Sources familiar with the situation and thinking behind the move tell AllThingsD that Bradley has told HP CEO Meg Whitman, “firmly and emphatically,” that he has not been contacted by Dell.

This view has been confirmed by sources at Dell, who say there is “no job” for Bradley at that company.

The speculation is understandable. Bradley is a respected senior executive who was once CEO of Palm and has been considered a favored candidate for HP’s top job no fewer than three times. During the period when former CEO Léo Apotheker was planning to spin out HP’s PC operations, it was hard to find people betting that Bradley wouldn’t be its CEO. At one time, he was even on the list of candidates to replace Paul Otellini at Intel. The challenging business conditions at Dell — on its way to a $24.4 billion leveraged buyout on which shareholders will vote next month — might represent, some would argue, the perfect opportunity.

Here’s how the rumor — presented now only because, even untrue, it makes a certain amount of sense — breaks down: Bradley might have been in line to be CEO of a newly private Dell, while Michael Dell would return to his role as chairman, which he held from 2004 to 2007. Bradley’s new title at HP — executive VP for Strategic Growth Initiatives — is the sort of nebulous post that occasionally is given to an executive who is short-timing it. It might appear to be something along the lines of the “iffy” product-innovation role that Jon Rubinstein had after he stepped back from running HP’s now-defunct webOS unit, the job he held until he left HP for good last year.

But, on its face, there is nothing “iffy” about Bradley’s new gig, sources tell AllThingsD. HP’s channel relationships — the business it does through a global network of resellers, who in turn sell HP products and services directly to businesses — have been badly frayed in recent years.

It’s a crucial segment, making up as much as 70 percent of HP’s business overall. Channel sales account for about 80 percent of HP’s sales in the Printing and Personal Systems Group, and about 60 percent of sales in the Enterprise Group. Bradley’s brief will be to repair those relationships, especially in China. “Frankly, Bradley has relationships there that Whitman doesn’t have,” said one source familiar with HP’s operations. “If there’s anyone who can do the work to get the channel back on track, it’s Bradley.”

Yet there’s another potentially important clue: HP’s announcement doesn’t name any executives reporting to Bradley in his new role — only that he will be reporting directly to and working with Whitman.

One source familiar with the company’s plans said that will change soon, and Bradley will name key lieutenants in the new effort in the coming weeks. “He will be able to reach across the organization,” one person said. “He doesn’t need many folks to accomplish anything.”

The source also described growing pressure on Bradley and other executives within the Printing and PC unit to show results, despite what has turned out to be a historically bad period for PC sales in particular, one that will eventually lead to a significant retrenchment. In its most recently quarterly filings, HP’s PC unit reported a 21 percent year-on-year decline in sales, from $9.2 billion to $7.3 billion, and saw its profit margin drop from 5.6 percent to 3.3 percent.

“The pressure on Bradley from Meg has been at an all-time high,” one source said.

Bradley didn’t immediately respond to messages.

Whitman said in an interview with AllThingsD last week that she’s happy about the stabilization that has taken place in the printing business in the last year. Printing revenue, at $6 billion, was essentially flat versus last year, while profit margin rose from 13 percent last year to nearly 16 percent. Bradley took over printing from its previous head, Vyomesh “VJ” Joshi, as the result of a significant restructuring in March of 2012.

Whitman is said by sources to want a set of “fresh eyes” on the personal computer business. That’s where Dion Weisler comes in. Currently heading up HP’s printer and PC sales for the Asia, Pacific and Japan region, he has 23 years of IT industry experience running Asian business units for Acer and Lenovo. However, despite that history, he’s considered a bit of an unknown, and has been suddenly elevated to the very top of HP’s operating structure. His role will include a seat on HP’s Executive Council, the most powerful and senior set of executives within the company.

Bloomberg News confirmed a rumor about Lane that has been making the rounds for several months, according to papers filed with the U.S. Tax Court in May.

Late last year, the IRS found that Lane had improperly claimed losses of more than $250 million to offset income. According to Bloomberg, who interviewed Lane (I reached out to him via email, and haven’t heard back), he said that in 2000 he was advised to move about $25 million into a fund that backed technology startups, the point being to use the losses from the fund to offset his taxable income. (Update: I’ve since heard from Lane. See additions to the story below.)

The IRS is accusing Lane of using an instrument known as Partnership Option Portfolio Securities to report what it says was an improper $250 million “non-economic loss” for the tax year 2000. POPS are generally not used anymore, in no small part because they’ve been rendered ineffective by government scrutiny.

It has been a tough few months for Lane. Also in May, he left the board of electric-car company Fisker after the decline of its business. He also scaled back his role as a partner at the venture capital firm Kleiner Perkins Caufield & Byers.

Lane stepped down from his post as HP’s executive chairman on April 4, but retained a seat on the company’s board. He survived a shareholder vote seeking his ouster from the board at HP’s annual shareholder meeting on March 20, having secured slightly less than 59 percent of votes cast.

Lane took a lot of flak from shareholders for HP’s 2011 acquisition of Autonomy. HP paid $10 billion and change for the British software firm, and subsequently wrote down its value by about $5 billion as part of a larger $8.8 billion charge in the fourth quarter of 2012.

HP has alleged that Autonomy executives essentially cooked the books in order to inflate the company’s value. It has referred its findings to regulators in both the U.S. and the U.K.

He joined HP’s board in late 2010 as non-executive chairman on the same day that Léo Apotheker was appointed CEO, weeks after the resignation of former CEO Mark Hurd.

Apotheker lasted 11 months in the CEO job. He was fired in September of 2011 and replaced by current CEO Meg Whitman, who was then an HP director. On the same day, Lane was named executive chairman and was widely seen as something of a backstop to Whitman, who was initially viewed as lacking experience in running a hardware-focused company like HP. In fact, on the day Whitman was appointed CEO, Lane did more than his share of talking on a conference call and in subsequent interviews.

Lane is a former president of Oracle, and left that company as the result of one of Silicon Valley’s more infamous management feuds with Oracle’s founding CEO Larry Ellison. For his part, Ellison has never missed an opportunity to lob darts in Lane’s direction.

An HP spokesman declined to comment on the grounds that Lane’s tax dispute is a personal matter.

