TORONTO (Reuters) - Shares of Research In Motion Ltd surged more than 15 percent in Toronto on Thursday on rising optimism about its soon-to-be-launched BlackBerry 10 devices, the company's response to Apple's iPhone and to Android-based smartphones.
National Bank Financial analyst Kris Thompson boosted his price target on RIM shares to $15 from $12. He said he believes there is more money to be made in the stock ahead of the early 2013 launch of RIM's make-or-break new line of devices.
It was the second vote of confidence this week for the Canadian company, which has struggled to compete with the iPhone and with devices running on Google's market-leading Android operating system. On Tuesday, Jefferies & Co analyst Peter Misek, who has been one of RIM's most influential critics, raised his rating and price target on the stock.
RIM shares climbed to their highest level since May on the Toronto Stock Exchange on Thursday, rising C$1.55 to C$11.78 by early afternoon. The U.S. market, where trade volumes usually top those in Toronto, was closed for Thanksgiving.
Thompson, who has an 'outperform' rating on RIM stock, said he raised his price target due partly to the 'positive sentiment building in the industry' ahead of BB10's launch.
'The new management team is executing by maintaining the BlackBerry subscriber base, managing costs and cash, and seemingly readying a February 2013 BB10 global platform launch,' he said in a note to clients.
Earlier this week, Misek said a favorable reaction from telecom carriers to the new devices and the BB10 operating system that runs them was behind his decision to lift his rating and price target on RIM.
The BlackBerry maker, a smartphone pioneer, hopes BB10 will rescue it from a prolonged slump. RIM shares peaked at over $148 in 2008 before diving more than 90 percent.
The stock is up more than 75 percent in the past two months as the launch date for the BB10 devices nears.
RIM promises its new devices will be faster and smoother than previous smartphones, and will have a large catalog of applications, which are crucial to the success of any new line of smartphones.
Thompson said he now expects RIM to ship about 35.5 million devices in fiscal 2014, up from an earlier estimate of 31.6 million. RIM, whose sales slump has been particularly pronounced in North America, shipped 7.4 million devices in its most recent quarter, ended September 1.
RIM has said it plans to roll out a touchscreen version of its BB10 smartphone initially. Phones with the mini QWERTY keyboards that many long-time BlackBerry users rave about will come a few weeks later, while lower-end versions of both devices will be launched later in the year.
'The shipments boost reflects about one more month of BB10 product availability plus a little extra for the positive sentiment building in the industry from our discussions,' Thompson said.
Analysts had expected the new devices to go on sale in March. But RIM said earlier this month it plans to launch them on Jan 30, leading many to speculate they will hit store shelves around mid-February.
Chief Executive Thorsten Heins told Reuters last week he is confident that the new BB10s will provide RIM with a framework for growth over the next decade.
Earlier this month, the new platform and devices won U.S. government security clearance, which would allow both U.S. and Canadian government agencies to deploy the new smartphones as soon as they are available.
(Editing by Theodore d'Afflisio Janet Guttsman and; Peter Galloway)
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Thursday, November 22, 2012
RIM shares rally as optimism around new devices grows
TORONTO (Reuters) - Shares of Research In Motion Ltd surged more than 11 percent in Toronto on Thursday, after an analyst raised his price target on the stock, citing 'positive sentiment building in the industry' ahead of the launch of BlackBerry 10.
National Bank Financial analyst Kris Thompson boosted his price target on shares of the embattled BlackBerry maker to $15 from $12. Thompson argues there is more money to be made in the stock, ahead of the early 2013 launch of RIM's make-or-break new line of devices powered by its BlackBerry 10 operating system.
Shares in RIM, by far the most actively traded stock on the Toronto Stock Exchange on Thursday, jumped C$1.19 to C$11.42 in early trading.
'The new management team is executing by maintaining the BlackBerry subscriber base, managing costs and cash, and seemingly readying a February 2013 BB10 global platform launch,' said Thompson in a note to clients.
The latest vote of confidence comes just days after one of RIM's most influential critics raised his rating on the stock.
RIM hopes BB10 smartphones will help claw back market share it has lost in recent years to Apple Inc's iPhone and devices that run on Google Inc's Android operating system.
The BlackBerry maker - a one-time pioneer in the smartphone industry - has been for months enveloped in a wave of negative sentiment, as its aging line-up of devices has lost ground to faster and sleeker devices.
In recent weeks however, positive feedback around RIM's new line of devices, has begun to lift some of the deep pessimism surrounding the stock.
RIM promises its new devices will be faster and smoother and have a large catalog of applications, which are now crucial to the success of any new line of smartphones.
Thompson said he now expects RIM to ship about 35.5 million devices in fiscal 2014, up from an earlier estimate of 31.6 million.
'The shipments boost reflects about one more month of BB10 product availability plus a little extra for the positive sentiment building in the industry from our discussions,' he said.
Analysts were widely expecting the new devices to only go on sale in March, however RIM recently said it plans to launch the smartphones on Jan 30, leading many to speculate that the new devices will hit store shelves around mid-February.
(Reporting by Euan Rocha; Editing by Theodore d'Afflisio)
This news article is brought to you by GLAMOROUS FASHION NEWS - where latest news are our top priority.
National Bank Financial analyst Kris Thompson boosted his price target on shares of the embattled BlackBerry maker to $15 from $12. Thompson argues there is more money to be made in the stock, ahead of the early 2013 launch of RIM's make-or-break new line of devices powered by its BlackBerry 10 operating system.
Shares in RIM, by far the most actively traded stock on the Toronto Stock Exchange on Thursday, jumped C$1.19 to C$11.42 in early trading.
'The new management team is executing by maintaining the BlackBerry subscriber base, managing costs and cash, and seemingly readying a February 2013 BB10 global platform launch,' said Thompson in a note to clients.
The latest vote of confidence comes just days after one of RIM's most influential critics raised his rating on the stock.
RIM hopes BB10 smartphones will help claw back market share it has lost in recent years to Apple Inc's iPhone and devices that run on Google Inc's Android operating system.
The BlackBerry maker - a one-time pioneer in the smartphone industry - has been for months enveloped in a wave of negative sentiment, as its aging line-up of devices has lost ground to faster and sleeker devices.
In recent weeks however, positive feedback around RIM's new line of devices, has begun to lift some of the deep pessimism surrounding the stock.
RIM promises its new devices will be faster and smoother and have a large catalog of applications, which are now crucial to the success of any new line of smartphones.
Thompson said he now expects RIM to ship about 35.5 million devices in fiscal 2014, up from an earlier estimate of 31.6 million.
'The shipments boost reflects about one more month of BB10 product availability plus a little extra for the positive sentiment building in the industry from our discussions,' he said.
Analysts were widely expecting the new devices to only go on sale in March, however RIM recently said it plans to launch the smartphones on Jan 30, leading many to speculate that the new devices will hit store shelves around mid-February.
(Reporting by Euan Rocha; Editing by Theodore d'Afflisio)
This news article is brought to you by GLAMOROUS FASHION NEWS - where latest news are our top priority.
Samsung wins U.S. court order to access Apple-HTC deal details
SAN FRANCISCO (Reuters) - A U.S. judge has ordered Apple Inc to disclose to rival Samsung Electronics details of a legal settlement the iPhone maker reached with Taiwan's HTC Corp, including terms of a 10-year patents licensing agreement.
The Korean electronics giant had earlier filed a motion to compel its U.S. rival -- with whom it is waging a bitter legal battle over mobile patents across several countries -- to reveal details of the settlement that was reached on November 10 with HTC but which have been kept under wraps.
