HP-Autonomy acquisition under US Government Investigation - the Adventure Continues

The investigation over the $11.1 billion 2011 Autonomy (founded by Mike Lynch)  acquisition by Hewlett Packard   is growing into an even  larger  legal soap opera. The  US Federal Bureau of Investigation (FBI), the Securities and Exchange Commission (SEC), and the Serious Fraud Office are  all now involved.  Accounting firm  Deloitte, one of the advisors in the deal, is going to be quite busy responding to inquiries. KPMG may have to get involved, as well. Meg Whitman and the rest of the Hewlett Packard board will be having chats, as well. 

There are a number of ways to value an acquisition.  One of the most rigorous methods is using discounted cash flow analysis. Doing revenue multiple based on similar companies is another way.  However, revenues are fuzzy.  You can sign a 10-year contract, and depending on the deal, recognize the revenue at one time, or spread the revenue over a 10-year period.  Ditto with the costs associated with the sale.  There are hard dollars associated with determining profitability, as well as soft dollars.   

Much  of the value of an acquisition rests on the discounted cash flows from future revenues based on projections.  If the projection drops, the value of the acquisition drops. And if the drop is material, it has to be reflected on the acquiring company’s (HP’s) books. Hence, the $8.8 billion write-down.

In a December 28 article ZD Net article,    “HP-Autonomy acquisition under US govt investigation”, ZD quoted from a blog posted by founder and former Autonomy CEO Mike Lynch. 

Lynch said HP had failed again to provide detailed calculation on its US$5 billion write-down of Autonomy or publish an explanation of the allegations it made against his former management team. 

"Furthermore, it is now less clear how much of the $5 billion write-down is in fact being attributed to the alleged accounting issues, and how much to other changes in business performance and earnings projections.  This appears to be a material change in HP's allegations," he said. 

Lynch again dismissed any claims of impropriety and pledged to cooperate with the DOJ investigation.  "We continue to reject these allegations in the strongest possible terms.  Autonomy's financial accounts were properly maintained id in accordance with applicable regulations, fully audited by Deloitte, and available to HP during the due diligence process."

It has already been written how Autonomy was sloppy in where they assigned revenues and costs between the hardware and software in some of their deals.  This is going to cost them  if it is determined in the investigation  that they ignored US generally accepted accounting principles  (GAAP).  The IRS does not like to be shortchanged. 

However,   Hewlett Packard (CEO Meg Whitman and the HP Board) would have to approve of  this adjusted valuation.  If it was largely based on  adjusting the  forecast  of future revenues downward, and this was then used this in calculating the $8.8 billion  write-down of the deal, HP should be willing to share this information.

The firm, Robbins Geller Rudman & Dowd LLP filed a class action suit against Hewlett-Packard last week in November. They’re probably enjoying this.

http://kensek.blogspot.com/2012/12/another-look-at-hewlett-packard.html

 

Palo Alto Networks Tosses the Gauntlet at Check Point Software Technologies

Palo Alto Networks is offering a $2,000 PA-2000 Next Generation Firewall (NGFW) appliance to qualified companies who take a meeting with them to discuss their solutions.  They also have a series of Five TechBuster videos comparing their NGFW’s to Check Point's products. These videos include Episode 2,  “Check Point Firewalls Have Better Price/Performance than Palo Alto Networks", and Episode Five,  “Check Point Application Control is as Easy to use as Palo Alto Networks”.  You have to love it when the 800-pound gorillas go mano a mano.  You also wonder what SonicWall is saying on the sidelines about all this. 

http://www.paloaltonetworks.com/cam/techbusters/pa-200/

According to Palo Alto Networks, the Palo Alto Networks™ PA-200 is targeted at high-speed firewall deployments within distributed enterprise branch offices.  The PA-200 manages network traffic flows using dedicated computing resources for networking, security, threat prevention, and management.

Palo Alto Networks outperformed  Check Point Software Technologies on the NSS Labs 2012 Next Generation Firewall Value Map.  This report was released during RSA 2012, San Francisco.  It is available online.  The report measures Block Rate versus Price per Protected-Mbps.  SonicWall also outperformed Check Point. 

 http://kensek.blogspot.com/2012/03/sonicwall-palo-alto-networks-top.html

 

What’s a little Next Generation name calling between friends? Particularly when the Palo Alto Networks founders came from Check Point.

Palo Alto Networks reported their fiscal Q1 2013 revenues during the first week of December.  Total revenue for the fiscal first quarter grew 50 percent year-over-year to $85.9 million, compared with $57.1 million in the fiscal first quarter of 2012.  They suffered a GAAP net loss for the fiscal first quarter of $3.5 million.  The market wasn’t pleased.  The stock fell below $47 shortly after the announcement after peaking around $72 in early December. 