Update: I got an email from Lane. He says “This is a 13 year old tax item, that has never been contested by me, only the Vandium partnership. When the IRS decided it was a tax shelter and I would be liable, I immediately settled.” He went on to explain that by “settled,” he means he and the IRS have agreed to some terms, but it is not yet paid. The Vandium Partnership continues to dispute IRS’ case, but Lane himself as partner — he doesn’t know who the others are — has not.

According to sources close to the situation, well-known tech exec Jon Rubinstein will be joining the board of Qualcomm, the San Diego-based chipmaker that has gotten a big boost of late for its role in the explosion of mobile devices.

Rubinstein is an interesting and logical choice for Qualcomm, having been a high-profile player for a long time in the mobile space, beginning with his work on the iPod while at Apple. After he left his last job at Hewlett-Packard last year, though, he has been very low-key.

(Update: Qualcomm confirmed the appointment in a press release.)

For Qualcomm, the selection of Rubinstein to join the board is something to watch, as he is the second exec from Silicon Valley to be tapped by the company recently. In March, Qualcomm hired tech investor Laurie Yoler as SVP of business development, making her “responsible for augmenting existing business relationships in Silicon Valley, as well as developing new strategic business opportunities for Qualcomm in the region.”

Rubinstein has even more experience here and is also familiar with a range of mobile efforts over the years, some of which were successful and others not so much, from his work at Apple, Palm and then HP. He is also a board member of Amazon.

Aside from CEO and Chairman Paul Jacobs, Rubinstein — who has degrees in electrical engineering and computer science — will be the most technically experienced director on the 11-person board.

Qualcomm declined to comment.

Here’s a nice primer on Rubinstein by Arik Hesseldahl, in a report on his leaving HP early last year:

Best known for his work on Apple’s iconic iPod music player, Rubinstein left Apple in 2006 and joined Roger McNamee as a partner in the private equity firm Elevation Partners, following its 2007 investments in Palm.

In 2009 he replaced longtime Palm executive Ed Colligan as its CEO, and oversaw a dramatic restructuring of the company’s products, including a significant rebuild of its smartphone operating system. Gone was the legacy PalmOS that had been used in so many popular devices like the Treo that for a time competed seriously against Research In Motion’s BlackBerry.

PalmOS was replaced by WebOS, which first appeared on the Pre smartphone, then later on the Pixi and Veer devices. After HP acquired Palm, WebOS was also used on the abandoned TouchPad tablet, and is now an open-source operating system overseen by HP.

Rubinstein’s departure is no big surprise. Sources said he hadn’t been seen at HP’s offices following the decision by former CEO Léo Apotheker to get out of the business of making WebOS-based hardware. His future plans have been the subject of speculation for some time.

After HP decided to exit the WebOS hardware business, Rubinstein was assigned to a vaguely described “product innovation role” within HP’s Personal Systems Group during a management shakeup last July. It was an unusual move and one made with little explanation at the time. But sources say it was a preface to Rubinstein’s departure, one intended to lessen its PR impact when he finally left. “That ‘innovation’ gig he was given in July was his first step toward the exit,” said one source, a former Palm exec with close ties to Rubinstein.

Interviewed by analyst Katie Huberty, Whitman said she thinks that the majority of the “tough decisions” appear to be behind her at HP. “I feel like after 18 months I know what most of the challenges are,” she said. Among those was the decision to undo a directive by her predecessor, Léo Apotheker, to spin out HP’s personal systems group as a separate company, and to take massive write-downs on two prior acquisitions, EDS and Autonomy. Big moves like that are done, she said.

What’s not done is the restructuring effort that will reduce HP’s headcount by about 29,000 people, along with the effort to reduce other costs. Whitman said that HP is about halfway through a three-year restructuring and that there are about 15,000 more job cuts to go. But there are also additional cost savings from improved efficiency that can be wrung out of HP’s business. Whitman repeated the story of how HP became the largest customer yet of cloud software giant Salesforce.com, now in use by its 27,000 sales execs.

Whitman said that HP had in the past “underinvested in our own IT” around business processes like getting a price quote to customers and quickly closing a sale. “We’re behind our competitors in that, so we have a lot of work to do there,” she said.

Whitman said that HP is still on track to start showing revenue growth in 2014, even though the world economy is likely to still be on the weaker side. Having boosted research and development spending has helped HP accelerate development of new products like Project Moonshot, a new version of the Proliant server and the Elite 900 tablet — and those products are showing promise, she said.

Whitman also took a not-so-veiled shot at Dell, which is in the process of seeking the approval of shareholders to go private. Companies that look less than stable in the eyes of enterprise customers aren’t as likely to close big deals to sell their gear and services. Listen to her characterization below.

Asked about the troubled services unit, Whitman expressed confidence in its ability to turn around, even though four major customers are said to be shifting their IT operations in-house. They’re not named in the discussion, but one of them is presumably General Motors.

Whitman also explained in detail the meaning behind language found in HP’s most recent 10-K filing with the U.S. Securities and Exchange Commission about the possibility of selling some assets. Many took that to mean that HP might again be mulling the spin-out of its PC division or something like that. It meant nothing of the kind, as Whitman explained in detail.

The departure was confirmed by an HP spokesman moments ago, sending the following statement:

“HP remains committed to our Converged Cloud portfolio. In particular, HP Cloud Services is critical to HP’s efforts to deliver superior public cloud infrastructure, services and solutions to our customers. Roger Levy, vice president, Technology and Customer Operations of HP Cloud Services, will serve as the interim leader for HP Cloud Services. The company thanks Zorawar ‘Biri’ Singh for his passion and commitment to drive our public cloud vision and wish him well.”

Singh had overseen HP’s global cloud computing footprint, including its infrastructure, platform services and ecosystem efforts.

He joined HP from IBM, hired by former CEO Léo Apotheker to build a cloud service platform that could compete with Amazon Web Services. Apotheker announced the effort at a big HP event in San Francisco in March of 2011.

It’s one part of the strategy elements initiated by Apotheker — who was CEO for only about 11 months — that HP has kept in place.

The filing shows that CEO Meg Whitman earned more than $15.3 million during 2012, even though her base salary was only $1. The majority of her pay came in the form of share and options grants worth more than $13 million, almost none of which are yet vested. She also earned a $1.7 million bonus under HP’s PfR or “Pay for Results” bonus plan.

