Hewlett-Packard stock plunges after it reveals huge write-down


Could it get any worse for hobbling Hewlett-Packard Co.?

HP’s stock plummeted 12% on Tuesday to its lowest price in a decade after the company said it was writing off $8.8 billion because it was duped into overpaying for a British software maker.

The surprise revelation came as HP reported another quarterly loss and gave a weak first-quarter outlook.

“The magnitude of the charge is pretty enormous,” said Jayson Noland, senior analyst at Robert W. Baird & Co. “It’s really bad and it’s really expensive and it’s really distracting. Given all the other things going on that they need to address, you wish this wasn’t one of those.”


The Palo Alto technology company said it had been misled by Autonomy Corp., which it bought for $11.1 billion last year, and had to take the charge to align the accounting value of Autonomy with its real value.

“The majority of this impairment charge is linked to serious accounting improprieties, disclosure failures and outright misrepresentations that occurred prior to HP’s acquisition of Autonomy,” Chief Executive Meg Whitman said in an earnings call with analysts.

Whitman said the company began to realize something was amiss after Autonomy founder Mike Lynch left HP in the spring. A senior member of Autonomy’s leadership team then came forward with information that led to an “intense internal investigation,” including a third-party review of Autonomy’s historical financial results, she said.

HP has contacted the enforcement division of the Securities and Exchange Commission and Britain’s Serious Fraud Office, requesting that both agencies open criminal and civil investigations into the matter. Whitman added that the company would try to “recoup what we can” for shareholders through lawsuits.

But Lynch, who founded Autonomy in 1996 and grew it to include 65,000 customers worldwide, quickly lashed out at HP, saying he had been “ambushed” by the company’s allegations against him. He said HP had gotten itself “in a mess” that included write-downs for other acquisitions and was trying to “cover it up with this big write-off.”

“We completely reject the allegations,” Lynch said in an interview with the Wall Street Journal. “As soon as there is some flesh put on the bones we will show they are not true. What does make the management team deeply sad is that it is a business we spent 10 years building. It was a world leader. It was destroyed in less than a year by the petty infighting at HP.”


Technology analysts said they were disappointed by the unexpected writedown and concerned that more trouble could lie ahead for HP, which continues to face pressures on its core businesses of PCs, printers and servers. In May, HP announced that it would slash 27,000 jobs, or about 8% of its workforce, by the end of fiscal 2014.

Mark Moskowitz, an analyst at JPMorgan, said the charge underscored HP’s weak corporate oversight.

“We think the significant writedown and improprieties signal lack of sufficient due diligence and governance within HP’s finance and board functions, meaning investors stand to demand more change inside HP,” he said in a note to investors. “We recommend investors stay on the sidelines with respect to shares of HP.”

For the three months that ended Oct. 31, HP reported a loss of $6.9 billion, or $3.49 a share, compared with a profit of $200 million, or 12 cents, a year earlier. Revenue was $30 billion, down 7% from the same quarter in 2011 and down 4% when adjusted for the effects of currency exchange rates.

Across major business categories, personal systems revenue was down 14% year over year; printing revenue declined 5%; services revenue fell 6%; and enterprise servers, storage and networking dropped 9%.

Software revenue, however, grew 14% year over year, including the results of Autonomy.

For the first quarter of fiscal 2013, HP estimated earnings of 34 to 37 cents a share, a softer outlook than analysts had expected.


Despite the accounting problems, Whitman stressed that HP was still “100% committed to Autonomy” and its technology.

“Autonomy remains a work in progress as we move this business from start-up to grown-up,” she said. “There is a big market opportunity for this business, but operational improvements are needed to take full advantage.”

Since she became CEO of HP a year ago, Whitman has been blunt about the company’s troubles, which include getting beat on consumer products such as tablets, internal dysfunction among senior executives, a lack of direction and being late to market too often. On Tuesday, she reiterated that turning HP around “is going to be a multi-year journey and will not be linear.”

“Fiscal 2013 is going to be a fix-and-rebuild year for the company as critical changes to organizational structure take hold,” she said. “We expect the underlying macro and industry head winds to continue as we enter 2013. This will put pressure on our top-line performance.”

Although Whitman has made big moves in her first year in the top job — scrapping an unpopular plan to spin off HP’s PC business, investing in product innovation, cleaning up its balance sheet and announcing several management changes — analysts said they’re still waiting to see significant progress.

Shares have continued to slide under Whitman; in the last year, HP’s stock is down 56%. On Tuesday, shares fell $1.59 to $11.71.


“For a lot of people, the jury is still out on whether Meg’s the right person to do this,” Noland said. “But the things she says she’s trying to do are things we’re hearing from the field need to be done.”