In August, the iPhone maker won a $1.05 billion verdict against Samsung after a U.S. jury found that certain Samsung gadgets violated Apple's software and design patents.
Now, legal experts say the question of which patents are covered by the Apple-HTC settlement, and licensing details, could be instrumental in Samsung's efforts to thwart Apple's subsequent quest for a permanent sales ban on its products.
The Asian company has argued it is 'almost certain' that the HTC deal covers some of the same patents involved in its own litigation with Apple.
The court on Wednesday ordered Apple to produce a full copy of the settlement agreement 'without delay', subject to an Attorneys-Eyes-Only designation.
Representatives for the U.S. company could not immediately be reached for comment.
Samsung also requested the California court to add three newly released Apple products -- the iPod Touch 5, the iPad 4 and the iPad mini -- to the list of devices that it claims to have infringed on some of its patents, according to court documents.
The settlement of Apple and HTC ended their worldwide litigation and brought to a close one of the first major flare-ups in the global smartphone patent wars.
Apple first sued HTC in 2010, setting in motion a legal conflagration that has since circled the globe and engulfed the biggest names in mobile technology, from Samsung to Google Inc's Motorola Mobility unit.
(Reporting By Edwin Chan; Additional reporting by Miyoung Kim in SEOUL; Editing by Muralikumar Anantharaman)
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The Korean electronics giant had earlier filed a motion to compel its U.S. rival -- with whom it is waging a bitter legal battle over mobile patents across several countries -- to reveal details of the settlement that was reached on November 10 with HTC but which have been kept under wraps.
In August, the iPhone maker won a $1.05 billion verdict against Samsung after a U.S. jury found that certain Samsung gadgets violated Apple's software and design patents.
Now, legal experts say the question of which patents are covered by the Apple-HTC settlement, and licensing details, could be instrumental in Samsung's efforts to thwart Apple's subsequent quest for a permanent sales ban on its products.
The Asian company has argued it is 'almost certain' that the HTC deal covers some of the same patents involved in its own litigation with Apple.
The court on Wednesday ordered Apple to produce a full copy of the settlement agreement 'without delay', subject to an Attorneys-Eyes-Only designation.
Representatives for the U.S. company could not immediately be reached for comment.
Samsung also requested the California court to add three newly released Apple products -- the iPod Touch 5, the iPad 4 and the iPad mini -- to the list of devices that it claims to have infringed on some of its patents, according to court documents.
The settlement of Apple and HTC ended their worldwide litigation and brought to a close one of the first major flare-ups in the global smartphone patent wars.
Apple first sued HTC in 2010, setting in motion a legal conflagration that has since circled the globe and engulfed the biggest names in mobile technology, from Samsung to Google Inc's Motorola Mobility unit.
(Reporting By Edwin Chan; Additional reporting by Miyoung Kim in SEOUL; Editing by Muralikumar Anantharaman)
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Wednesday, November 21, 2012
In HP-Autonomy debacle, many advisers but little good advice
(Reuters) - When Hewlett Packard acquired Autonomy last year for $11.1 billion, some 15 different financial, legal and accounting firms were involved in the transaction -- and none raised a flag about what HP said Tuesday was a major accounting fraud.
HP stunned Wall Street with the allegations about its British software unit and took an $8.8 billion writedown, the latest in a string of reversals for the storied company.
HP Chief Executive Meg Whitman, who was a director at the company at the time of the deal, said the board had relied on accounting firm Deloitte for vetting Autonomy's financials and that KPMG was subsequently hired to audit Deloitte.
HP had many other advisers as well: boutique investment bank Perella Weinberg Partners to serve as its lead adviser, along with Barclays. Banking advisers on both sides of the deal were paid $68.8 million, according to data from Thomson Reuters/Freeman Consulting.
Barclays pocketed the biggest banker fee of the transaction at $18.1 million and Perella was paid $12 million. The company's legal advisers included Gibson, Dunn & Crutcher; Freshfields Bruckhaus Deringer; Drinker Biddle & Reath; and Skadden, Arps, Slate, Meagher & Flom, which advised the board.
On Autonomy's side of the table were Frank Quattrone's Qatalyst Partners, which specializes in tech deals and which picked up $11.6 million.
UBS, Goldman Sachs, Citigroup, JPMorgan Chase and Bank of America were also advising Autonomy and were paid $5.4 million each. Slaughter & May and Morgan Lewis served as the company's legal advisers.
While regulators in the United States and the United Kingdom, as well as the Federal Bureau of Investigation, are likely to spend many months if not years investigating what happened, legal experts said on Tuesday that it wasn't clear if any of the advisers would ultimately be held liable.
'The most logical deep pocket would be the acquired firm's auditors, who should have allegedly caught these defalcations,' said James Cox, a professor at Duke University law school who specializes in corporate and securities law. Since both auditors missed the problems and it appeared to have taken HP a while to catch it after it took over Autonomy, the auditors may have a strong defense.
'You can have a perfectly sound audit and still have fraud exist,' he said. A Deloitte UK spokesman said the company could not comment and would cooperate with any investigations.
The law firms and the bankers will likely argue that they were not hired to review the bookkeeping and had relied on the opinion of the auditors, securities law experts said.
Multiple sources with knowledge of the HP-Autonomy transaction added that the big-name banks on Autonomy's side were brought in days before the final agreement was struck. These sources said the banks were brought on as favors for their long relationships with the companies, in a little-scrutinized Wall Street practice of crediting -- and paying -- investment banks that actually have little do with the deal.
LAWSUITS, REPUTATIONS AT STAKE
Plaintiffs lawyers said they were taking calls from investors about HP on Tuesday. Darren Robbins, a San Diego-based plaintiff lawyer who represents shareholders, said the tech icon appears to have spent billions on a shoddy company without undertaking the proper due diligence, and thus misrepresented its finances to investors.
'I think they have serious troubles,' he said.
But plaintiff lawyers may have difficulty bringing so-called derivative lawsuits against professional services firms, said Brian Quinn, an M&A professor at Boston College Law School. In those cases, plaintiff lawyers can sue third parties, such as auditors, on behalf of HP -- but they must convince a judge that HP's board is unfit to pursue those claims itself. In this situation, though, HP's board disclosed the alleged fraud itself, Quinn said.
Even if the bankers and lawyers escape any legal problems, they could suffer a reputational hit. The scrutiny could be particularly unwelcome for Perella Weinberg: the firm advised Japanese camera maker Olympus' acquisition of British Gyrus -- a transaction that prompted investigations in the United States, United Kingdom and Japan into fees and payments made by Olympus.
Olympus had hired Perella to execute the transaction, which included a fee paid to 'advisers' of $687 million - way beyond the usual scale for a transaction valued at only $2 billion. Perella was not implicated in the matter.
Meanwhile, the most controversial banker involved in the HP-Autonomy deal, Frank Quattrone of Qatalyst, represented Autonomy and played a key role in getting HP to pay a high price.
A star investment banker in the 1990s, Quattrone had worked at Morgan Stanley, Deutsche Bank and Credit Suisse, and helped arrange some of the biggest tech initial public offerings of the era, including Amazon.com Inc and Cisco Systems Inc.
But his time at the top of Silicon Valley was curtailed by charges that he blocked an investigation into IPO kickbacks. After two trials failed to resolve his case, he ultimately reached a deal with prosecutors.
His return to the Silicon Valley M&A scene has impressed many in the tech world.