Under that plan, bonuses are awarded based on performance metrics including revenue, free-cash flow and achievement of management by objective (MBO) goals. There was also $220,000 in miscellaneous income, most of which had to do with her use of HP’s aircraft.

CFO Cathie Lesjak earned $6.7 million, which included her base salary of $825,011 per year plus $978,000 worth of stock options that vested during the year, plus $519,000 under the PfR bonus plan. She received another $4.8 million in combined share grants and options. The combined package is smaller than the $10 million she earned in salary, bonuses and options awards in 2010.

Enterprise business head Dave Donatelli earned the same base salary as Lesjak, but also received $1.15 million worth of stock options that vested during the year, plus another $519,000 under the PfR bonus plan and nearly $6 million worth of share grants and options.

John Hinshaw, the EVP who joined HP from Boeing in 2011, earned a combined $8.2 million in 2012, including $5.1 million in share grants and options. He has recently been tasked with cutting $3.5 billion out of HP’s annual operating budget by the end of 2014.

Todd Bradley, head of the Printing and Personal Systems Group, earned $7.4 million including $2.7 million in share grants and options. His base salary was $850,000 and he earned a PfR bonus of $587,000.

The filing also shows what two exiting execs were paid on their way out the door. Former head of the printing unit Vyomesh “VJ” Joshi, pushed out in a significant shakeup in March, collected $1.6 million in severance. He is also receiving about $3.3 million in four equal cash installment payments that end in October of 2013. He left HP owning 1.4 million shares worth, more than $22 million as of Friday’s closing price.

Another former executive collecting severance pay is John Visentin. He is the former head of Enterprise services, named by former CEO Léo Apotheker. He was fired after HP took an $8 billion charge to write down the value of EDS. That unit, acquired under former CEO Mark Hurd for $13.9 billion in 2008, has been a bit of an albatross around HP’s neck of late. Last year the unit was implicated in an embarrassing foul-up with an Australian bank that required Whitman to fly to Australia.

Visentin was paid a combined $8.3 million, including a base salary of $800,000 and a $2 million bonus connected to his promotion to Executive Vice President. HP also reimbursed him $127,311 for the deposit he made on a house he sought to buy in California, but on which he never closed. He lost out on $3.8 million in combined share grants and options, which were canceled and did not vest when he left. He departed HP owning a little more than 20,000 shares, worth about $330,000.

There are other interesting tidbits in the filing. For one thing, there’s a new policy proposal being put to shareholders that allows any person or group of up to 20 people who own at least 3 percent of HP shares and who has owned them for at least three years to nominate a slate of directors of as much as 20 percent of the board.

The proposal, which requires a vote of two-thirds of all shareholders, is a victory for activist investors over proxy access. Previously, HP shareholders could only vote on the slate of directors nominated by the company. Now if enough shareholders are unhappy, they can nominate their own group of new directors.

It has been a long-simmering controversy in corporate governance circles. Proponents have argued proxy access improves returns to shareholders by forcing boards to be more responsive to them, lest they lose their seats. Without proxy access, investors who want to shake up a board’s membership have been forced to wage expensive public campaigns to sway the votes of shareholders and have had to pay for distributing their own ballots.

As of now, there are only three investors who own enough to meet the 3 percent standard, and they’re all institutional shareholders: Investment firm Dodge and Cox owns 6 percent of HP’s outstanding shares, State Street Corp. owns 5.4 percent and investment firm Blackrock owns 5.2 percent.

HP’s fourth-largest investor, who owns 1.8 percent, already has a seat on the board. Ralph Whitworth, the activist investor with a history of agitating for breaking up the companies he invests in, joined HP’s board in November of 2011. And all indications are that he’s supportive of Whitman and her plans to turn HP around over the next few years. Besides, any board shakeups he may wish to carry out will have to wait for awhile: He doesn’t yet own 3 percent.

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.

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.”)

“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.”

In an interview with Reuters, Lynch, who was dismissed from running Autonomy by HP CEO Meg Whitman in May, says he’s gone through the books of his former firm and has found that differences between the accounting standards observed in the U.S. and in the United Kingdom can account for at least some of the differences in how things are interpreted.

Lynch made similar comments in an interview with AllThingsD Tuesday, though he hasn’t sought to put any numbers behind the contention.

Like most U.S.-based companies, HP followed GAAP, the Generally Accepted Accounting Principles put out by the U.S.-based non-profit Financial Accounting Standards Board (FASB). As a U.K. company, Autonomy had adhered instead to the International Financial Reporting Standards (IFRS) maintained by the International Accounting Standards Committee.

Lynch has maintained that differences in how revenue is recognized under the two systems leave a lot of room for interpretation in some of the matters in which he and his senior managers stand accused. One relates to licensing revenue. When a company bundles the cost of a software license, service and support into a single ongoing contract, GAAP accounting rules are more strict than IFRS rules in how the payments are accounted.

Answering one of the big accusations by HP, Lynch acknowledged that, at least some of the time, Autonomy did sell desktop machines with Autonomy software installed at a slight loss. In those cases, the customer would agree to help Autonomy market its product and, in those cases, the losses were recorded as marketing expenses. HP says that these improperly recorded hardware sales inflated Autonomy’s revenue by as much as 10 percent to 15 percent prior to its acquisition by HP.

Another difference:Cases where Autonomy would sell its software through 400 middleman companies known as Value Added Resellers (VAR), who turn around and sell the software as part of larger package deals. In Autonomy’s case, some of those VARs included both IBM and India’s Wipro. Under IFRS rules, a sale to a VAR can be booked as revenue before the resale takes place. Under GAAP, it’s not revenue to Autonomy until the resale takes place.

Lynch has also said that once HP took over at Autonomy, its own practices and bureaucracy slowed things down. Salespeople were paid commissions to sell products that compete with Autonomy, he said, but not for selling Autonomy products. On top of that, he accused HP of jacking up prices on the Autonomy software by 30 percent, driving loyal customers away.

He also said in numerous interviews that HP had “ambushed” him with all this, and that he had no idea what was coming. That’s not quite true, according to sources in HP’s camp, who say that the company had a conversation with him in mid-June, after a former member of Lynch’s senior management team is said to have come forward as a whistleblower. “He has been aware since then that we had questions about all of this,” one source told me. HP execs considered his answers to their questions to be “not satisfactory at all.”

