitman
• Oracle Launches Exalytics Machine, Probably Ending Spat With Autonomy
• Autonomy: When All Else Fails, Blame the Bankers
• Mike Lynch to Oracle: Oh, You Mean Those Slides
• Oracle: You Have a Very Bad Memory, Mr. Lynch
• HP Reportedly Close to $10 Billion Buyout of Autonomy, PC Unit Spinoff
• Will Oracle and Microsoft Bid on Autonomy?

]]> http://allthingsd.com/20121227/hp-confirms-doj-is-investigating-alleged-fraud-in-autonomy-deal/feed/ 0 http://allthingsd.com/20121224/yes-there-are-layoffs-pending-at-hps-autonomy-unit-in-the-u-k/ http://allthingsd.com/20121224/yes-there-are-layoffs-pending-at-hps-autonomy-unit-in-the-u-k/#comments Mon, 24 Dec 2012 18:00:00 +0000 Arik Hesseldahl http://allthingsd.com/?p=280421 There are layoffs coming at Hewlett-Packard’s U.K.-based Autonomy software unit, but not quite so many as a report in the Daily Mail suggests.

That newspaper reported today, in a thinly sourced story, that as many as 200 people were due to lose their jobs at the British software subsidiary in a shake-up expected soon.

Sources familiar with the company’s plans tell AllThingsD that the number of jobs expected to be cut is actually fewer than 70; the cuts will focus on sales personnel, all of whom were originally hired prior to HP’s acquisition of the company. Additionally, the job cuts were put in motion in September, well before HP made public its intention to write down the value of Autonomy by about $5 billion. Layoffs in European countries, like those in the U.K., are more complicated to carry out, and so take months to complete.

In explaining the writedown, HP, which paid north of $11 billion for Autonomy in 2011, alleged that the British company’s executives essentially cooked the books in order to make Autonomy appear more valuable than it was. It has reported its findings to the U.S. Securities and Exchange Commission and the U.K.’s Serious Fraud Office.

Mike Lynch, the founder and former CEO of Autonomy, has rejected HP’s allegations, and accused it of mismanaging the company after the acquisition closed.

RELATED POSTS:

• More From Mike Lynch: HP’s Autonomy Accusations Are Getting Weaker
• Mike Lynch Punches Back at Today’s HP Filing: Whither $5B Writedown?
• HP Confirms DOJ Is Investigating Alleged Fraud in Autonomy Deal
• Yes, There Are Layoffs Pending at HP’s Autonomy Unit in the U.K.
• Former HP CEO Shifts Blame for Autonomy Deal to Chairman
• Dell Passed on Autonomy Before HP Bought It
• Why Mike Lynch Is Playing PR Hardball With HP
• Autonomy Founder Lynch Asks Board to Explain HP Allegations
• Autonomy Founder Lynch Blames Accounting Standards in HP Flap
• The Red Flags That Were Obvious — To Some — In the HP-Autonomy Deal
• Oracle’s Ellison Vindicated in Autonomy PR Flap by HP’s $8.8 Billion Writedown
• Autonomy Founder Mike Lynch Rejects HP Charges, Alleges Mismanagement
• What Exactly Happened at Autonomy?
• HP Explains Its $8.8 Billion “Oops”
• HP Beats Street Amid Sales Declines, Takes $8.8 Billion Charge
• HP Names Microsoft Exec Robert Youngjohns to Run Autonomy
• Search Under Way at HP for Autonomy’s Next Chief
• Autonomy’s Mike Lynch Talks About Being HP’s Speedy Tiger Cub (Video)
• Britain’s First Software Billionaire Now Reports to HP CEO Meg Whitman
• Oracle Launches Exalytics Machine, Probably Ending Spat With Autonomy
• Autonomy: When All Else Fails, Blame the Bankers
• Mike Lynch to Oracle: Oh, You Mean Those Slides
• Oracle: You Have a Very Bad Memory, Mr. Lynch
• HP Reportedly Close to $10 Billion Buyout of Autonomy, PC Unit Spinoff
• Will Oracle and Microsoft Bid on Autonomy?