 

It'll be a battle in  2013 in the NGFW marketplace.   SonicWall, owned by Dell,  has NGFW products that extend to the enterprise.  Fortinet has been claiming since January that they have the world’s fastest firewalls.  While Fortinet had a high Block Rate in the NSS test, their Price per Protect Mbps was the highest of any company’s product tested, with the exception of Juniper Networks.

Avast Giving Their Premium Endpoint Security Product to US Schools and Non Profits

Internet Security and Antivirus vendor Avast is giving their internet security product suite free to schools and non-profits in the US.  The freemium strategy for Avast, Avira, and AVG Technologies for years    has been to give a basic anti-virus product away to home users only and then attempt to up sell them to a paid product.  They  would  sell  antivirus,   internet security, and server protection products to the business, government, and education markets.  

 For Avast, the freemium strategy has given them world endpoint market share leadership over Avira, AVG and all the paid antivirus  companies, with approximately 170 million installed endpoints.  Microsoft is leading in market share in the US  with their free product.  http://kensek.blogspot.com/2012/12/opswat-market-share-reports-antivirus.html In fact, Avast had planned to go public earlier this year with this strategy, and then cancelled the IPO (Initial Public Offering) in July.   

Avast is   giving their premium product away to schools and non-profits, subject to restrictions explained on their web site.  This isn’t a stripped down suite.  In terms of features and functionality, it matches Symantec Endpoint Protection, McAfee’s SMB Endpoint Protection, and Kaspersky Business Space Security in terms of features and functionality. 

http://www.avast.com/en-us/education#comparison

All public educational institutions in the US are eligible to use AVAST’s premium, business-grade Endpoint Protection Suite at no cost.  The educational license includes two central management control options.It also includes: 

• Protection for Windows, Mac, and Android endpoints
• Protection for servers supporting up to 30,000 endpoint devices
• Remote management for all supported devices on campus

http://www.avast.com/en-us/education

In a December 2 talk with USA Today, Avast director of strategy Jonathan Penn said, “We're not going to charge schools for this, not now, not later.   We're establishing this to help schools that are struggling more than ever for funding."  http://www.usatoday.com/story/tech/2012/12/02/avast-antivirus-protection-free-to-schools/1729925/

 

Antivirus and internet security   vendors have been diversifying their portfolios into such products as mobile (paid and free) and tablet security. In  some instances they have also introduced  multiple flavors of internet security suites, tune-up, and online back-up products.

AVG Technologies CEO Smith  told the Financial Times in  a November interview,   “If you and I were having this conversation a few years ago, we’d be discussing a free product with premium-based services – but that model won’t get you anywhere today.”  http://blogs.ft.com/beyond-brics/2012/11/01/corporate-watch-avg-breaks-out/    

  

AVG seems to be  tying their future revenue streams to a renewed search provider agreement with Google, and a new agreement with Yahoo (whom they had an agreement several years ago (about those toolbars...)). There  other security vendors have to be  wishing they had these deals!  Their growth in revenue is coming from platform deals.  9th month subscription  based revenues for 2012  has grown 10% over 2011. Platform based revenue  has grown 72%  over the same period and comprises about 45% of their revenues.  Net income over this time frame dropped about 60%.

Avast delivers good security.  In an AV-comparatives.org test in September “File Detection of Malicious Software, they came in tenth out of twenty (Avira was first), and earned three stars.  They came in ninth out of twenty-four products in a November test performed by www.av-test.org .  BitDefender won that test. 

The Avast website is at www.avast.com

 

Perhaps the press, interest, and increased visibility Avast will gain through this deal will lead to an initial public offering in 2013.  One thing this move by Avast will do is take sales away from vendors who sell into the education market, although at a reduced price. These vendors may choose to cannibalize themselves by doing a price match.  That doesn’t help the bottom line, though.  

About AV-comparatives     www.av-comparatives.org

AV-Comparatives is an Austrian Non-Profit-Organization.  They provide independent Antivirus software tests free to the public.  Go to their website to view all the great comparative reports and surveys they publish.  A great number of their reports are free.

Virus Bulletin VB100 Awards – December 2012

Virus Bulletin has released  the results of  their latest VB100 testing.  Many, but not all of the products tested were 2013 versions.    Symantec, Avira, Webroot (this makes one year) and Trend Micro (several years for Trend) were not part of the test.  Sophos, Kaspersky, Avast, AVG Technologies, and ESET were.

About a third of the products tested failed to receive a VB100 award this time.  A cone of shame to the following –  BeyondTrust, Commtouch, ESTsoft, FileMedic (formerly MKS) Filseclab, K7 Computing, Norman, Roboscan, Total Defense Consumer, VIRUSfighter Pro, and Zeobit.

A summary of the full  results is at the link below. Congratulations to those receiving the VB100.   You can  buy the full test results or subscribe to Virus Bulletin to obtain them. 

 https://www.virusbtn.com/vb100/archive/test?recent=1

Results from this should be looked at in conjunction with tests from other test groups such as www.av-test.org    and www.av-comparatives.org .  In addition,   it’s not how the company has performed on the VB100 test over years.  It’s only the last couple of years that are relevant.   When looking at a company’s award page, verify which product was tested.