At that point, I’m told, communications between HP and Lynch and other former Autonomy executives ended. After CEO Meg Whitman hinted, in remarks at an analysts meeting in San Francisco in October, that more restatements might be coming, certain former Autonomy executives started calling around to friends and former colleagues still working for HP, trying to find out what was coming. They had reason to expect a sizable impairment charge. What has apparently caught Lynch, et al, by surprise, is the referral to the authorities in the U.S. and the U.K. for possible criminal investigation. In the U.S., the FBI is said to be taking the lead.

One observation: Lynch tells Reuters he hasn’t yet lawyered up, which, if he hadn’t said it, would be pretty obvious anyway. Any lawyer worth their fee would have advised Lynch to stop talking publicly about all of this.

(Image of Jon Lovitz as “Master Thespian,” circa 1985. Yes, I’m dating myself.)

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?

Asa Mathat / AllThingsD.com

You may recall a brief PR kerfuffle in which Oracle disclosed that it had been approached by investment banker Frank Quattrone, who was, as some people have it, shopping Autonomy around for a possible acquisition. Some people, including Quattrone and Autonomy’s founding CEO Mike Lynch, wouldn’t call it “shopping around” because it would have been illegal to “shop around” a U.K.-based company under that country’s securities laws without disclosing the fact to shareholders. But we’re getting ahead of ourselves here.

Remember, however, that in the wake of HP’s move to acquire Autonomy, Ellison said that at something north of $11 billion, HP had paid an “absurdly high” price, and cattily followed that by saying that Oracle had “taken a pass” on Autonomy.

Lynch, in an interview with The Wall Street Journal days later, said that no such overtures to Oracle had ever been made.

Oracle, just to set the record straight, mind you, with absolutely no other agenda in mind, fired back that Lynch apparently had a bad memory and had forgotten about a meeting, indeed a pair of meetings, involving Hurd, Lynch and Quattrone and some PowerPoint slides.

“Oh, you mean those slides,” Lynch said. No, he didn’t really say that, but he might have. Anyway, at that point, Lynch clarified that he had indeed accepted an offer to meet Hurd to talk about database technologies but he was “not there to sell anything.” Okay, then.

Again, just to clarify the record and nothing else, Oracle dug through its files and found the PowerPoint slides from at least two meetings that Lynch and Quattrone had held with Hurd. Quattrone owned up that the slides were his and that the idea had been to pitch Autonomy to Oracle independently of Lynch or Autonomy “as an idea.”

Autonomy had already been the subject of repeated rumors about a nonexistent bidding war for the company that had Oracle and Microsoft wrestling over it. And the meetings at Oracle took place in early 2011 after those rumors had been in the water a little while.

So yesterday’s disclosures by HP certainly put an exclamation mark on a back-and-forth between Oracle and Lynch that had simply quieted but not concluded.

Which brings us to those slides. What’s in them? Some interesting nuggets for sure, but there are no smoking guns concerning Autonomy’s alleged cooking of the books prior to HP’s announcement that it would acquire the software firm on Aug. 18, 2011.

On one slide we see Autonomy’s revenue mix as of early 2010. (Click to make bigger.) Note that the IDOL Product that makes up the blue slice of 29 percent of sales is the “hardware product” that in HP’s telling is the one sold either at a low margin or at a loss in some cases. Those allegedly improper bookings, HP says, amounted to 10 percent to 15 percent of Autonomy’s overall sales, and would otherwise be about half the size shown here.

In another slide we see Autonomy’s revenue and enterprise value as of January 24, 2011 — less than six months before HP’s acquisition — converted to U.S. dollars and compared against other notable software companies. Autonomy is valued at about $5.7 billion, or a little less than six times revenue. Six months later HP would pay nearly twice a much, which struck pretty much anyone paying attention as odd if only for the timing of the deal. Now HP says it paid about $5 billion too much for Autonomy and that amount lines up almost exactly with the increase in Autonomy’s valuation from this point. Coincidence? Maybe. But, interesting! (Click to see it bigger.)

And here we see a list of names of both Autonomy senior executives and members of its board of directors. As yet there’s no indication who it was from within the ranks of Autonomy who came forward to HP after Lynch’s dismissal from HP by CEO Meg Whitman, and so there’s no way to know if this person’s name appears here. Also, Autonomy’s former directors will almost certainly be contacted by both the U.S. Securities and Exchange Commission and the U.K.’s Serious Fraud Office. (Click to see it bigger.)

If you want to read those slides in their entirety yourself, here they are, via Scribd.

Autonomy Presentation 1 503341

Autonomy Presentation 2 503342

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• 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?

Read the rest of this post on the original site »

One expression of that strategy — and a controversial one at that — was the nearly $12 billion acquisition of the British software firm Autonomy, announced 13 months ago. HP ultimately didn’t spin off its PC business, but its acquisition of Autonomy stuck. Now it is firmly part of HP’s software business.

As CEO Meg Whitman struggles to turn HP around, software is still a key part of her plans. While Whitman has made no secret of her opinion that Autonomy needs attention, there are some solid bits of HP’s software business — like Vertica and ArcSight — that are showing significant promise, if only they could grow.

Finding a way to get them growing is the job of George Kadifa. In June, HP named him as executive vice president, head of the company’s software business and a member of its executive council. Kadifa knows a bit about the software business. He spent seven years as a senior vice president at Oracle, and then ran his own company, Corio, for six years, until it was acquired by IBM for $182 million in 2005. From there, he went to investment firm Silver Lake, where, as partner, he pushed portfolio companies to improve their operations.

Kadifa sat down with AllThingsD last week at the software unit’s new headquarters in Sunnyvale, Calif., for his first interview since joining HP. We talked about how he plans to fix its weaknesses, improve its strengths and make software a more sizable piece of HP’s overall business.

AllThingsD: George, you joined HP to head up its software business unit in June. You’ve reached the 100-day mark, so give us your assessment of where you see things now and where they’re going.

Kadifa: A lot of good things are happening. We’re at about $4 billion in revenue, so if you look at HP Software as its own business, we’re about the fifth- or sixth-largest software business in the world. We have a great customer base; having worked at IBM and Oracle and now HP, customers really like us, versus previous experience. And we have a lot of products. A lot of them we acquired rather than built in-house.

