HP Turnaround Hits Autonomy Wall
NEW YORK (TheStreet) -- Hewlett-Packard's(HPQ) says it is the victim of an accounting fraud related to its $11.1 billion Aug. 2011 acquisition of British software giant Autonomy, a poor performing unit at the heart of turnaround efforts at the world's largest personal computer maker.
In earnings released before the opening bell on Tuesday, HP also recorded a $8.8 billion fourth quarter writedown of its Autonomy unit, erasing most of the software analytics unit's value to shareholders, and casting in doubt the company's efforts to remake itself into the mold IBM(IBM) .
"The majority of this impairment charge is linked to serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy Corporation plc that occurred prior to HP's acquisition of Autonomy and the associated impact of those improprieties, failures and misrepresentations on the expected future financial performance of the Autonomy business over the long-term," HP said in a statement released with earnings, that indicates $5 billion of the writedown is related to the alleged fraud.
The Palo Alto, Calif.,-based company also said it has referred the Autonomy fraud charges to Britain's Serious Fraud Office and the U.S. Securities and Exchange Commission for civil and criminal investigation. HP also said that fraud charges relate to Autonomy's recognition of revenue and that the company opened an investigation when an Autonomy executive came forward with the fraud.
The writedown and fraud charges couldn't come at a worse time. HP's fourth quarter earnings reflected weaker than expected revenue of $30 billion, and adjusted earnings per share of $1.16 came in slightly better than expected. Still, an alleged accounting fraud sent HP shares tumbling over 12% to new five-year lows below $12 a share in late afternoon trading.
HP's full year 2013 EPS guidance of $3.60 - $4.00 unveiled on Tuesday was in line with previous forecasts, according to Shaw We of Sterne Agee.