]]> http://allthingsd.com/20121224/yes-there-are-layoffs-pending-at-hps-autonomy-unit-in-the-u-k/feed/ 0 http://allthingsd.com/20121213/former-hp-ceo-shifts-blame-for-autonomy-deal-to-chairman/ http://allthingsd.com/20121213/former-hp-ceo-shifts-blame-for-autonomy-deal-to-chairman/#comments Fri, 14 Dec 2012 01:26:59 +0000 Arik Hesseldahl http://allthingsd.com/?p=277991 Ever since Hewlett-Packard said it would write off $5 billion for Autonomy, the British software firm for which it paid north of $11 billion last year, a lot of blame has been cast on Léo Apotheker, the CEO who led HP at the time.

Today, for some reason, he decided to reach out to Bloomberg News with an emailed statement. The point? Apparently to remind the world that he wasn’t the only one making decisions at the time regarding the deal that ultimately cost him his job.

According to the Bloomberg report, Apotheker says that “no single CEO is ever able to make a decision on a major acquisition in isolation, particularly at a company as large as HP — and certainly not without the full support of the chairman of the board.” He then turns his guns on Chairman Ray Lane, without mentioning him by name: “The HP board, led by its chairman, met many times to review the acquisition and unanimously supported the deal, as well as the underlying strategic objective to bolster HP’s market presence in enterprise data.”

Indeed, he has a point. It’s also worth remembering that the board at the time included HP’s current CEO, Meg Whitman, who took over the job in the wake of Apotheker’s ouster less than a month after the Autonomy deal was announced.

There was more to call Apotheker’s competence into question that day — Aug. 18, 2011 — that contributed toward his stint as CEO being cut short. HP fell short on earnings, and he also launched the ill-fated effort to spin off the PC unit as a separate company, and killed the Palm handheld and tablet unit acquired only a year earlier by his predecessor Mark Hurd.

Clearly, Apotheker doesn’t like getting all the blame for the deal. Lane was certainly at the table, and lent his support for it. And, for that matter, so was Whitman.

Consider yourself reminded.

]]> http://allthingsd.com/20121213/former-hp-ceo-shifts-blame-for-autonomy-deal-to-chairman/feed/ 0 http://allthingsd.com/20121210/dell-passed-on-autonomy-before-hp-bought-it/ http://allthingsd.com/20121210/dell-passed-on-autonomy-before-hp-bought-it/#comments Mon, 10 Dec 2012 15:05:03 +0000 Arik Hesseldahl http://allthingsd.com/?p=276444 An incremental and interesting detail emerged today in the ongoing wrangle between Hewlett-Packard and the former CEO of Autonomy, and it has come from an unexpected quarter.

Michael Dell said in an interview with the U.K.’s Sunday Telegraph newspaper that Autonomy was shopped to Dell before it wound up in the hands of Hewlett-Packard in 2011.

Dell, CEO of the personal computer and IT concern that bears his name — a company that has been aggressively acquiring software companies in recent months — said he was approached by Autonomy. He passed on the opportunity because it was, in his words, “obviously overpriced.”

The story doesn’t go into any detail about how Dell was approached or when, but it raises some eyebrows for a few important reasons, none of which are entirely helpful to former Autonomy CEO Mike Lynch’s version of events.

On the other hand, it doesn’t make HP’s management team at the time, including former CEO Léo Apotheker and then-director now-CEO Meg Whitman, look any smarter in hindsight.

Recall that Oracle CEO Larry Ellison made a similar claim about passing up on an approach by Autonomy. It’s a sensitive topic because as a British company, it would have been illegal for Autonomy to be “shopping” itself around to potential buyers without first disclosing the fact to shareholders, though rumors that it was in play had been making the rounds since late 2010.

Lynch initially denied Ellison’s version of events, only to have Oracle produce not one but two sets of PowerPoint slides produced by investment banker Frank Quattrone, slides that looked an awful lot like they were intended to help make a deal. Quattrone conceded after a bit of PR back and forth that he had been quietly pitching Autonomy to Oracle as a potential acquisition independently of Lynch.

It’s not clear in Dell’s version of events if Quattrone was involved. I reached out to him this morning and he declined to comment any further.

But here’s why it all matters: While Oracle and Dell might indeed have not been interested in Autonomy, the mere mention of meetings with Dell and Oracle to HP’s then-CEO Léo Apotheker might have had the effect of pushing up the price for Autonomy.

Think about it: Autonomy’s advisers had every motivation to do what they could to drive up the price and make the company seem as valuable as possible. The mention of a whiff of interest from Oracle and Dell, combined with rumors that were already in the water that Microsoft, too, was interested (and which goosed Autonomy’s share price), might have stirred fears of a bidding war. This might in turn have spurred HP to make the rich offer of $11 billion and change that it did. It eventually conceded that Autonomy was worth $5 billion less than it paid for it.