Among the recent acquisitions, Vertica is one where the consensus seems to be that it was a pretty good deal. Where do you see Vertica going in particular, and what sets it apart?

One is the technology, which we think is second to none. When you think about it, the idea of taking data in columns and then arranging it in a row fashion, it seems like sort of a trivial difference. But it’s really unbelievable what it gives you in terms of capabilities. Say you’re storing a thousand names, you’ve got first names and last names. Let’s say five of those guys are named Arik. Normally you’d store five Ariks in a column. But here, instead of listing the name five times, you make a note above it with a five, so you know the name occurs five times. Now when you search through that list it’s so much more efficient, it’s two or three orders of magnitude faster, which means it’s 100 to 1,000 times faster than classic relationional technology. It has turned out to be a real diamond for us.

Yet it’s a small diamond. Yes, it’s growing, but how do you get it to grow fast enough that it becomes a more meaningful part of HP?

It’s a fair question. What we started with was a business with revenue in the low millions. It wasn’t in the $100 million range in revenue. It was really a project with some customers. We took it, and now it’s in the middle-double-digit millions. I can see us getting to $100 million with Vertica in a very short period of time. And there’s no reason it can’t be a billion-dollar business.

Let’s wrestle with the situation at Autonomy a little. You just named Robert Youngjohns to run it. Unlike Vertica, the consensus here is that Autonomy was an expensive deal that hasn’t come close to meeting expectations yet. What do you see happening there?

We just had a two-day planning meeting with everyone from Autonomy, where we went through the current status and looked at where we’re heading. The key for us right now is to get fiscal year 2013 on track, and that starts Nov. 1, so we’re working on that right now. Basically, when you look at Autonomy, the core unit is the IDOL Engine, which is the unique capability of meaning-based computing. We’re going to double down on that. In our labs in Cambridge, England, we have 40 or 50 mathematicians writing algorithms. And we’re going to build a team here in the U.S. to productize it and create a platform around it, because it has that potential. Frankly, the way Autonomy was managed previously, they put a lot more emphasis into enabling applications, which was fine, but our belief is that there’s a broad agenda, which is creating a platform around meaning-based computing. So we will maintain those apps, but at the same time we’ll open up the capabilities to a broader set of players outside HP.

It sounds like what Autonomy was doing was growing by acquisitions and then creating a more vertical stack of applications prior to HP’s ownership, rather than taking a broader, more horizontal approach. It sounds to me like HP wants to make Autonomy more horizontal. Is the potential there?

You’re correct. And, yes, the potential is there. I asked Autonomy that very question about why they went vertical instead of horizontal, and the answer that I got was that it came down to a difference of culture between the U.S. and Europe. In Europe, they tend to make things complex in order to create more value. For example, they saw the IDOL engine as too complex to just give it to people. Instead they thought they should acquire vendors and then create value by enabling applications. Here we take something that’s complex and we ask how we might simplify it in order to give it more scale for a bigger market. So, some of that difference was cultural, and some of it was that I think they fell in love with these acquisitions. … We think Autonomy’s technology has broader implications. And to reach that potential, we have to open it up as much as possible. And we’re also working with other organizations inside HP — PCs, printers, servers — to basically produce additional synergies.

Are the teams ready and primed? Meg Whitman, your CEO, and CFO Cathie Lesjak have made no secret that, so far, they have seen Autonomy’s ability to respond to deals that had been teed up by HP as lacking. Is the structure in place to address that problem?

It’s not in place yet, but the situation has settled down somewhat. The processes are working. The reason is that initially we kind of left Autonomy alone, and then we tossed a bunch of deals at Autonomy. The initial plan was to keep it intact, have the HP salesforce bring in deals, and everyone would be happy. One problem is that there were too many deals, and second is that the deals weren’t well-qualified. So what we did next was put in place a management process around sales cycles at Autonomy.

There’s been a lot of turnover there. Obviously, the former CEO, Mike Lynch, left, but so did a lot of the people who worked with him. Does that hurt the institutional memory at all?

No. Basically we lost the top half-dozen people. And you always expect that with an acquisition, especially with people who have grown up as entrepreneurs and will always be entrepreneurs. The remaining people running the products lines are still around, and so is the salesforce. The development guys in Cambridge and Chicago are still there.

Michael Dell has basically said he intends to keep growing his company by acquisition. Your boss, Meg, has said that we can expect no major acquisitions for the forseeable future — at least until the balance sheet is in better shape. If there were going to be acquisitions, even small ones, I would imagine they’d more likely be in software. Is that a fair statement?

I don’t want to say anything on Meg’s behalf. From a software point of view, if there are tuck-in acquisitions that can help us develop our technology, I’ll go and request to do it. The cash we generate from software would cover us. So that’s the thinking right now. We need to learn as a business how to grow organically because that’s where all the value is. At Silver Lake we did analysis on companies that grew by acquisition: Oracle, SAP, Microsoft, IBM, EMC and others. You find that their revenues grow and their profits grow. But what doesn’t grow, and what actually shrank from 2006 to 2011, is their multiples. Their valuations multiples shrank. What the market is saying is that just making acquisitions doesn’t add any value unless they create organic growth. That is how we look at it here. We’ve done a ton of acquisitions, so the task now is to create more organic growth because that is what the market will value.

Yesterday, HP fired the head of its Enterprise Services unit, John Visentin, though the decision to let him go came before last week’s embarrassing service disruption that hit Commonwealth Bank, Australia’s largest bank, caused by a software upgrade gone awry.

Australian tech blog Delimiter published details of the problems said to have hit the bank. An operating system patch intended only for desktop PCs was pushed to server machines as well, causing service disruptions to many branches.

Commonwealth Bank has long been a client of EDS, the IT services firm that HP acquired in 2008. Sources confirm that Whitman, already in Australia on other business, went to meet with the bank’s CIO, Michael Harte, in the wake of the troubles in hopes of salvaging the relationship. Meanwhile, Oracle and IBM are eagerly seeking to make sure that HP doesn’t win its business back.

The disruption is about as ill-timed as could be. The bank has a six-year contract with EDS — and thus with HP — dating to 2006 that is up for renewal right about now. Its status is unclear.

Visentin, a former IBM general manager named last year to run HP Enterprise Services by former CEO Léo Apotheker, was let go yesterday because of ongoing problems at HP’s ES unit. And while the problems at Commonwealth Bank came after Whitman’s decision to replace him, sources say it’s an example of the sorts of problems that have plagued the troubled Enterprise Services group in recent months.

