Comment Re:Nothing to explain (Score 3, Informative) 117
- Meg Whitman is doing something that competent CEO's do routinely, and HP hasn't done in decades, which is cleaning up the books and writing down the value of non-performing assets, like brand names that will never be used again, such as "Compaq", "EDS", "Palm" and now "Autonomy". There's still "3Com" left to go...
- Whitman is also playing the CEO spin game, which is that when you have bad news about profitability, you pair the announcement with some other announcement to act as distracting red meat to all the short-attention-span tech journalists who can't follow more than one story at a time. If you're Apple, you just need to mumble about some innovative new interaction modality and everyone goes crazy, if your're HP's CEO, you can actually demo a slick new product and everyone ignores you. Unfortunately HP's heritage of selling sushi as "cold, dead fish" has not been purged from their DNA.
- The actual Autonomy core software is an undeniably superior technology for doing multimedia search and unstructured text search, but it was never actually productized. Apparently every sale was a bespoke one-off, never to be reused or broken apart and recycled the way most complex software is handled. This means that the combinatorial growth of value to expanding customer bases that potentially existed in the software base turned out to be extremely difficult to realize. HP didn't discover this until the deal was closed and HP engineers had spent some time with the code.
- Nevertheless, during the sales negotiations with HP, the future cash flow of Autonomy was apparently computed as if the future growth of revenue was assured to be as exponential as the combinatorial math of modular software recombination would predict. Autonomy founder Mike Lynch is brilliant enough to make such a prediction in just those terms, and it surely would have gone right over the heads of then-CEO Leo Apotheker and most of the HP board, maybe including Shane Robison, chief strategy officer at the time. Now, is a statement about the finances of a software company based on whether that company's code is an impenetrable rat's nest, or not, a legally actionable, material misrepresentation? Is it something that would be expected to be uncovered by the legions of high-priced accountants deployed by the big name accounting firms during the "due diligence" phase of negotiations? I'm not a forensic accountant or a securities regulator, so I wouldn't venture to guess.
- There were numerous other red flags http://www.guardian.co.uk/commentisfree/2012/nov/21/hewlett-packard-red-flags-autonomy around Autonomy that led HP's CFO Cathie Lesjak to vote against her boss and all the rest of the board on the purchase, but she was overruled.
- Finally, HP claims that while there were accounting irregularities having to do with the way future revenue streams for software support were booked all at once, right now. Lynch claims that this is allowed under European rules even if it may be illegal under US GAAP rules. How would that change when Autonomy becomes owned by a US company? Should those high-priced accountants have caught that? Even so, HP claims to have testimony from a former Autonomy executive that those numbers were not merely tweaked, but were completely wack. HP is saying "nyah, nyah, we're not giving out details, and we're not saying who it is" and Lynch must be furious that he doesn't have enough information to try the case in the press and prejudice any legal outcome. HP wants to get Lynch under oath, so a jury can decide who's lying and who's not.
The wheels of the law grind exceedingly slow, so this will take years to play out. Meanwhile, HP has some decent software to play with, and they are already doing innovative things, like building search into the printers themselves http://www.autonomy.com/content/News/Releases/2012/1030.en.html. I'm not sure that this makes sense, but it's the kind of innovation that everyone expects from HP, and that we haven't seen from them in ages.