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HP May Dump Unprofitable Business Units, Government Investigating Autonomy

Having only just entered the New Year, HP is already making news with indications that it may drop business units that are not performing, while the US Justice Department formally began investigations into Autonomy.

HP, Autonomy, US Justice Department

That HP has asked the US Justice Department to investigate whether the management of Autonomy misrepresented its performance in the year prior to its acquisition by HP in 2011 is not exactly news. However, it was never entirely clear whether HP had gone all the way to the US Justice Department with the complaint — as it said it would — but at least now we know.

But for the start of this year, the real interest is in the 10-K filing that HP made with the US Securities and Exchange Commission (SEC) just before the New Year in which it made it clear that it may dump assets that are not performing.

There is nothing exceptional about this kind of filing — a 10-K filing is an annual report required by the SEC that gives a comprehensive summary of a public company's performance over a given year.

HP 2012

And it has been a difficult year for HP. In 2012 alone share prices dropped by 45 percent and in Q4 it reported the worst quarterly figures in 70 years.

And while Meg Whitman has insisted that HP would hold on to its PC business instead of spinning it off as her predecessor Leo Apotheker had mooted, it seems at least some of the business units are now up for discussion.

Reported in Bloomberg financial news wire, the K-10 filing states:

We also continue to evaluate the potential disposition of assets and businesses that may no longer help us meet our objectives… the impact of the divestiture on our revenue growth may be larger than projected.”

The part of its business it may look at selling off is open to speculation, but research for independent observers like Gartner and Forrester has demonstrated considerable decline in the PC market over the past year as the business market invests more in tablets and smartphones, with recessionary winds still howling through the IT space.

PC sales are slow as enterprises hold back on spending in light of current economic difficulties, but that is not to say that this year won’t see a rebound. Clearly, PCs will never enjoy the dominance of previous years, but could it be that deciding to spin-off the PC business would be akin to a turkey voting for Thanksgiving? Only time will tell.

HP and Mike Lynch

The Autonomy issue is also going to be a problem for a long time to come. There is little point here offering a blow-by-blow account of the dispute between former Autonomy CEO Mike Lynch and HP as it will ultimately be decided in the courts.

However, within hours of the announcement that the case has formally gone to the US Justice Department, Mike Lynch responded on a website dedicated to the issue by repeating that the allegations are unfounded.

Simply put, these allegations are false, and in the absence of further detail we cannot understand what HP believes to be the basis for them…

We continue to reject these allegations in the strongest possible terms. Autonomy’s financial accounts were properly maintained in accordance with applicable regulations, fully audited by Deloitte and available to HP during the due diligence process.”

He mentioned that he is still waiting to be contacted by the authorities over the claims but that he will be co-operating with them in any way he can. Lynch said he had not been approached by any regulatory authority, but he would co-operate with any investigation and looked forward to the opportunity to explain his position.

He said that the 10-K filing had failed to shed any light on the alleged accounting improprieties, or how it could have resulted in the write-down of US$ 5.8 billion in value. The lines are now drawn and it shouldn't be long before the battle begins. Interesting year ahead for HP.

 
 
 
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