The unit has also had difficulty meeting its numbers. Though it’s hard to figure out exactly what’s going on because HP doesn’t break out ES results specifically, there are clues in the filings and public comments. The unit sits under the umbrella of the Services segment that reported about $36 billion in revenue last year. It combines two smaller units, the Application and Business Services group, and the Infrastructure Technology Outsourcing group, known internally at HP by their three-letter acronyms “ABS” and “ITO.”

For the first six months of this year, the overall Services segment reported $17.5 billion in sales, about flat from the year-ago period, though its earnings as a percentage of HP’s overall revenue has dropped from nearly 16 percent last year to about 11 percent this year. The worst performer of the bunch has been ITO, which last quarter saw its revenue drop 3 percent to $3.7 billion. CFO Cathie Lesjak attributed the drop to “being more selective” with the deals HP chooses to pursue.

Mike Nefkens, the senior vice president and general manager for ES in Europe, was named to run the unit on an interim basis, while Jean-Jacques “JJ” Charhon, the unit’s CFO, was promoted to its COO. Nefkens isn’t assumed to be Visentin’s replacement, and sources tell me that HP will be looking both inside and outside the company for the services unit’s next boss.

I said it yesterday and I’ll say it again today: Expect a lot more questions about, and a lot more attention on, HP’s services business in the weeks ahead.

Neil Sedaka or Jack Johnson? Honestly, this is all beginning to sound a little too much like a bad mix from a lite-FM radio station. But here it is: Should Hewlett-Packard be broken up into parts, or should it stay together?

It’s an old question, dating back more than a decade, but it was raised anew today in a note by analyst Steven Milunovich at UBS Investment Research. His vote: Break it up.

Milunovich initiated coverage on HP today, after a break of several years, opening with a “sell” rating and a price target of $16, which would amount to a drop well below its current 52-week low, and would represent the lowest price that HP shares have seen in nine years. He then prefaces his argument with a history lesson: Way back in 2002, HP, under then-CEO Carly Fiorina, closed the $25 billion acquisition of Compaq Computer. Within a few years, HP leapfrogged Dell to become the largest PC vendor in the world, but the deal also gave HP some key assets it was missing in the enterprise hardware world. “Although historians likely won’t be kind to the merger, it’s not clear that HP would have been better off without Compaq,” he writes.

By 2004, Milunovich was arguing that HP should break itself into two companies: One focused on the enterprise, the other on consumers. On the enterprise side of the house, HP’s best course of action, he thought then, was to become an alternative to IBM.

No such breakup occurred, and now, 10 years after that enormous acquisition, HP finds itself “stuck in the muddy middle.” Of course, one CEO — Léo Apotheker — sought during his 11-month tenure to spin off the PC division; though, when combined with the costly $11.7 billion acquisition of the British software firm Autonomy and three consecutive quarters of results that came in below expectations, it wasn’t long before he was pushed out of his job.

New CEO Meg Whitman quickly undid Apotheker’s plan, arguing that HP is “better together,” a view she reiterated to AllThingsD in an interview in June. Instead, Milunovich argues, they might be “smart apart.”

With the printer business, a onetime cash cow now in a state of possibly permanent decline, and with PCs under attack by slowing growth generally and tablet substitution in the notebook business, HP’s strongest suits lie in the enterprise: “If HP is able to take advantage of cloud and big data trends, it should see modest revenue growth and margin expansion in ESSN, which is critical to offsetting the likely deterioration in printing,” he writes, referring to the old Enterprise Server, Storage and Networking group. A boost in software revenue would also boost profit margins.

And with HP shares currently trading at about four times estimated earnings for both 2012 and 2013, he compares its different segments and concludes they would trade at higher prices relative to competitors. The PC and printer groups could trade at six to seven times forward earnings; software and enterprise at 10x and services at 11x. Basically, break it all up and it could be worth between $27 and $34 a share, Milunovich writes.

But is it really that easy? The primary reason that Whitman gave for undoing the plan to spin off PCs was that HP’s scale alone gives it the ability to negotiate aggressively with suppliers of components used in other parts of the business. But she has also praised the unit’s overall return on invested capital. And there’s also a big batch of savings expected from this year’s combining of printing and PCs under Todd Bradley.

Much of it is a matter of time. Shareholders seem willing to give Whitman a certain amount of time to get the turnaround she has promised under way, and she has even taken to managing expectations by saying it will take years to get done. But if HP’s share price doesn’t respond, they may get impatient and start demanding a breakup. As Milunovich puts it, it would be interesting to see an activist investor like Carl Icahn or Bill Ackman get involved, though HP already has one of those on its board — Ralph Whitworth — and he has a history of lobbying for corporate breakups.

For now, it’s all an academic discussion. Whitman has made zero moves toward any kind of a breakup, and is clearly in the “better together” camp. My prediction is that Milunovich’s argument today is the starting gun to a broader discussion about how best to fit HP, and that the calls for a breakup are only going to get louder.

But another metric related to HP has in recent weeks started setting record highs. Prices on credit default swaps on HP’s debts have started to rise substantially, or, as pros in the corporate debt world like to say, “blow out.” The chart below shows the price progression since last July on credit default swaps for HP, IBM and Oracle, and you can see the striking disparity.

Now, without going too far into the weeds of corporate finance and debt (I wrote last month about the swelling debt on HP’s balance sheet), it’s important to understand what a credit default swap is and is not. Essentially, it’s insurance that you buy on a debt you hold to protect you against the possibility that the original debtor — in this case, HP — may default. The price of the swap was five times higher yesterday than it was at this time last year. As of yesterday, it cost $325,000 to insure $10 million of HP debt for five years, up from about $65,000 a year ago, according to data from Markit Group, which tracks the daily prices of credit default swaps.

It’s important to be clear on one point: No one is suggesting that HP is in any danger of defaulting on any of its debt. But for those holding HP bonds, the price of protection against that eventuality — however remote — is getting higher by the day.

And while the price of credit default swaps are mainly a barometer of the state of anxiety over its finances and its balance sheet, they can have the side effect of increasing the overall cost of HP’s financing activities and ultimately affecting its share price.

