HP’s boss and a disastrous deal

 

Rory Cellan-Jones interviews Meg Whitman

She's the woman who built eBay from a scrappy start-up to a global force. Now Meg Whitman is trying to pull off a rather different trick - stopping a computer industry titan from slipping away into irrelevance.

But when she visited London, the focus was bound to be on one of the worst decisions HP has ever made - its acquisition of the British technology firm Autonomy in 2011.

Last November HP took an $8.8bn (£5bn) write-down on the value of Autonomy, a business for which it had paid roughly $11bn. At the same time the firm and its CEO launched an extraordinary attack on the Cambridge-based software firm's former management team, accusing them of misrepresenting the value of the business and of accounting irregularities.

Mike Lynch, the firm's founder, rejected the charges and accused HP in turn of destroying his software business through its own ineptitude. The whole affair is now in the hands of the regulators and the courts. So was it wise to pick such a public fight last November?

"It was necessary," Meg Whitman told me this morning. She repeated HP's claims to a US court, saying "there had been very serious strategic misrepresentations, accounting improprieties and when we understood what had happened we had to explain to our investors".

Obviously the huge write-down had to be explained somehow to investors. But the suspicion among some has been that the charges of impropriety were a convenient smokescreen to cover a simple truth - that HP had paid far too much in its desperation to land the deal.

Meg Whitman at an eBay event Whitman in her eBay days

Even on the day the deal was announced, I wrote that one extremely sceptical analyst told the CEO Leo Apotheker he was paying "a fantastic price".

Meg Whitman was not in charge at the time but was on the board - and in our interview she came pretty close to admitting that HP had overpaid with or without any accounting shenanigans. She insisted a "big chunk" of the write-down had been due to what emerged about the company after the purchase. But what about the rest of it?

One person close to the former management of Autonomy said even HP's allegations about questionable accounting only added up to $100m in misclassified sales: "It's impossible to get from a revenue misclassification of $100m dollars a year to a writedown of $5bn."

Last week, one HP figure did pay the price for the disastrous deal. Chairman Raymond Lane resigned, and that gives the CEO some breathing space.

Meg Whitman has always said it will be a long job turning around HP, but she told me she'd made a lot of progress. She'd won the "hearts and minds" of HP's 300,000 strong workforce to her strategy, the company had "the best product line we've had in a decade", while innovation was "alive and well".

If so, that message has yet to be communicated to the outside world. It's hard to think of any standout products that would get customers thinking of HP as a great innovator. The CEO admitted customers hadn't said that for a while but promised that in the next six months that would change, with its new line of Moonshot servers and its enterprise security software: "In six months, I bet people will say 'wow, I didn't know HP had all this'."

The most obvious change she's made since taking over is to squash the idea that HP should spin off its core PC business, which has been badly left behind in the move to mobile computing.

She recognised the need to compete in a world which has been transformed by always-on touchscreen devices of all shapes and sizes. So was there going to be a mobile phone?

"We want to. What we haven't figured out yet is how to do that without it just being a me-too product and losing a lot of money, which I'm not interested in doing."

Given its recent history, you can see why HP's boss might be cautious about spraying money around to little effect. But if she's to make the business a technology leader again, rather than managing its decline, Meg Whitman needs to come up with a standout product pretty soon.

 
Rory Cellan-Jones, Technology correspondent Article written by Rory Cellan-Jones Rory Cellan-Jones Technology correspondent

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  • rate this
    0

    Comment number 105.

    @104 That not an inaccurate summary. They say they're thinking on going after the mobile phone market? This is less that 2 years after shutting down Palm (which they had only bought 18 months before). The company is all over the place at the moment.

  • rate this
    +1

    Comment number 104.

    Step 1: Buy a company because it is good at something.
    Step 2: Tell the new employees how they should be doing things.
    Step 3: Wonder where the value went.
    Step 4: Massive write-down.

    Applies to everything HP ever bought

  • rate this
    0

    Comment number 103.

    Last word from former IT Support Manager and IT Buyer: Total cost of ownership is very different from initial price. HP business sales ensured same components & drivers during life of model, hence corporate images worked throughout, support teams knew what they were dealing with. If you want cheap, buy retail and enjoy the headaches. Glad I retired before Android and IOS arrived, ditto Win 8.

  • rate this
    +1

    Comment number 102.

    Many crits of HP build quality and restrictive cartridges, but they are not alone - my latest Brother all in one is flimsy but excellent print quality. The ire over cartridges is caused by HP printers' refusal to work with refills which should have been outlawed but hey, US rules apply. HP comps and laps are losing out to Dell, buyers will learn mistake in next 2 or 3 yrs - poor support = costs!