VB100 Test Methodology

The purpose of the VB100 comparative is to provide insight into the relative performance of the solutions taking part in the tests, covering as wide a range of areas as possible within the limitations of time and available resources.  More details are available at

http://www.virusbtn.com/vb100/about/methodology.xml

UK based Virus Bulletin started in 1989.  They provide PC users with a regular source of intelligence about computer viruses, their prevention, detection, and removal, and how to recover programs and data following an attack.  The Virus Bulletin website is at www.virusbtn.com 

OPSWAT Market Share Report - Antivirus Market Analysis: December 2012

OPSWAT Inc. has released their December 2012 market share report, “Antivirus Market Analysis: December 2012”.  The data OPSWAT used for this market share report was collected between November 16, 2011 and November 15, 2012.  It's worthwhile to check out the detailed report.  You can also learn more about OPSWAT, their reports, products and some free tools they have available.  (To be discussed on another blog).  One aspect of this market share report is that it doesn’t go into the market shares these vendors have on tablets (and smart phones).  This will become increasingly more relevant in 2013.   

A Global Analysis

Avast has to be happy.  They’re the global market share leader, though Microsoft is catching up.  They maintain nice leads over the other well-known freemium antivirus vendors, Avira and AVG Technologies.  AVG Technologies may not care as much since their    revenue stream  from Google and Yahoo will become increasingly more important (a separate discussion).  In some respects, the below isn’t great for Kaspersky since one of their corporate objectives is to surpass Trend Micro in total revenues. 

OPSWAT Market Share Report Top Five  

The Top Five in antivirus vendor market share were Avast (17.5%), Microsoft (16.8%), ESET (10.8%), Symantec (10.5%), and Avira (10.4%).     

Congratulations to the Top Five!  Largest market share loss, AVG Technologies at 1.3%.  AVG has been getting a lot of downloads of their free  (and paid) products running on Android, however.   This product came from their acquisition of DroidSecurity.  DroidSecurity (was first and the market leader)  had over 2.5 million downloads of their products prior to the 2010 acquisition. Avira, Avast, and Norton also offer free Android solutions.

http://kensek.blogspot.com/2012/12/avg-updates-its-antivirus-for-android.html

 

You can click on the above to enlarge it.

In the September report, the order of the Top Five vendors:  Avast, Microsoft, Avira, and AVG Technologies.

Avast had cancelled an IPO in late July.  You have to wonder when that will take place.  http://kensek.blogspot.com/2012/07/avast-to-have-their-initial-public.html

A North America Centric View

Microsoft has a pretty incredible 32.0% share, gaining 10%.  The others in the Top Five in order, Symantec, Avast, AVG Technologies, and ESET.  Largest loss, AVG Technologies at 1.7%.  Symantec and Avast achieved small gains in share of 0.6% and 0.8%, respectively.  Microsoft has quickly become the 800-pound gorilla in Antivirus and Free Antivirus marketshare.

You can click on the above to enlarge it.

But How Well Do These Products Perform in third Party Testing?

That’s always an important question.  In AV-Comparatives September Anti-Virus Comparative “File Detection Test of Malicious Software”, the top five products overall were from,  in order Avira, Trend Micro, F-Secure, Kaspersky, and Bitdefender.  ESET was 15^th, Microsoft was 17^th .Symantec hasn’t been part of 2012 testing (they wanted to pick and choose tests to participate in. )

 http://kensek.blogspot.com/2012/10/av-comparatives-file-detection-test-of.html

All of the December top five with the exception of Microsoft (didn’t participate) received October VB100 Awards.  http://www.virusbtn.com/vb100/archive/summary
 

What about Correlation with 3rd Party Real World Dynamic Testing?

The short answer, there’s no correlation.  From the  December AV-Comparatives “Whole Product Dynamic ‘Real World’ Protection Test",  Avira (8^th) Avast (9^th) and ESET (11^th), all received two stars, while BitDefender, G Data, Qihoo, Kaspersky and BullGuard all received three stars.

An issue for all these products is product churn.  Free competitive upgrades are often available.  With free products, switching costs to another free product is zero.  On www.download.com at CNET, Avast had 1.39 million downloads for the week  ending December 9, while AVG had 0.97 million downloads.  Annualizing these come to about 52 million downloads each. Major churn "has" to be occurring, or a product is downloaded to fix a problem an already installed product missed, and then removed.   

About OPSWAT www.opswat.com   

Founded in 2002, OPSWAT is the industry leader in software management SDKs, interoperability certification, and multiple-engine scanning solutions.

OPSWAT market share reports are available at http://www.opswat.com/media/reports   

About AV-Comparatives.org   

AV-Comparatives is an Austrian Non-Profit-Organization, which provides independent Anti-Virus software tests free to the public.  www.av-comparatives.org