'His reputation is at an all-time high right now,' said Dan Scheinman, the former head of mergers and acquisitions at Cisco who has worked with Quattrone on several deals.
Analysts almost uniformly deemed the $11.1 billion he got HP to pay for Autonomy as overly rich -- a compliment to him at the time, but possibly a hollow success if HP's allegations prove true.
(Reporting By Nadia Damouni and Nicola Leske in New York and Andrew Callus in London. Additional reporting by Dan Levine in San Francisco.; Editing by Peter Lauria, Jonathan Weber, Muralikumar Anantharaman, Janet McBride)
This news article is brought to you by STOCK MARKET BLOG - where latest news are our top priority.
HP stunned Wall Street with the allegations about its British software unit and took an $8.8 billion writedown, the latest in a string of reversals for the storied company.
HP Chief Executive Meg Whitman, who was a director at the company at the time of the deal, said the board had relied on accounting firm Deloitte for vetting Autonomy's financials and that KPMG was subsequently hired to audit Deloitte.
HP had many other advisers as well: boutique investment bank Perella Weinberg Partners to serve as its lead adviser, along with Barclays. Banking advisers on both sides of the deal were paid $68.8 million, according to data from Thomson Reuters/Freeman Consulting.
Barclays pocketed the biggest banker fee of the transaction at $18.1 million and Perella was paid $12 million. The company's legal advisers included Gibson, Dunn & Crutcher; Freshfields Bruckhaus Deringer; Drinker Biddle & Reath; and Skadden, Arps, Slate, Meagher & Flom, which advised the board.
On Autonomy's side of the table were Frank Quattrone's Qatalyst Partners, which specializes in tech deals and which picked up $11.6 million.
UBS, Goldman Sachs, Citigroup, JPMorgan Chase and Bank of America were also advising Autonomy and were paid $5.4 million each. Slaughter & May and Morgan Lewis served as the company's legal advisers.
While regulators in the United States and the United Kingdom, as well as the Federal Bureau of Investigation, are likely to spend many months if not years investigating what happened, legal experts said on Tuesday that it wasn't clear if any of the advisers would ultimately be held liable.
'The most logical deep pocket would be the acquired firm's auditors, who should have allegedly caught these defalcations,' said James Cox, a professor at Duke University law school who specializes in corporate and securities law. Since both auditors missed the problems and it appeared to have taken HP a while to catch it after it took over Autonomy, the auditors may have a strong defense.
'You can have a perfectly sound audit and still have fraud exist,' he said. A Deloitte UK spokesman said the company could not comment and would cooperate with any investigations.
The law firms and the bankers will likely argue that they were not hired to review the bookkeeping and had relied on the opinion of the auditors, securities law experts said.
Multiple sources with knowledge of the HP-Autonomy transaction added that the big-name banks on Autonomy's side were brought in days before the final agreement was struck. These sources said the banks were brought on as favors for their long relationships with the companies, in a little-scrutinized Wall Street practice of crediting -- and paying -- investment banks that actually have little do with the deal.
LAWSUITS, REPUTATIONS AT STAKE
Plaintiffs lawyers said they were taking calls from investors about HP on Tuesday. Darren Robbins, a San Diego-based plaintiff lawyer who represents shareholders, said the tech icon appears to have spent billions on a shoddy company without undertaking the proper due diligence, and thus misrepresented its finances to investors.
'I think they have serious troubles,' he said.
But plaintiff lawyers may have difficulty bringing so-called derivative lawsuits against professional services firms, said Brian Quinn, an M&A professor at Boston College Law School. In those cases, plaintiff lawyers can sue third parties, such as auditors, on behalf of HP -- but they must convince a judge that HP's board is unfit to pursue those claims itself. In this situation, though, HP's board disclosed the alleged fraud itself, Quinn said.
Even if the bankers and lawyers escape any legal problems, they could suffer a reputational hit. The scrutiny could be particularly unwelcome for Perella Weinberg: the firm advised Japanese camera maker Olympus' acquisition of British Gyrus -- a transaction that prompted investigations in the United States, United Kingdom and Japan into fees and payments made by Olympus.
Olympus had hired Perella to execute the transaction, which included a fee paid to 'advisers' of $687 million - way beyond the usual scale for a transaction valued at only $2 billion. Perella was not implicated in the matter.
Meanwhile, the most controversial banker involved in the HP-Autonomy deal, Frank Quattrone of Qatalyst, represented Autonomy and played a key role in getting HP to pay a high price.
A star investment banker in the 1990s, Quattrone had worked at Morgan Stanley, Deutsche Bank and Credit Suisse, and helped arrange some of the biggest tech initial public offerings of the era, including Amazon.com Inc and Cisco Systems Inc.
But his time at the top of Silicon Valley was curtailed by charges that he blocked an investigation into IPO kickbacks. After two trials failed to resolve his case, he ultimately reached a deal with prosecutors.
His return to the Silicon Valley M&A scene has impressed many in the tech world.
'His reputation is at an all-time high right now,' said Dan Scheinman, the former head of mergers and acquisitions at Cisco who has worked with Quattrone on several deals.
Analysts almost uniformly deemed the $11.1 billion he got HP to pay for Autonomy as overly rich -- a compliment to him at the time, but possibly a hollow success if HP's allegations prove true.
(Reporting By Nadia Damouni and Nicola Leske in New York and Andrew Callus in London. Additional reporting by Dan Levine in San Francisco.; Editing by Peter Lauria, Jonathan Weber, Muralikumar Anantharaman, Janet McBride)
This news article is brought to you by STOCK MARKET BLOG - where latest news are our top priority.
Tuesday, November 20, 2012
HP accuses Autonomy of wrongdoing, takes $8.8 billion charge
SAN FRANCISCO/NEW YORK (Reuters) - Hewlett-Packard Co stunned Wall Street by alleging a massive accounting scandal at its British software unit Autonomy and taking an $8.8 billion writedown, the latest in a string of reversals that renewed questions about the competence of the storied company's board and senior managers.
HP said on Tuesday it discovered 'serious accounting improprieties' and 'a willful effort by Autonomy to mislead shareholders,' after a whistleblower came forward following the May ouster of former Autonomy Chief Executive Mike Lynch.
The news sent the company's shares plunging 12 percent to a 10-year low of $11.71. HP, which for decades was synonymous with technical excellence and innovation as one of the bedrock companies of Silicon Valley, now has a market value of roughly $20 billion, down from $155 billion in April of 2000.
CEO Meg Whitman took the helm at HP a little over a year ago when her predecessor, Leo Apotheker, was fired after less than a year on the job. Apotheker's one big strategic move during his brief tenure was the $11 billion acquisition of Autonomy, intended to hasten HP's transformation into a software and services company but criticized by many analysts as over-priced.
'Most of the board was here and voted for this deal, and we feel terribly about that,' Whitman said on a call with analysts.
Tuesday's announcement came just three months after the company took a write-down of almost $11 billion on its EDS services division.
HP has for years relied on deal-making, acquiring businesses ranging from EDS to Compaq to Palm, but has largely failed to articulate a clear strategy or establish a strong position in growth businesses like computer services or mobile computing.
'To put it bluntly ... this story has been an unmitigated train wreck, and it seems every time management speaks to the Street, there is new negative incremental information forthcoming,' said ISI Group analyst Brian Marshall.
HP said it has referred the alleged accounting wrongdoing at Autonomy to the U.S. Securities and Exchange Commission's enforcement division and the UK's Serious Fraud Office for civil and criminal investigation. HP also said it would take legal action to recoup 'what we can for our shareholders.'