And that only makes Apotheker and his deal team look sillier now than they already did.

Of course, once the offer was on the table, U.K. laws made it all but impossible to walk away, even if the price seemed high after the fact. And so here we are.

RELATED POSTS:

• More From Mike Lynch: HP’s Autonomy Accusations Are Getting Weaker
• Mike Lynch Punches Back at Today’s HP Filing: Whither $5B Writedown?
• HP Confirms DOJ Is Investigating Alleged Fraud in Autonomy Deal
• Yes, There Are Layoffs Pending at HP’s Autonomy Unit in the U.K.
• Former HP CEO Shifts Blame for Autonomy Deal to Chairman
• Dell Passed on Autonomy Before HP Bought It
• Why Mike Lynch Is Playing PR Hardball With HP
• Autonomy Founder Lynch Asks Board to Explain HP Allegations
• Autonomy Founder Lynch Blames Accounting Standards in HP Flap
• The Red Flags That Were Obvious — To Some — In the HP-Autonomy Deal
• Oracle’s Ellison Vindicated in Autonomy PR Flap by HP’s $8.8 Billion Writedown
• Autonomy Founder Mike Lynch Rejects HP Charges, Alleges Mismanagement
• What Exactly Happened at Autonomy?
• HP Explains Its $8.8 Billion “Oops”
• HP Beats Street Amid Sales Declines, Takes $8.8 Billion Charge
• HP Names Microsoft Exec Robert Youngjohns to Run Autonomy
• Search Under Way at HP for Autonomy’s Next Chief
• Autonomy’s Mike Lynch Talks About Being HP’s Speedy Tiger Cub (Video)
• Britain’s First Software Billionaire Now Reports to HP CEO Meg Whitman
• Oracle Launches Exalytics Machine, Probably Ending Spat With Autonomy
• Autonomy: When All Else Fails, Blame the Bankers
• Mike Lynch to Oracle: Oh, You Mean Those Slides
• Oracle: You Have a Very Bad Memory, Mr. Lynch
• HP Reportedly Close to $10 Billion Buyout of Autonomy, PC Unit Spinoff
• Will Oracle and Microsoft Bid on Autonomy?

]]> http://allthingsd.com/20121210/dell-passed-on-autonomy-before-hp-bought-it/feed/ 0 http://allthingsd.com/20121127/why-mike-lynch-is-playing-pr-hardball-with-hp/ http://allthingsd.com/20121127/why-mike-lynch-is-playing-pr-hardball-with-hp/#comments Wed, 28 Nov 2012 00:12:00 +0000 Arik Hesseldahl http://allthingsd.com/?p=272540 Why is Mike Lynch being so publicly aggressive in defending himself against Hewlett-Packard?

The founding CEO of Autonomy today lashed out in an open letter to HP’s board of directors, demanding “immediate and specific allegations” concerning financial and accounting improprieties that HP said on Nov. 20 had artificially inflated the value of the British software company by about $5 billion. HP acquired it in 2011 for about $11 billion.

Lynch insisted that even after a week of public declarations by HP on the issue, he still hasn’t been officially contacted by HP about any of it, and so can’t properly answer allegations about improper accounting and other irregularities. He also reiterated points made in numerous interviews, including one with AllThingsD, that at least some of the problems HP chalks up to accounting malfeasance can be explained away, at least in part, by differences in accounting standards that companies in the U.S. and the U.K. follow, while other problems can be tracked, he says, to HP’s own mismanagement of Autonomy after the deal closed.

There have been other stories, including one in the New York Times on Monday, and one in The Wall Street Journal today, that have added some fascinating anecdotal detail to the inner workings of the relationship between Lynch and other executives, and include some examples of the kinds of transactions that have HP accountants all up in arms.

HP’s response to Lynch’s latest public salvo was pretty straightforward: “We look forward to hearing Dr. Lynch and other former Autonomy employees answer questions under penalty of perjury,” implying, of course, that Lynch will in time be subpoenaed either as a witness or a defendant in a criminal prosecution or civil lawsuit.

At this point, one has to wonder why Lynch is fighting these claims in the media so aggressively, and not taking the expected — and indeed customary — defensive crouch behind a platoon of highly paid lawyers.