  • rate this
    +3

    Comment number 101.

    Like others, I can't understand how this got past Due Diligence. If I were a shareholder in HP I'd be very angry indeed as it amounts to negligence. Yes, lies were told but I'd expect a business the size of HP to see through them unless they had an ulterior motive for losing money on the deal.......

  • rate this
    +2

    Comment number 100.

    If you are in the mergers & acquisitions game, there's a neat little technique called 'due dilligience' which involves taking a long hard look at whatever you are intending to buy, going through their books and such like. Perhaps Whitman & HP ought to learn how to do it, before making any more foolish purchases.

  • rate this
    +1

    Comment number 99.

    Having used Autonomy's dire software, I'd say about time. It really is the "Emperors new clothes" in IT.

  • rate this
    +1

    Comment number 98.

    95.RickAtatastan


    I hear what you are saying but the reaosn ink tanks are so expensive is largely due to how cheap you have to sell printers in the first place to get anyone to buy them.

    As a rough rule of thumb the more you spend on the printer the less you need to spend on cartriges.

  • rate this
    +1

    Comment number 97.

    I don't get why they don't just carry on making reliable servers and printers. And would it really be the end of the world to make a me too product that worked as well as the others?

  • rate this
    +1

    Comment number 96.

    Fro 90. nilbymouth:
    "There's no money in hardware; it's all in services."

    Providing accurate measurement is a desirable service, as were the temperature, frequency and other references HP specialised in perfecting. To make those easily available on demand they HAD to provide the service in hardware. Can't separate that! Most who tried, failed. It's like mind and body, each needs the other.

  • rate this
    +1

    Comment number 95.

    One thing that HP could do would be to revolutionise printing so that ink cartridges don't cost the earth. Doing so could give them complete dominance over that market.

  • rate this
    +1

    Comment number 94.

    Its impossible to imagine Autonomy being able to cover-up a $5bn fraud during the due diligence and its more plausable to believe HP wanted this deal to shore-up its falling values in the server, storage and PC market and in doing so grossly over-paid. A company owes it to its share-holders to get the best price in an agreed sale and HP has to temper that to reach a deal clearly they didnt.

  • rate this
    +2

    Comment number 93.

    Guys, I will quote Steve Jobs: "Successful consumer products companies are one's that make products people want to buy." Autonomy was a well known hassle of a company long before the acquisition by HP. And HP seems to continuously compound its' problems by rolling lawsuits, making ridiculous claims and not inventing anything. Smells like a "too big to fail" entity to me.

  • rate this
    +2

    Comment number 92.

    HyPe

  • rate this
    +1

    Comment number 91.

    If they had held onto webOS perhaps they wouldn't be doomed to share the fate of Microsoft brought on by Windows 8.

  • rate this
    +4

    Comment number 90.

    There's no money in hardware; it's all in services. That's why they wanted Autonomy. Right strategy, wrong price. HP were niche instrumentation and measurement system manufacturers. Licenced a laser printer from Canon to start their printer business. Bought a ragbag of computer makers to start their computer business. And now they've appointed an entrepreneur to head up the mess. Good luck I say.

  • rate this
    +6

    Comment number 89.

    With HP's appalling track record on bad deals perhaps those responsible should consider a move into Banking or the UK civil service where such appalling incompetence would almost certainly be rewarded by a huge pension, pay rise and possibly a knighthood

  • rate this
    +1

    Comment number 88.

    "HP’s boss and a disastrous deal"

    "Bitcoin panic selling halves its value"

    ===

    Seems to be one born every minute in the world of technophiles.

    As if that was not always going to happen.

  • rate this
    +3

    Comment number 87.

    Crow @86

    And IBM used to make mechanical tabulating equipment. The difference is IBM has had good management and progressed past its mistakes - Bill Gates and MS-DOS - to become a highly successful IT organisation.

    HP on the other hand keeps making the same ones. I fail to see how Meg Whitman - the ex head of a company, ebay, that allows you to sell your rubbish to others - will change that.

  • rate this
    +3

    Comment number 86.

    From 84. Peter:
    "HP is historically a PC printer company."

    No. Check Wikipedia or any other history of HP. They set about solving problems that interested them, making those answers available to others, usually as test and measurement gear. Computing came later, as more digital controls and data storage were wanted. Printers might dominate the office but that's a very blinkered view of HP!

 

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