Both agencies declined to comment.
Lynch, in an interview with Reuters, 'flatly rejected' HP's allegations and said he was 'shocked' but confident he would be absolved of any misdeeds. The Irish-born executive said he had not been notified by HP about the allegation before it was made public, nor had he been contacted by any authorities.
Whitman said the investigation of Autonomy's finances - both external and internal - will take multiple years as it wends it way through the courts in both countries.
She defended the board's handling of the acquisition and blamed HP's auditors for failing to detect the problems.
'The board relied on audited financials, audited by Deloitte. Not Brand X accounting firm, but Deloitte,' she said, adding that KPMG was hired to audit Deloitte.
'Neither of them saw what we now see after someone came forward to point us in the right direction,' Whitman said.
The alleged accounting issues also put a spotlight on the investment banks and law firms involved in the acquisition.
Autonomy was represented by Frank Quattrone, an investment banker who was the target of widespread criticism - and criminal prosecution - for his activities during the first dot-com boom. After one trial ended in a hung jury and a second ended in a guilty verdict that was overturned on appeal, the charges were ultimately dropped.
HP's lead advisor was Perella Weinberg, a boutique investment bank with little experience in big tech deals. Its attorneys included the blue-chip firms Gibson, Dunn & Crutcher; Freshfields Bruckhaus Deringer; Drinker Biddle & Reath; and Skadden, Arps, Slate, Meagher & Flom, which advised the board.
INFLATED SALES, REVENUE
Whitman on Tuesday stood by Autonomy's technology and products, saying the unit would still be the growth engine for HP. The sprawling company, which employs more than 300,000 people globally, aims to focus more on enterprise services in the mold of International Business Machines Corp.
But the former eBay CEO and California gubernatorial candidate has yet to overcome years of management turmoil and strategic missteps, including a plan to sell the personal computer unit that was later dropped.
HP disclosed the Autonomy allegations in conjunction with its fourth-quarter earnings, which showed a 6.7 percent decline in revenues as well as a $6.85 billion loss.
It took $8.8 billion in charges in the quarter, with over $5 billion tied to the problems at Autonomy. The rest of the charge related to the 'recent trading value of HP stock and headwinds against anticipated synergies and marketplace performance,' HP said without elaborating.
HP has since embarked on an internal investigation, including a forensic review of Autonomy's historical results by PricewaterhouseCoopers and HP General Counsel John Schultz.
It accuses Autonomy's former management of inflating revenue and gross margins to mislead potential buyers. It said Autonomy executives mischaracterized revenue from low-end hardware sales as software sales and booked some licensing deals with partners as revenue, even though no customer bought products.
It said Autonomy claimed its gross margins were in the 40 to 45 percent range while realistically they were in the 28 to 30 percent range.
Moreover, Autonomy always represented itself as a software firm but 10 percent to 15 percent of its revenue came from money-losing sales of low-end hardware, HP said.
The company also claimed that Autonomy was booking licensing revenue upfront before deals closed.
Schultz said since the accounting troubles occurred prior to the acquisition of Autonomy, it took a long time before HP was in a position to make the news public.
'Not surprisingly, Autonomy did not have sitting on a shelf somewhere a set of well-maintained books that would walk you through what was actually happening from a financial perspective inside the company,' he said. 'Indeed critical documents were missing from the obvious places, and it required that we look in every nook and cranny.'
Yet there had been rumblings in the industry for years that Autonomy's results might not be quite what they seemed.
As early as 2009, hedge fund manager Jim Chanos had identified Autonomy as a shorting opportunity, according to a source familiar with his views.
Chief among his concerns, according to the source, was that Autonomy was claiming a 40 percent market share against the likes of Microsoft Corp, International Business Machines Corp and EMC Corp in the field of e-discovery.
Autonomy's stated margins of around 50 percent did not seem to translate proportionately into cash flow; and it was reporting double-digit organic growth in software license revenue while rivals battled shrinking sales, the person said.
During a presentation a few weeks ago entitled 'Faking Reported Income 101' at the Santangel's Investor Forum in New York, hedge fund manager John Hempton of Sydney, Australia-based Bronte Capital highlighted items on Autonomy's balance sheet that raised his concerns.
'Is it odd that in a software company you have receivables of 4.5 months? Or that deferred revenue is under half receivables?' asked Hempton, who has a short position on HP.
Last year, software firm Oracle Corp said it had looked at Autonomy but passed on it.
Whitman said Tuesday that her predecessor, Apotheker, and former Chief Strategy and Technology Officer Shane Robison were the key people behind the Autonomy acquisition. Robison left shortly after Apotheker was ousted in September 2010.
In a statement, Apotheker said he was 'stunned and disappointed' by the revelations and offered to help HP and the authorities to get to the bottom of the matter.
Robert Enderle, a tech analyst at the Enderle Group, said he has never seen such a potential misrepresentation of financials.
'You have to rely on what the firm gives you during due diligence and I've never seen a misstatement at this level,' Enderle said.
If the charges are true, it could result in a massive punitive damages award for HP, Enderle said.
Other analysts hoped it was the end of the bad news for HP.
'This kind of feels like the last of the bad news,' Forrester analyst Frank Gillett said.
In announcing its quarterly results, HP said net revenue fell 6.7 percent to $29.96 billion for the quarter ended October 31, from $32.12 billion a year earlier. Analysts, on average, had expected $30.43 billion, according to Thomson Reuters I/B/E/S.
Revenue from all of its main business units declined, with the personal computer division recording the steepest drop, at 14 percent, while revenue from printing fell 5 percent.
HP reported a quarterly net loss of $6.85 billion, or $3.49 a share, versus a profit of $239 million, or 12 cents, a year earlier.
(Additional reporting by Paul Sandle, Supantha Mukherjee in Bangalore, Katya Wachtel and Nadia Damouni in New York,; Editing by Jonathan Weber, Edwin Chan, Peter Lauria, Steve Orlofsky and Richard Chang)
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HP said on Tuesday it discovered 'serious accounting improprieties' and 'a willful effort by Autonomy to mislead shareholders,' after a whistleblower came forward following the May ouster of former Autonomy Chief Executive Mike Lynch.
The news sent the company's shares plunging 12 percent to a 10-year low of $11.71. HP, which for decades was synonymous with technical excellence and innovation as one of the bedrock companies of Silicon Valley, now has a market value of roughly $20 billion, down from $155 billion in April of 2000.
CEO Meg Whitman took the helm at HP a little over a year ago when her predecessor, Leo Apotheker, was fired after less than a year on the job. Apotheker's one big strategic move during his brief tenure was the $11 billion acquisition of Autonomy, intended to hasten HP's transformation into a software and services company but criticized by many analysts as over-priced.
'Most of the board was here and voted for this deal, and we feel terribly about that,' Whitman said on a call with analysts.
Tuesday's announcement came just three months after the company took a write-down of almost $11 billion on its EDS services division.
HP has for years relied on deal-making, acquiring businesses ranging from EDS to Compaq to Palm, but has largely failed to articulate a clear strategy or establish a strong position in growth businesses like computer services or mobile computing.
'To put it bluntly ... this story has been an unmitigated train wreck, and it seems every time management speaks to the Street, there is new negative incremental information forthcoming,' said ISI Group analyst Brian Marshall.
HP said it has referred the alleged accounting wrongdoing at Autonomy to the U.S. Securities and Exchange Commission's enforcement division and the UK's Serious Fraud Office for civil and criminal investigation. HP also said it would take legal action to recoup 'what we can for our shareholders.'