The pace in the increase of swap prices quickened last week following a perfect storm of bad news: There were lousy earnings reported by printing concerns Lexmark and Xerox, the apparent threat that HP may lose a key IT services contract at General Motors, and word that institutional investor James Chanos is shorting HP shares. The state of global PC sales in the second quarter and the disclosure that China’s Lenovo is drawing nearly even with market leader HP didn’t help.

Also consider this: HP has issued more than $10 billion worth of bonds reaching maturity in 2013 and 2014 on top of another billion and change maturing this year.

Typically, a company like HP can roll this debt over into new bonds relatively easily. But here’s the rub: HP’s credit ratings have slipped in recent months, increasing the cost of borrowing money generally. With less than a month to go before HP reports earnings for the quarter ending in July, no wonder people are getting nervous.

Note to the graph below: While the figures are given in dollars, the price is actually in hundreds of thousands of dollars. So yesterday’s price of $325 is actually $325,000, the spot price to buy protection against the loss of $10 million in debt.

(Thanks to AllThingsD’s Beth Callaghan for help with the chart and to The Wall Street Journal’s David Reilly for the quick lectures on the finer points of credit default swaps.)

On Friday, HP shares set yet another ignominious milestone, hitting $18.98 a share and trading at the lowest levels seen since late 2004, falling nearly 2 percent on a day when the Dow Jones Industrial Average rose by more than 1.6 percent.

The fall came in partial reaction to an earnings warning from printer company Lexmark, which slashed its second-quarter sales and profit forecasts, blaming slackening demand in Europe and unfavorable currency conditions. Lexmark shares fell by more than 16 percent.

Naturally, investors worried that a bad market for printers would have to hurt the world’s largest maker of printers, as well. It’s certainly not an unreasonable conclusion: HP’s printer unit — recently combined with its PC unit — accounted for 20 percent of sales and 36 percent of operating profits last quarter. And it’s not as if the indications for the printer business weren’t already dour. HP has struggled with its own version of currency difficulties: Since many key printer components are made in Japan, the strong yen has continued to add a currency headwind to an already challenged market for printers and printing supplies.

A pronounced weakness in the printing business is one thing, but there were other alarm bells. Last week’s PC sales figures from Gartner and IDC suggest that HP’s PC sales fell by about 12 percent and change, with a lot of market ground given to China’s Lenovo. Not good for the world’s leading PC vendor.

Add to that sales of HP servers — HP is the world’s leading vendor in that market, too, which fell by nearly 10 percent in the first quarter, according to Gartner and IDC — and the case for optimism has dwindled substantially.

Attention then necessarily turns to HP’s major shareholders, and one in particular: Ralph Whitworth, the activist investor and head of Relational Investors, LLC, a San Diego-based investment firm with about $6 billion under management.

Whitworth (pictured) took a seat on HP’s board of directors in November of 2011 after disclosing that Relational had acquired about 17.3 million shares as of Sept. 30 amounting to nearly 1 percent of HP’s outstanding equity.

Since then, Whitworth has been buying a lot more HP shares: As of June 1, SEC filings (see the most recent one here) show that Whitworth, through Relational, has doubled his holdings in HP, and now controls more than 34.5 million shares, a stake that is approaching 2 percent of the shares outstanding. That would put Relational on track to be the eighth-largest institutional holder of HP shares. In short, you have to go pretty far to find an HP shareholder with more skin in the game than Ralph Whitworth.

And there’s no way that Whitworth can be happy with HP’s performance of late. In May alone, Relational spent more than $407 million accumulating HP shares, at average prices ranging from $22.02 to $22.71. All told, Relational has, since last August, spent more than $790 million — or more than 13 percent of the funds it has under management — on HP shares that as of Friday were worth less than $656 million, representing a drop in value of about 17 percent.

This all makes Whitworth’s voice in HP’s board meetings all the more weighty. As a condition of taking the board seat, Whitworth agreed not to publicly seek HP’s sale or merger with another company or a spinoff of any of its assets. Whitworth will no doubt have other levers to pull. And nothing in the agreement forbids him from arguing for any course of action behind the closed doors of HP board meetings.

At this point, it’s worth looking at Whitworth’s history: Last June, after acquiring a 6 percent stake in L3 Communications, Whitworth pushed for a breakup of that company. The result was the spinoff of a $2 billion unit that is to be called Engility.

Also in 2011, after amassing a stake of nearly 4 percent, Whitworth pushed for — and ultimately won — the breakup of the industrial conglomerate ITT. In that case, Whitworth threatened a nasty proxy fight by nominating himself and two other Relational officers to that company’s board. It ultimately broke itself into three publicly held pieces: ITT, ITT Excelis, and Xylem.

Whitworth’s latest target appears to be soft-drink giant PepsiCo. Having accumulated a stake amounting to about 0.6 percent of its shares outstanding, he is said to have agitated for the separation of its slow-growing beverage business from its faster-growing snacks line.

His biggest coup was at Home Depot, where he pushed the company to get out of the commercial building-supply business, which ultimately led to the resignation of then-CEO Robert Nardelli.

These examples of Whitworthiana are notable in light of J.P. Morgan analyst Mark Moskowitz’s July 13 note to clients arguing that HP should indeed break up: As Barron’s noted that day, Moskowitz thinks HP will have to reinvest cost savings from the combination of its printer and PC divisions into the reengineering of its business model.

Moskowitz goes on: If HP’s strategic intent is to build up its enterprise IT solutions business, PCs and printers become less integral. Naturally, this brings to mind last August’s disastrous plan to spin off the PC-making personal systems group, a decision that, combined with the $11.7 billion acquisition of Autonomy, cost then-CEO Léo Apotheker his job.

Apotheker’s successor, Meg Whitman, quickly killed the spinoff plan after assuming the CEO slot, arguing that the PC business gives HP the scale it needs to compete effectively in other hardware businesses, including servers and printers. But given the growth prospects of both for the forseeable future, the pressure to carve HP up into parts will only grow.

But make no mistake: It’s an idea that Whitman firmly opposes: In a June 5 interview with AllThingsD, she reiterated her opinion that HP is strongest in its current sprawling form: Asked if she saw any scenario where a piece of HP was cut off from the whole, she was abundantly clear: “As I see it, everything stays,” she said at the time.

