4 ms·

Here the fundamental problem seems to be a very poor understanding of Autonomy's marketing and margins models. CNBC is reporting that Autonomy was booking loss

Here the fundamental problem seems to be a very poor understanding of Autonomy's marketing and margins models. CNBC is reporting that Autonomy was booking losses on hardware sales as marketing expense, and that its arrangements with resellers amounted to kickbacks. That may reflect improper accounting and practice. But any serious understanding of how the company goes to market and wins business should locate these expenses and arrangements no matter where they reside on the income statement -- and having located them, realized their implications for the value of the business. Clearly HP missed these items, which means they didn't understand the business model. The End. Maybe Deloitte did a poor job on Autonomy's books. But anyone spending this kind of money at these multiples on the basis of an auditor's opinion is an idiot. And it does not speak well of HP that they are trying to place responsibility for this on someone outside their organization.

objclxt 14y ago
> "And it does not speak well of HP that they are trying to place responsibility for this on someone outside their organization." If HP are prepared to pass on their information to the SEC and SFO, as well as talk about potential civil action, it would suggest they believe they have a valid case and this isn't just pomp and bluster for the benefit of shareholders. I'm not saying the acquisition wasn't a stupid idea, or that HP's auditors couldn't have spotted these problems sooner - but if what HP claim is true then you can't hold it entirely against HP and the auditors.
- chernevik 14y ago
  The point is that a proper understanding of the business model allows you to conduct valuations, capturing all revenues and expenses, away from the financial statements. Those should absolutely reconcile back to statements. But they aren't driven by statement classification of items. Properly done, those models would have shown these problems. HP is essentially saying "They didn't tell us X was in the marketing costs!" Well, then HP weren't asking the right questions about marketing strategy and drivers, and about relationships with customers and partners.
  - objclxt 14y ago
    I take your point - what I meant to add in my reply but forgot to was that I doubt allocation of marketing spend / revenue was the only problem. Autonomy's revenue in 2010 was $870m - I'm sure the accounting issues are considerably more complex than what's been reported so far. I don't think HP escape culpability, but for all we know someone at the auditors or HP were asking the right questions, and were being deliberately misled.
- macspoofing 14y ago
  >it would suggest they believe they have a valid case and this isn't just pomp and bluster for the benefit of shareholders Or trying to save face.
wpietri 14y ago
If somebody has committed fraud, I think it's entirely reasonable to say so. The responsibility is, of course, HP's. And they know that, which is why they took the writedown. But the blame for crime falls on the criminals.

objclxt 14y ago

> "And it does not speak well of HP that they are trying to place responsibility for this on someone outside their organization." If HP are prepared to pass on their information to the SEC and SFO, as well as talk about potential civil action, it would suggest they believe they have a valid case and this isn't just pomp and bluster for the benefit of shareholders. I'm not saying the acquisition wasn't a stupid idea, or that HP's auditors couldn't have spotted these problems sooner - but if what HP claim is true then you can't hold it entirely against HP and the auditors.

chernevik 14y ago
The point is that a proper understanding of the business model allows you to conduct valuations, capturing all revenues and expenses, away from the financial statements. Those should absolutely reconcile back to statements. But they aren't driven by statement classification of items. Properly done, those models would have shown these problems. HP is essentially saying "They didn't tell us X was in the marketing costs!" Well, then HP weren't asking the right questions about marketing strategy and drivers, and about relationships with customers and partners.
- objclxt 14y ago
  I take your point - what I meant to add in my reply but forgot to was that I doubt allocation of marketing spend / revenue was the only problem. Autonomy's revenue in 2010 was $870m - I'm sure the accounting issues are considerably more complex than what's been reported so far. I don't think HP escape culpability, but for all we know someone at the auditors or HP were asking the right questions, and were being deliberately misled.
macspoofing 14y ago
>it would suggest they believe they have a valid case and this isn't just pomp and bluster for the benefit of shareholders Or trying to save face.

wpietri 14y ago

If somebody has committed fraud, I think it's entirely reasonable to say so. The responsibility is, of course, HP's. And they know that, which is why they took the writedown. But the blame for crime falls on the criminals.