Hewlett-Packard Co. today hit the markets with a double-whammy. The computer maker has to write down the value of its British subsidiary, Autonomy software, by $8.8 billion. In addition, its fourth-quarter earnings missed both earnings and sales estimates.
“HP is extremely disappointed to find that some former members of Autonomy’s management team used accounting improprieties, misrepresentations, and disclosure failures to inflate the underlying financial metrics of the company, prior to Autonomy’s acquisition by HP,” the company said in a press release.
HP acquired the British maker of pattern recognition software to diversify its line of computer hardware and services for $10.3 billion in August 2011.
HP learned about the fraud from Autonomy personnel who stepped forward after the company’s founder, Mike Lynch, left the company in May 2012. HP claims that it could not possibly have noticed the irregularities during the acquisition. It blamed Autonomy auditor Deloitte, as well as former management, for the mishap.
“The board relied on audited financials—audited by Deloitte—not Brand X accounting firm but Deloitte,” HP CEO Meg Whitman told investors in a conference call Nov. 20. “The CEO at the time and the head of strategy who led this deal are both gone—Leo Apotheker and Shane Robison.”
This statement by Whitman provided little respite for shareholders, however. The company also missed fourth-quarter expectations for revenue ($30.0 billion versus $30.4 billion expected) and guidance for Q1 earnings per share ($0.68–$0.71 versus $0.85 expected). HP shares traded down 12 percent to close at $11.71.
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