Both agencies declined to comment.
Lynch, in an interview with Reuters, 'flatly rejected' HP's allegations and said he was 'shocked' but confident he would be absolved of any misdeeds. The Irish-born executive said he had not been notified by HP about the allegation before it was made public, nor had he been contacted by any authorities.
Whitman said the investigation of Autonomy's finances - both external and internal - will take multiple years as it wends it way through the courts in both countries.
She defended the board's handling of the acquisition and blamed HP's auditors for failing to detect the problems.
'The board relied on audited financials, audited by Deloitte. Not Brand X accounting firm, but Deloitte,' she said, adding that KPMG was hired to audit Deloitte.
'Neither of them saw what we now see after someone came forward to point us in the right direction,' Whitman said.
The alleged accounting issues also put a spotlight on the investment banks and law firms involved in the acquisition.
Autonomy was represented by Frank Quattrone, an investment banker who was the target of widespread criticism - and criminal prosecution - for his activities during the first dot-com boom. After one trial ended in a hung jury and a second ended in a guilty verdict that was overturned on appeal, the charges were ultimately dropped.
HP's lead advisor was Perella Weinberg, a boutique investment bank with little experience in big tech deals. Its attorneys included the blue-chip firms Gibson, Dunn & Crutcher; Freshfields Bruckhaus Deringer; Drinker Biddle & Reath; and Skadden, Arps, Slate, Meagher & Flom, which advised the board.
INFLATED SALES, REVENUE
Whitman on Tuesday stood by Autonomy's technology and products, saying the unit would still be the growth engine for HP. The sprawling company, which employs more than 300,000 people globally, aims to focus more on enterprise services in the mold of International Business Machines Corp.
But the former eBay CEO and California gubernatorial candidate has yet to overcome years of management turmoil and strategic missteps, including a plan to sell the personal computer unit that was later dropped.
HP disclosed the Autonomy allegations in conjunction with its fourth-quarter earnings, which showed a 6.7 percent decline in revenues as well as a $6.85 billion loss.
It took $8.8 billion in charges in the quarter, with over $5 billion tied to the problems at Autonomy. The rest of the charge related to the 'recent trading value of HP stock and headwinds against anticipated synergies and marketplace performance,' HP said without elaborating.
HP has since embarked on an internal investigation, including a forensic review of Autonomy's historical results by PricewaterhouseCoopers and HP General Counsel John Schultz.
It accuses Autonomy's former management of inflating revenue and gross margins to mislead potential buyers. It said Autonomy executives mischaracterized revenue from low-end hardware sales as software sales and booked some licensing deals with partners as revenue, even though no customer bought products.
It said Autonomy claimed its gross margins were in the 40 to 45 percent range while realistically they were in the 28 to 30 percent range.
Moreover, Autonomy always represented itself as a software firm but 10 percent to 15 percent of its revenue came from money-losing sales of low-end hardware, HP said.
The company also claimed that Autonomy was booking licensing revenue upfront before deals closed.
Schultz said since the accounting troubles occurred prior to the acquisition of Autonomy, it took a long time before HP was in a position to make the news public.
'Not surprisingly, Autonomy did not have sitting on a shelf somewhere a set of well-maintained books that would walk you through what was actually happening from a financial perspective inside the company,' he said. 'Indeed critical documents were missing from the obvious places, and it required that we look in every nook and cranny.'
Yet there had been rumblings in the industry for years that Autonomy's results might not be quite what they seemed.
As early as 2009, hedge fund manager Jim Chanos had identified Autonomy as a shorting opportunity, according to a source familiar with his views.
Chief among his concerns, according to the source, was that Autonomy was claiming a 40 percent market share against the likes of Microsoft Corp, International Business Machines Corp and EMC Corp in the field of e-discovery.
Autonomy's stated margins of around 50 percent did not seem to translate proportionately into cash flow; and it was reporting double-digit organic growth in software license revenue while rivals battled shrinking sales, the person said.
During a presentation a few weeks ago entitled 'Faking Reported Income 101' at the Santangel's Investor Forum in New York, hedge fund manager John Hempton of Sydney, Australia-based Bronte Capital highlighted items on Autonomy's balance sheet that raised his concerns.
'Is it odd that in a software company you have receivables of 4.5 months? Or that deferred revenue is under half receivables?' asked Hempton, who has a short position on HP.
Last year, software firm Oracle Corp said it had looked at Autonomy but passed on it.
Whitman said Tuesday that her predecessor, Apotheker, and former Chief Strategy and Technology Officer Shane Robison were the key people behind the Autonomy acquisition. Robison left shortly after Apotheker was ousted in September 2010.
In a statement, Apotheker said he was 'stunned and disappointed' by the revelations and offered to help HP and the authorities to get to the bottom of the matter.
Robert Enderle, a tech analyst at the Enderle Group, said he has never seen such a potential misrepresentation of financials.
'You have to rely on what the firm gives you during due diligence and I've never seen a misstatement at this level,' Enderle said.
If the charges are true, it could result in a massive punitive damages award for HP, Enderle said.
Other analysts hoped it was the end of the bad news for HP.
'This kind of feels like the last of the bad news,' Forrester analyst Frank Gillett said.
In announcing its quarterly results, HP said net revenue fell 6.7 percent to $29.96 billion for the quarter ended October 31, from $32.12 billion a year earlier. Analysts, on average, had expected $30.43 billion, according to Thomson Reuters I/B/E/S.
Revenue from all of its main business units declined, with the personal computer division recording the steepest drop, at 14 percent, while revenue from printing fell 5 percent.
HP reported a quarterly net loss of $6.85 billion, or $3.49 a share, versus a profit of $239 million, or 12 cents, a year earlier.
(Additional reporting by Paul Sandle, Supantha Mukherjee in Bangalore, Katya Wachtel and Nadia Damouni in New York,; Editing by Jonathan Weber, Edwin Chan, Peter Lauria, Steve Orlofsky and Richard Chang)
This article is brought to you by BUY CHEAP COMPUTERS.
HP alleges Autonomy wrongdoing, takes $8.8 billion charge
(Reuters) - Hewlett-Packard stunned Wall Street by alleging a massive accounting scandal at its British software unit Autonomy that will cost the company the majority of $8.8 billion in charges.
It was the latest in a string of reversals that have renewed questions about the basic competence of the storied company's board and senior managers.
HP said on Tuesday it discovered 'serious accounting improprieties' and 'a willful effort by Autonomy to mislead shareholders,' after a whistleblower came forward following the ouster of Autonomy's then-chief executive, Mike Lynch, in May.
The charge follows a nearly $11 billion writedown last quarter for the company's EDS services division.
The technology company has been roiled in the past few years by a revolving door of CEOs, overall management turnover and challenges in its core personal computer and printer businesses.
HP's stock slid to a 10-year low, dropping 12 percent to $11.71 in regular trading on Tuesday. Shares are down nearly 50 percent year to date.
Lynch 'flatly rejected' HP's allegations and said he was 'shocked' but confident he would be absolved of any wrongdoing.
He had not been notified by HP about the allegation before it was made public, nor had he been contacted by any authorities, Lynch said in an interview with Reuters.
HP took $8.8 billion in charges in the quarter, with $5 billion tied to the problems at Autonomy. The rest of the charge related to the 'recent trading value of HP stock and headwinds against anticipated synergies and marketplace performance,' HP said.