One has to wonder if, given his history of agitating for sweeping change at so many large and troubled companies, HP’s newest director and eighth-largest shareholder sees it in quite the same way.

Porrini’s LinkedIn profile confirms the move, and shows that he has taken a job as general counsel and secretary at YuMe, a company that provides video advertising software and services. The company is backed by investments from Accel Partners, BV Capital, DAG Ventures, Khosla Ventures, Menlo Ventures and Intel Capital.

HP’s legal office has seen a lot of changes recently, since former CEO Mark Hurd left, ultimately to take a job as President of Oracle. Last December, general counsel Michael Holston, who had previously been seen as a key Hurd aide, left the company. His departure came about three months after the ouster of former CEO Léo Apotheker, and Meg Whitman’s taking over as CEO last year.

In April, HP named John Schultz as general counsel, replacing David Healy, who had the job on an interim basis after Holston.

Porrini (pictured from his LinkedIn profile) had been at HP since 2001. Before that, he worked at Bluestone Software, which HP acquired in 2000. Earlier, he was a partner at the law firm of Pepper Hamilton; before that, he worked at the U.S. Securities and Exchange Commission.

Lawrence Zucker, an HP shareholder, sued the company’s directors, arguing that they had wasted company money by agreeing to such a large severance package, and that directors could have fired Hurd for cause and thus paid him nothing.

However, doing so, wrote Judge Donald Parsons in his opinion, would have made it more difficult to attract and hire a possible replacement, though he conceded that the amount “may appear extremely rich or altogether distasteful to some.”

Hurd resigned from HP in August of 2010, after complaints by a female marketing contractor led to the discovery of irregularities in Hurd’s expense reports that appeared intended to conceal a relationship. Aside from the expenses, Hurd was cleared by HP of any wrongdoing, but he was forced by the board to resign.

The severance package soon shrunk. A month later, Hurd accepted a job as president at HP rival Oracle, which prompted HP to sue Hurd and Oracle. The two companies later settled that lawsuit and, as part of the settlement agreement, Hurd forfeited 346,000 stock options that had initially been included in the severance, options then worth $13.6 million (though they would be worth a lot less today).

And, of course, we know that the Hurd settlement is central to the current legal mishegas under way between HP and Oracle over Intel’s Itanium chip. HP says there’s a section of the agreement that requires Oracle to port its software to HP’s Integrity servers, which use the Itanium chip. Oracle says there’s no such agreement in force, and that the Itanium chip is on its way to the graveyard, anyway. That trial is still going on in a San Jose, Calif., courtroom.

While there’s no word on who’s on the short list — I’m told the process is just getting under way — candidates from both inside and outside of HP are being considered.

Since the acquisition closed in October, Autonomy has so far turned out to be something of a disappointment, despite all the pronouncements that it represented an important opportunity for HP to diversify into software. During a conference call with analysts on May 24 and in a subsequent interview with AllThingsD, CEO Meg Whitman said that the team at Autonomy seemed to have trouble closing the deals that HP’s sales team would tee up. It reported “disappointing results” that hurt HP’s overall results, Whitman said, thus prompting the surprise departure of Autonomy’s founding CEO Mike Lynch. Since then, Autonomy has been been under HP’s chief strategy officer Bill Veghte.

Autonomy’s integration into HP is the last lingering bit of messy business left over from the memorable day of Aug. 18, 2011. That was the day that former CEO Léo Apotheker announced plans to spin off the PC business, acquire Autonomy, and then tied those two big strategic moves with a bow of a nasty earnings miss. Thirty-four days later, in no small part because of perceptions that he had overpaid for Autonomy, Apotheker was out of a job, and Whitman was his replacement.

Lynch, who personally banked $800 million on the sale, once publicly compared the relationship of Autonomy to HP to that of a cub and a “mother tiger.” Initially granted a lot of autonomy from the home office — no pun intended — its lean culture proved early on to be a poor fit within HP, according to a report in the U.K.’s Guardian. Soon after the deal closed last October, Autonomy’s heads of finance, marketing and of several sales teams bolted for the exits, and were said to be unhappy with what they saw as HP’s bureaucratic tendencies.

But Autonomy’s culture leaves a lot to be desired — at least in the eyes of people who work there. As Wired noted last month, its rating on Glassdoor.com, a site where employees rate a company based on work environment, is about as low as can be. Whoever gets the nod will have their work cut out for them on the employee morale and corporate culture fronts, plus the pressure will be on early and often to close deals.

Remember that the fight between the two companies had its genesis in a settlement that arose from a lawsuit HP filed after Oracle hired former HP CEO Mark Hurd as co-president. In that settlement agreement — which ended HP’s suit over Hurd — is a paragraph that is at the core of the current dispute.

Here it is:

Reaffirmation of the Oracle-HP Partnership. Oracle and HP reaffirm their commitment to their longstanding strategic relationship and their mutual desire to continue to support their mutual customers. Oracle will continue to offer its product suite on HP platforms, and 1-IP will continue to support Oracle products (including Oracle Enterprise Linux and Oracle VM) on its hardware in a manner consistent with that partnership as it existed prior to Oracle’s hiring of Hurd.

This is the $4 billion paragraph that HP has sued Oracle to enforce. The agreement has been public for a while, but it bears a rereading as the case continues today. HP contends that this constitutes an enforceable agreement that requires Oracle to continue to port its software to HP’s Itanium-based server platforms, something Oracle said in March of 2011 that it no longer wants to do.

In the document drop embedded below, you’ll see what I think is the final version of the document, along with various drafts of the settlement document drawn up by Oracle and HP lawyers, and some of the emails related to it.

Oracle basically contends that its typical porting agreements are substantially more complicated documents, and has included a porting agreement struck with HP in 2006. If nothing else, you can see how verbose and detailed typical porting agreements tend to be.

Anyhow, as I understand it, it is upon the enforceability of that paragraph that much of the case will turn. If the judge agrees that it amounts to a contract and Oracle has to honor it, then a jury will come in and determine whether or not Oracle has violated it, and, if so, how much money HP should get for its trouble. HP has argued that the right figure is about $4 billion; according to Bloomberg News, it based that estimate on an extrapolation of its losses in its Itanium business out to the year 2020. As HP CEO Meg Whitman conceded in an extensive interview with AllThingsD yesterday, this ongoing mess over Itanium is hurting HP big time.

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