He has gone — and remained — on the offensive because, right now, HP is vulnerable, or it is at least perceived to be in a weakened state. With its shares trading close to the lowest point seen in a decade or more, sales in nearly every major business unit on the decline, and plagued by strategic misfires brought on by a succession of CEOs, it is easy to argue in public that HP is the author of its own misfortune.

Also, it doesn’t hurt Lynch that the deal for Autonomy was completed under the messy 11-month stint of former CEO Léo Apotheker, who was ultimately deemed by HP’s board to be unprepared for the task of running the world’s largest technology company. This same board — including current CEO Meg Whitman — simultaneously endorsed much of Apotheker’s vision at the same moment it decided he lacked the competence to carry it out.

Lynch’s PR strategy is simple: Muddy the waters. Charges of mismanagement coupled with anecdotal tales of jaw-dropping corporate and bureaucratic stupidity, poor business choices and differences in accounting standards may not logically add up to a $5 billion explanation. But given HP’s current state, the court of public opinion can’t help but wonder if HP isn’t trying to heap as much blame as it can for its current woes on Lynch and an overvalued Autonomy.

But imagine for a second if, in this drama, HP was replaced by IBM. Perhaps I’m wrong, but somehow I doubt Lynch would be quite so willing to fight so aggressively or so publicly without first having lawyered up. But then it wouldn’t be as interesting to write about.

(Image taken from the English children’s book and animated cartoon “Mr. Chatterbox.”)

]]> http://allthingsd.com/20121127/why-mike-lynch-is-playing-pr-hardball-with-hp/feed/ 0 http://allthingsd.com/20121127/autonomy-founder-lynch-asks-board-to-explain-hp-allegations/ http://allthingsd.com/20121127/autonomy-founder-lynch-asks-board-to-explain-hp-allegations/#comments Tue, 27 Nov 2012 16:51:23 +0000 Arik Hesseldahl http://allthingsd.com/?p=272950 Autonomy’s founding CEO launched a new public offensive just a few minutes ago, sending an open letter to Hewlett-Packard’s board of directors seeking “immediate and specific explanations” regarding allegations of accounting improprieties that HP said it had found last week relating to the 2011 $11 billion acquisition of the British software firm.

“Having no details beyond the limited public information provided last week, and still with no further contact from you, I am writing today to ask you, the board of HP, for immediate and specific explanations for the allegations HP is making,” Lynch wrote. “HP should provide me with the interim report and any other documents which you say you have provided to the SEC and the SFO so that I can answer whatever is alleged, instead of the selective disclosure of non-material information via background discussions with the media.”

Lynch essentially repeated much of what he has already said in numerous interviews, including one with AllThingsD last week. But he also seeks an explanation as to how HP decided to write down $5 billion on the value of Autonomy, which made up the majority of the $8.8 billion write-down the company announced alongside its earnings report last week.

He also asks why HP waited six months, after first learning about the alleged improprieties, to inform shareholders.

Here’s the full text of the letter, which arrived in my inbox only moments ago:

