HP complains over numbers in $10 billion purchase

Struggling Hewlett-Packard has posted another quarterly loss, dropping US$6.8 billion and making its combined losses for the fiscal year ending Oct. 31 $12.7 billion.

 “As we discussed during our securities analyst meeting last month, fiscal 2012 was the first year in a multiyear journey to turn HP around,” HP CEO Meg Whitman, said in a statement. “We’re starting to see progress in key areas, such as new product releases and customer wins. We’re particularly pleased that in Q4, we were able to improve our balance sheet, generating $4.1 billion in operating cash flow, and we returned $384 million to shareholders in the form of share repurchases and dividends.”

For the fiscal year net revenue from all sales was $120 billion (all figures U.S.), a drop of five per cent from 2011.

But the most interesting note is that HP had to write off $5 billion in goodwill in the fourth quarter due to the discovery of alleged “serious accounting improprieties, disclosure failures and outright misrepresentations” in financial statements at Autonomy Corp., the British-based enterprise information management software company HP bought last year for $10.2 billion.

HP relied on the audited financial statements when agreeing on the purchase price. In fact Whitman said HP had its own outside auditors look at the financial statements before approving the deal. Neither auditor saw anything wrong. She alleged that different things came to light after Autonomy officials left the company following closure of the deal. At that point, she said, an Autonomy official stepped forward.

Whitman said the alleged misrepresentations took place before HP bought the company, a controversial deal engineered by her predecessor, Leo Apotheker. Questions about the amount of money HP paid for a relatively unknown company, as well as about Apotheker’s strategy, led to him being replaced with Whitman.

At the time Whitman was on the HP board and defended the purchase. Indeed, today she said HP sees Autonomy as promising a “big market opportunity as we move it from start up to grown up.”

Whitman told financial analysts on a conference call that she has asked U.S. Securities and Exchange Commission and Britain’s Serious Fraud office to look into whether charges should be laid.

She also said HP will sue to recover losses.
None of the allegations have been proven in court.

HP continues to slash staff as it restructures. It let go 11,000 in fiscal 2012 and expects to let another 15,000 go in the coming fiscal year.

But Whitman insisted “we know where we need to go and have made significant progress.” The company has put in tools to make it easier to manage the business, including getting 16,000 staff to use Salesforce.

“We are on track to realize the savings we set out,” she told financial analysts.

She also touted HP’s work rolling out new products. Recently HP introduced its ElitePad tablet for the enterprise, which Whitman said already has 1,300 customers, products for software-defined networks and new laser multifunction printers.

The fourth quarter also saw General Motors buy a record amount of software.

The coming year, Whitman said, will continue to be “fix and repair,” with the company still facing “headwinds.”

But she exuded confidence in the company’s cost management and new product strategy. It is still targeting cost savings of $3 billion by next October.

For the fiscal year revenue from the personal systems group (PCs, laptops) dropped 14 per cent year over year, including a drop of 13 per cent in sales to organizations; revenue from the enterprise storage and networking group dropped nine per cent compared to 2011; revenue fro the printing division dropped five per cent.

The only bright spot was software revenue, which grew 14 per cent year over year, while revenue from the financial services division grew one per cent.


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