HP said it has referred the matter to the U.S. Securities and Exchange Commission's enforcement division and the UK's Serious Fraud Office for civil and criminal investigation. It said it would take legal action to recoup 'what we can for our shareholders.'
Both agencies declined to comment.
HP Chief Executive Meg Whitman, who voted for the deal while she was on HP's board, said the investigation of Autonomy's finances - both external and internal - will take multiple years as it makes it way through the courts in both countries.
'Most of the board was here and voted for this deal, and we feel terribly about that,' said Whitman on a call with analysts. 'The board relied on audited financials, audited by Deloitte. Not Brand X accounting firm, but Deloitte,' she said, adding that KPMG was hired to audit Deloitte.
'Neither of them saw what we now see after someone came forward to point us in the right direction,' Whitman said.
INFLATED SALES, REVENUE
HP alleged that Autonomy's former management inflated revenue and gross margins to mislead potential buyers. It said Autonomy executives mischaracterized revenue from low-end hardware sales as software sales and booked some licensing deals with partners as revenue, even though no customer bought products.
HP said Autonomy claimed its gross margins were in the 40 percent to 45 percent range while realistically they were in the 28 percent to 30 percent range.
Moreover, Autonomy always represented itself as a software firm but 10 percent to 15 percent of its revenue came from money-losing sales of low-end hardware, HP said.
The company also claimed that Autonomy was booking licensing revenue upfront before deals closed.
HP has embarked on an internal investigation, including a forensic review by PricewaterhouseCoopers of Autonomy's historical financial results, under HP General Counsel John Schultz after the whistleblower came forward in May.
Schultz said since the accounting troubles occurred prior to the acquisition of Autonomy, it took a long time before HP was in a position to make the news public.
'Not surprisingly, Autonomy did not have sitting on a shelf somewhere a set of well-maintained books that would walk you through what was actually happening from a financial perspective inside the company,' he said. 'Indeed critical documents were missing from the obvious places, and it required that we look in every nook and cranny.'
Whitman said her predecessor, Leo Apotheker and the former chief strategy officer, Shane Robison, were the key people behind the Autonomy acquisition.
Apotheker bought Autonomy to diversify HP's business and beef up its portfolio to provide one-stop shopping for corporations. The $11 billion acquisition of Autonomy - heavily criticized by investors as too costly - was a key part of the plan to transform HP.
Apotheker was ousted as CEO in September 2011 after just 11 months on the job and Robison left soon after.
In a statement, Apotheker said he was 'stunned and disappointed' by the revelations and offered to make himself available to HP and the authorities to get to the bottom of the matter.
Whitman on Tuesday stood by Autonomy's technology and products despite the allegations, saying it will be the growth engine for HP. The former California gubernatorial candidate has been trying to move beyond some of HP's past controversies, which includes the ouster of the past two CEOs, a haphazard product strategy and a plan to sell its PC unit that was later dropped.
HP has been running Autonomy since the acquisition closed in October 2011, but it didn't find the accounting problems on its own. The company investigated only after a senior Autonomy executive came forward to detail the financial metrics surrounding Autonomy.
Advisers working on behalf of Autonomy included Qatalyst Partners, the investment bank run by technology investment banker Frank Quattrone; UBS; Goldman Sachs; Citigroup; JPMorgan Chase, and Bank of America. Perella Weinberg Partners and Barclays Capital advised for HP.
Law firms for Autonomy were Slaughter & May and Morgan Lewis. The firms for HP included Gibson, Dunn & Crutcher; Freshfields Bruckhaus Deringer; Drinker Biddle & Reath; and Skadden, Arps, Slate, Meagher & Flom.
Robert Enderle, a tech analyst at the Enderle Group, said he has never seen such a potential misrepresentation of financials.
'You have to rely on what the firm gives you during due diligence and I've never seen a misstatement at this level,' Enderle said.
If the charges are true, it could result in a massive punitive damages award for HP, Enderle said.
Other analysts hoped it was the end of the bad news for HP.
'This kind of feels like the last of the bad news,' Forrester analyst Frank Gillett said.
FOURTH-QUARTER LOSS
The Autonomy allegations and announcement of the charge coincided with the reporting of a fiscal fourth-quarter loss for HP.
HP said net revenue fell 6.7 percent to $29.96 billion for the quarter, ended October 31, from $32.12 billion a year earlier. Analysts, on average, expected $30.43 billion, according to Thomson Reuters I/B/E/S.
Revenue from all of its main business units declined, with the personal computer division recording the steepest drop, at 14 percent while revenue from printing fell 5 percent.
HP reported a quarterly net loss of $6.85 billion, or $3.49 a share, versus a profit of $239 million, or 12 cents, a year earlier.
The sprawling company, which employs more than 300,000 people globally, is undergoing a restructuring aimed at focusing on enterprise services in the mold of International Business Machines Corp.
'To put it bluntly ... this story has been an unmitigated train wreck, and it seems every time management speaks to the Street, there is new negative incremental information forthcoming,' said ISI Group analyst Brian Marshall.
(Reporting by Poornima Gupta in San Francisco, Nicola Leske in New York and Supantha Mukherjee in Bangalore; Additional reporting by Paul Sandle; Editing by Peter Lauria, Saumyadeb Chakrabarty, Jeffrey Benkoe and Steve Orlofsky)
This news article is brought to you by DATING AND RELATIONSHIP ADVICE - where latest news are our top priority.
It was the latest in a string of reversals that have renewed questions about the basic competence of the storied company's board and senior managers.
HP said on Tuesday it discovered 'serious accounting improprieties' and 'a willful effort by Autonomy to mislead shareholders,' after a whistleblower came forward following the ouster of Autonomy's then-chief executive, Mike Lynch, in May.
The charge follows a nearly $11 billion writedown last quarter for the company's EDS services division.
The technology company has been roiled in the past few years by a revolving door of CEOs, overall management turnover and challenges in its core personal computer and printer businesses.
HP's stock slid to a 10-year low, dropping 12 percent to $11.71 in regular trading on Tuesday. Shares are down nearly 50 percent year to date.
Lynch 'flatly rejected' HP's allegations and said he was 'shocked' but confident he would be absolved of any wrongdoing.
He had not been notified by HP about the allegation before it was made public, nor had he been contacted by any authorities, Lynch said in an interview with Reuters.
HP took $8.8 billion in charges in the quarter, with $5 billion tied to the problems at Autonomy. The rest of the charge related to the 'recent trading value of HP stock and headwinds against anticipated synergies and marketplace performance,' HP said.
HP said it has referred the matter to the U.S. Securities and Exchange Commission's enforcement division and the UK's Serious Fraud Office for civil and criminal investigation. It said it would take legal action to recoup 'what we can for our shareholders.'
Both agencies declined to comment.
HP Chief Executive Meg Whitman, who voted for the deal while she was on HP's board, said the investigation of Autonomy's finances - both external and internal - will take multiple years as it makes it way through the courts in both countries.
'Most of the board was here and voted for this deal, and we feel terribly about that,' said Whitman on a call with analysts. 'The board relied on audited financials, audited by Deloitte. Not Brand X accounting firm, but Deloitte,' she said, adding that KPMG was hired to audit Deloitte.
'Neither of them saw what we now see after someone came forward to point us in the right direction,' Whitman said.
INFLATED SALES, REVENUE
HP alleged that Autonomy's former management inflated revenue and gross margins to mislead potential buyers. It said Autonomy executives mischaracterized revenue from low-end hardware sales as software sales and booked some licensing deals with partners as revenue, even though no customer bought products.