Open Letter from Dr Mike Lynch to the Board of Directors of Hewlett-Packard
27 November 2012
To: The Board of Directors of Hewlett-Packard Company
On 20 November Hewlett-Packard (HP) issued a statement accusing unspecified members of Autonomy’s former management team of serious financial impropriety. It was shocking that HP put non-specific but highly damaging allegations into the public domain without prior notification or contact with me, as former CEO of Autonomy.
I utterly reject all allegations of impropriety.
Autonomy’s finances, during its years as a public company and including the time period in question, were handled in accordance with applicable regulations and accounting practices. Autonomy’s accounts were overseen by independent auditors Deloitte LLC, who have confirmed the application of all appropriate procedures including those dictated by the International Financial Reporting Standards used in the UK.
Having no details beyond the limited public information provided last week, and still with no further contact from you, I am writing today to ask you, the board of HP, for immediate and specific explanations for the allegations HP is making. HP should provide me with the interim report and any other documents which you say you have provided to the SEC and the SFO so that I can answer whatever is alleged, instead of the selective disclosure of non-material information via background discussions with the media.
I believe it is in the interest of all stakeholders, and the public record, for HP to respond to a number of questions:
• Many observers are stunned by HP’s claim that these allegations account for a $5 billion write down and fail to understand how HP reaches that number. Please publish the calculations used to determine the $5 billion impairment charge. Please provide a breakdown of the relative contribution for revenue, cash flow, profit and write down in relation to:
• The alleged “mischaracterization” of hardware that HP did not realize Autonomy sold, as I understand this would have no effect on annual top or bottom lines and a minor effect on gross margin within normal fluctuations and no impact on growth, assuming a steady state over the period;
• The alleged “inappropriate acceleration of revenue recognition with value-added resellers” and the “[creation of] revenue where no end-user customer existed at the time of sale”, given their normal treatment under IFRS; and
• The allegations of incorrect revenue recognition of long-term arrangements of hosted deals, again given the normal treatment under IFRS.
• In order to justify a $5 billion accounting write down, a significant amount of revenue must be involved. Please explain how such issues could possibly have gone undetected during the extensive acquisition due diligence process and HP’s financial oversight of Autonomy for a year from acquisition until October 2012 (a period during which all of the Autonomy finance reported to HP’s CFO Cathie Lesjak).
• Can HP really state that no part of the $5 billion write down was, or should be, attributed to HP’s operational and financial mismanagement of Autonomy since the acquisition?
• How many people employed by Autonomy in September 2011 have left or resigned under the management of HP?
• HP raised issues about the inclusion of hardware in Autonomy’s IDOL Product revenue, notwithstanding this being in accordance with proper IFRS accounting practice. Please confirm that Ms Whitman and other HP senior management were aware of Autonomy’s hardware sales before 2012. Did Autonomy, as part of HP, continue to sell third-party hardware of materially similar value after acquisition? Was this accounted for by HP and was this reported in the Autonomy segment of their accounts?
• Were Ms Whitman and Ms Lesjak aware that Paul Curtis (HP’s Worldwide Director of Software Revenue Recognition), KPMG and Ernst & Young undertook in December 2011 detailed studies of Autonomy’s software revenue recognition with a view to optimising for US GAAP?
• Why did HP senior management apparently wait six months to inform its shareholders of the possibility of a material event related to Autonomy?
Hewlett Packard is an iconic technology company, which was historically admired and respected all over the world. Autonomy joined forces with HP with real hopes for the future and in the belief that together there was an opportunity to make HP great again. I have been truly saddened by the events of the past months, and am shocked and appalled by the events of the past week.
I believe it is in the best interests of all parties for this situation to be resolved as quickly as possible.
I am placing this letter in the public domain in the interests of complete transparency.

Yours faithfully,
Dr Mike Lynch

Update: Responding to Lynch’s open letter, HP issued the following statement:

“HP has initiated an intense internal investigation into a series of accounting improprieties, disclosure failures and outright misrepresentations that occurred prior to HP’s acquisition of Autonomy. We believe we have uncovered extensive evidence of a willful effort on behalf of certain former Autonomy employees to inflate the underlying financial metrics of the company in order to mislead investors and potential buyers.

“The matter is in the hands of the authorities, including the UK Serious Fraud Office, the US Securities and Exchange Commission’s Enforcement Division and the US Department of Justice, and we will defer to them as to how they wish to engage with Dr. Lynch. In addition, HP will take legal action against the parties involved at the appropriate time.

“While Dr. Lynch is eager for a debate, we believe the legal process is the correct method in which to bring out the facts and take action on behalf of our shareholders. In that setting, we look forward to hearing Dr. Lynch and other former Autonomy employees answer questions under penalty of perjury.”

]]> http://allthingsd.com/20121127/autonomy-founder-lynch-asks-board-to-explain-hp-allegations/feed/ 0 http://allthingsd.com/20121126/long-before-h-p-deal-autonomys-red-flags/ http://allthingsd.com/20121126/long-before-h-p-deal-autonomys-red-flags/#comments Tue, 27 Nov 2012 07:03:02 +0000 Ben Worthen, Paul Sonne and Justin Scheck http://allthingsd.com/?p=272838 CAMBRIDGE, England — When Autonomy Corp. was starting up in this historic university town, founder Mike Lynch stuck a sign on an office door that read “Authorized Personnel Only.” Behind the door, he told visitors, were 500 engineers working on “hush-hush” projects.

The door, in fact, led to a broom closet, Mr. Lynch recounted in a 2010 speech. By then, Autonomy had grown from its founding in 1996 to one of Europe’s largest and fastest-growing software companies. Hewlett-Packard Co. bought it in October 2011 for more than $11 billion.

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