HP's discovery of apparent accounting fraud at a company it paid $11 billion for is the latest humiliation for the once-great tech giant.
In any major acquisition, lawyers (should) crawl all over the acquisition target, reviewing all contracts, interviewing all relevant employees, and deeply understanding all of the revenue recognition practices that HP now says allowed Autonomy to defraud its own shareholders and HP.
If Autonomy really was committing fraud, and not just pursuing aggressive accounting policies (which HP certainly should have known about), this is a massive embarrassment for the lawyers, bankers, and accountants HP paid to review the deal.
For the sake of its board, shareholders, and the rest of the industry, HP should reveal exactly who conducted its research on Autonomy and how and why they managed to miss this "fraud"--as well as why it went undiscovered after the acquisition for so long.
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But the alleged accounting fraud at Autonomy actually isn't the worst part of HP's earnings report.
The worst part, by far, is the state of the company's business.
Check out these trends from the company's release:
- Personal Systems revenue was down 14% year over year. Commercial revenue decreased 13%, and Consumer revenue declined 16%. Total units were down 12% with both Desktop and Notebook units down 12%.
- Printing revenue declined 5% year over year. Total hardware units were down 20% year over year. Commercial hardware units were down 15% year over year, and Consumer hardware units were down 22% year over year.
- Services revenue declined 6% year over year. Technology Services revenue was down 4% year over year, Application and Business Services revenue was down 7% year over year, and IT Outsourcing revenue declined 6% year over year.
- Enterprise Servers, Storage and Networking (ESSN) revenue declined 9% year over year. Networking revenue was up 7%, Industry Standard Servers revenue was down 7%, Business Critical Systems revenue was down 25%, and Storage revenue was down 13% year over year.
Those business are, for all intents and purposes, HP's core businesses. And they're all collapsing.
The only parts of HP that are growing are, ironically, its small Software business (+9%) and its "Financial Services" business, which is really a banking/customer-financing business.
That's much worse news than a relatively minor (relatively) accounting fraud at a company HP grossly overpaid for. And it will take much longer to fix than a simple restatement of Autonomy's historical results.
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