HP said Autonomy claimed its gross margins were in the 40 percent to 45 percent range while realistically they were in the 28 percent to 30 percent range.
Moreover, Autonomy always represented itself as a software firm but 10 percent to 15 percent of its revenue came from money-losing sales of low-end hardware, HP said.
The company also claimed that Autonomy was booking licensing revenue upfront before deals closed.
HP has embarked on an internal investigation, including a forensic review by PricewaterhouseCoopers of Autonomy's historical financial results, under HP General Counsel John Schultz after the whistleblower came forward in May.
Schultz said since the accounting troubles occurred prior to the acquisition of Autonomy, it took a long time before HP was in a position to make the news public.
'Not surprisingly, Autonomy did not have sitting on a shelf somewhere a set of well-maintained books that would walk you through what was actually happening from a financial perspective inside the company,' he said. 'Indeed critical documents were missing from the obvious places, and it required that we look in every nook and cranny.'
Whitman said her predecessor, Leo Apotheker and the former chief strategy officer, Shane Robison, were the key people behind the Autonomy acquisition.
Apotheker bought Autonomy to diversify HP's business and beef up its portfolio to provide one-stop shopping for corporations. The $11 billion acquisition of Autonomy - heavily criticized by investors as too costly - was a key part of the plan to transform HP.
Apotheker was ousted as CEO in September 2011 after just 11 months on the job and Robison left soon after.
In a statement, Apotheker said he was 'stunned and disappointed' by the revelations and offered to make himself available to HP and the authorities to get to the bottom of the matter.
Whitman on Tuesday stood by Autonomy's technology and products despite the allegations, saying it will be the growth engine for HP. The former California gubernatorial candidate has been trying to move beyond some of HP's past controversies, which includes the ouster of the past two CEOs, a haphazard product strategy and a plan to sell its PC unit that was later dropped.
HP has been running Autonomy since the acquisition closed in October 2011, but it didn't find the accounting problems on its own. The company investigated only after a senior Autonomy executive came forward to detail the financial metrics surrounding Autonomy.
Advisers working on behalf of Autonomy included Qatalyst Partners, the investment bank run by technology investment banker Frank Quattrone; UBS; Goldman Sachs; Citigroup; JPMorgan Chase, and Bank of America. Perella Weinberg Partners and Barclays Capital advised for HP.
Law firms for Autonomy were Slaughter & May and Morgan Lewis. The firms for HP included Gibson, Dunn & Crutcher; Freshfields Bruckhaus Deringer; Drinker Biddle & Reath; and Skadden, Arps, Slate, Meagher & Flom.
Robert Enderle, a tech analyst at the Enderle Group, said he has never seen such a potential misrepresentation of financials.
'You have to rely on what the firm gives you during due diligence and I've never seen a misstatement at this level,' Enderle said.
If the charges are true, it could result in a massive punitive damages award for HP, Enderle said.
Other analysts hoped it was the end of the bad news for HP.
'This kind of feels like the last of the bad news,' Forrester analyst Frank Gillett said.
FOURTH-QUARTER LOSS
The Autonomy allegations and announcement of the charge coincided with the reporting of a fiscal fourth-quarter loss for HP.
HP said net revenue fell 6.7 percent to $29.96 billion for the quarter, ended October 31, from $32.12 billion a year earlier. Analysts, on average, expected $30.43 billion, according to Thomson Reuters I/B/E/S.
Revenue from all of its main business units declined, with the personal computer division recording the steepest drop, at 14 percent while revenue from printing fell 5 percent.
HP reported a quarterly net loss of $6.85 billion, or $3.49 a share, versus a profit of $239 million, or 12 cents, a year earlier.
The sprawling company, which employs more than 300,000 people globally, is undergoing a restructuring aimed at focusing on enterprise services in the mold of International Business Machines Corp.
'To put it bluntly ... this story has been an unmitigated train wreck, and it seems every time management speaks to the Street, there is new negative incremental information forthcoming,' said ISI Group analyst Brian Marshall.
(Reporting by Poornima Gupta in San Francisco, Nicola Leske in New York and Supantha Mukherjee in Bangalore; Additional reporting by Paul Sandle; Editing by Peter Lauria, Saumyadeb Chakrabarty, Jeffrey Benkoe and Steve Orlofsky)
This news article is brought to you by DATING AND RELATIONSHIP ADVICE - where latest news are our top priority.
HP alleges Autonomy wrongdoing, takes $5 billion charge
(Reuters) - Hewlett-Packard Co on Tuesday took a massive $5 billion charge, claiming a raft of improprieties, misrepresentation and disclosure failures at software firm Autonomy, which it acquired last October for $11.1 billion.
HP said it discovered 'serious accounting improprieties' and 'a willful effort by Autonomy to mislead shareholders' after a whistleblower came forward.
The latest charge, which follows a nearly $11 billion charge last quarter for its EDS services division, is the latest blow to HP. The technology company has been roiled in the past few years by a revolving door of CEOs, overall management turnover and challenges in its core personal computer and printer businesses.
Former Autonomy Chief Executive Mike Lynch, who was pushed out in May, 'flatly rejected' HP's allegations.
'The former management team of Autonomy was shocked to see this statement today, and flatly rejects these allegations, which are false,' a Lynch spokeswoman said in a brief statement to Reuters.
HP took $8.8 billion in charges in the fourth quarter, with $5 billion tied to the problems at Autonomy.
HP said it has referred the matter to the U.S. Securities and Exchange Commission's enforcement division and the UK's Serious Fraud Office for civil and criminal investigation. It said it will take legal action to recoup 'what we can for our shareholders.'
HP informed both the SEC and the Serious Fraud Office over the past week. Both agencies declined to comment.
HP's stock slid to a 10-year low, losing 11.2 percent to $11.81 in afternoon trading. Shares are down nearly 50 percent year to date.
INFLATED SALES, REVENUE
HP alleged that Autonomy's former management inflated revenue and gross margins. It said Autonomy executives mischaracterized revenue from low-end hardware sales as software sales and booked some licensing deals with partners as revenue, even though no customer bought the product.
HP said it began an internal investigation, including a forensic review by PricewaterhouseCoopers of Autonomy's historical financial results, under HP General Counsel John Schultz after the whistleblower came forward.
Schultz said since the accounting troubles occurred prior to the acquisition, it took a long time before the company was in a position to make the news public.
'Not surprisingly, Autonomy did not have sitting on a shelf somewhere a set of well-maintained books that would walk you through what was actually happening from a financial perspective inside the company,' he said. 'Indeed critical documents were missing from the obvious places, and it required that we look in every nook and cranny.'
HP CEO Meg Whitman said her predecessor, Leo Apotheker and the former chief strategy officer, Shane Robison, were the key people behind the Autonomy acquisition.
Apotheker was ousted as CEO in September 2011 after just 11 months on the job and Robison left soon after.
'Most of the board was here and voted for this deal, and we feel terribly about that,' said Whitman on a call with analysts. 'The board relied on audited financials, audited by Deloitte. Not Brand X accounting firm, but Deloitte,' she said, adding that KPMG was hired to audit Deloitte.
'Neither of them saw what we now see after someone came forward to point us in the right direction,' Whitman said.
Other advisers who worked on the deal included Qatalyst Partners, the investment bank run by technology investment banker Frank Quattrone; UBS; Goldman Sachs; Citigroup; JPMorgan Chase and Bank of America for Autonomy. Perella Weinberg Partners and Barclays Capital advised for HP.
Law firms for Autonomy were Slaughter & May and Morgan Lewis. The firms for HP included Gibson, Dunn & Crutcher; Freshfields Bruckhaus Deringer; Drinker Biddle & Reath; and Skadden, Arps, Slate, Meagher & Flom, which advised the board.
Lynch said he was 'shocked to see' HP's allegations, adding that its due diligence prior to the acquisition was 'intensive.' He said HP's senior management was 'closely involved with running Autonomy for the past year.'
In response, Whitman said on CNBC the company stands by its findings.
In a statement, Apotheker said he was 'stunned and disappointed' by the revelations and offered to make himself available to HP and the authorities to get to the bottom of the matter.
Robert Enderle, a tech analyst at the Enderle Group, said he has never seen such a potential misrepresentation of financials.
'You have to rely on what the firm gives you during due diligence and I've never seen a misstatement at this level,' Enderle said.
If the charges are true, it could result in a massive punitive damages award for HP, Enderle said.
Other analysts hoped it was the end of the bad news for the company.
'This kind of feels like the last of the bad news,' Forrester analyst Frank Gillett said.
FOURTH-QUARTER LOSS
The Autonomy allegations and announcement of the charge coincided with the reporting of a fourth-quarter loss for HP.
Net revenue fell 6.7 percent to $29.96 billion for the fourth quarter ended October 31 from $32.12 billion a year earlier. Analysts, on average, expected $30.43 billion, according to Thomson Reuters I/B/E/S.
Revenue from all of its main business units declined, with the personal computer division recording the steepest drop at 14 percent.
HP reported a quarterly net loss of $6.85 billion, or $3.49 a share, versus a profit of $239 million, or 12 cents, a year earlier.
The sprawling company, which employs more than 300,000 people globally, is undergoing a restructuring aimed at focusing on enterprise services in the mold of International Business Machines Corp.
'To put it bluntly ... this story has been an unmitigated train wreck, and it seems every time management speaks to the Street, there is new negative incremental information forthcoming,' said ISI Group analyst Brian Marshall.
(Reporting by Poornima Gupta in San Francisco, Nicola Leske in New York and Supantha Mukherjee in Bangalore; Additional reporting by Paul Sandle; Editing by Peter Lauria, Saumyadeb Chakrabarty and Jeffrey Benkoe)
This news article is brought to you by ANIMALS AND PETS - where latest news are our top priority.
HP said it discovered 'serious accounting improprieties' and 'a willful effort by Autonomy to mislead shareholders' after a whistleblower came forward.
The latest charge, which follows a nearly $11 billion charge last quarter for its EDS services division, is the latest blow to HP. The technology company has been roiled in the past few years by a revolving door of CEOs, overall management turnover and challenges in its core personal computer and printer businesses.
Former Autonomy Chief Executive Mike Lynch, who was pushed out in May, 'flatly rejected' HP's allegations.
'The former management team of Autonomy was shocked to see this statement today, and flatly rejects these allegations, which are false,' a Lynch spokeswoman said in a brief statement to Reuters.
HP took $8.8 billion in charges in the fourth quarter, with $5 billion tied to the problems at Autonomy.
HP said it has referred the matter to the U.S. Securities and Exchange Commission's enforcement division and the UK's Serious Fraud Office for civil and criminal investigation. It said it will take legal action to recoup 'what we can for our shareholders.'
HP informed both the SEC and the Serious Fraud Office over the past week. Both agencies declined to comment.
HP's stock slid to a 10-year low, losing 11.2 percent to $11.81 in afternoon trading. Shares are down nearly 50 percent year to date.
INFLATED SALES, REVENUE
HP alleged that Autonomy's former management inflated revenue and gross margins. It said Autonomy executives mischaracterized revenue from low-end hardware sales as software sales and booked some licensing deals with partners as revenue, even though no customer bought the product.
HP said it began an internal investigation, including a forensic review by PricewaterhouseCoopers of Autonomy's historical financial results, under HP General Counsel John Schultz after the whistleblower came forward.
Schultz said since the accounting troubles occurred prior to the acquisition, it took a long time before the company was in a position to make the news public.
'Not surprisingly, Autonomy did not have sitting on a shelf somewhere a set of well-maintained books that would walk you through what was actually happening from a financial perspective inside the company,' he said. 'Indeed critical documents were missing from the obvious places, and it required that we look in every nook and cranny.'
HP CEO Meg Whitman said her predecessor, Leo Apotheker and the former chief strategy officer, Shane Robison, were the key people behind the Autonomy acquisition.
Apotheker was ousted as CEO in September 2011 after just 11 months on the job and Robison left soon after.
'Most of the board was here and voted for this deal, and we feel terribly about that,' said Whitman on a call with analysts. 'The board relied on audited financials, audited by Deloitte. Not Brand X accounting firm, but Deloitte,' she said, adding that KPMG was hired to audit Deloitte.
'Neither of them saw what we now see after someone came forward to point us in the right direction,' Whitman said.
Other advisers who worked on the deal included Qatalyst Partners, the investment bank run by technology investment banker Frank Quattrone; UBS; Goldman Sachs; Citigroup; JPMorgan Chase and Bank of America for Autonomy. Perella Weinberg Partners and Barclays Capital advised for HP.
Law firms for Autonomy were Slaughter & May and Morgan Lewis. The firms for HP included Gibson, Dunn & Crutcher; Freshfields Bruckhaus Deringer; Drinker Biddle & Reath; and Skadden, Arps, Slate, Meagher & Flom, which advised the board.
Lynch said he was 'shocked to see' HP's allegations, adding that its due diligence prior to the acquisition was 'intensive.' He said HP's senior management was 'closely involved with running Autonomy for the past year.'
In response, Whitman said on CNBC the company stands by its findings.
In a statement, Apotheker said he was 'stunned and disappointed' by the revelations and offered to make himself available to HP and the authorities to get to the bottom of the matter.
Robert Enderle, a tech analyst at the Enderle Group, said he has never seen such a potential misrepresentation of financials.
'You have to rely on what the firm gives you during due diligence and I've never seen a misstatement at this level,' Enderle said.
If the charges are true, it could result in a massive punitive damages award for HP, Enderle said.
Other analysts hoped it was the end of the bad news for the company.
'This kind of feels like the last of the bad news,' Forrester analyst Frank Gillett said.
FOURTH-QUARTER LOSS
The Autonomy allegations and announcement of the charge coincided with the reporting of a fourth-quarter loss for HP.
Net revenue fell 6.7 percent to $29.96 billion for the fourth quarter ended October 31 from $32.12 billion a year earlier. Analysts, on average, expected $30.43 billion, according to Thomson Reuters I/B/E/S.
Revenue from all of its main business units declined, with the personal computer division recording the steepest drop at 14 percent.
HP reported a quarterly net loss of $6.85 billion, or $3.49 a share, versus a profit of $239 million, or 12 cents, a year earlier.
The sprawling company, which employs more than 300,000 people globally, is undergoing a restructuring aimed at focusing on enterprise services in the mold of International Business Machines Corp.
'To put it bluntly ... this story has been an unmitigated train wreck, and it seems every time management speaks to the Street, there is new negative incremental information forthcoming,' said ISI Group analyst Brian Marshall.
(Reporting by Poornima Gupta in San Francisco, Nicola Leske in New York and Supantha Mukherjee in Bangalore; Additional reporting by Paul Sandle; Editing by Peter Lauria, Saumyadeb Chakrabarty and Jeffrey Benkoe)
This news article is brought to you by ANIMALS AND PETS - where latest news are our top priority.
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