Hewlett Packard and Autonomy – The Soap Opera Goes On, Plus a Lawsuit

One of these days, the stories will come together about Hewlett Packard and Autonomy.  In the mean time -  They paid too much.  They took an $8 billion write down on the acquisition.  They accused the Autonomy  of poor bookkeeping.  Hewlett Packard’s financial advisors on the acquisition  stated  that they did not need to do a total deep dive before putting their blessing on the acquisition.  The prior CEO of Autonomy, Leo Apotheker, states that the books were correct at the time of the acquisition and that revenue was accrued for properly. 

Now Hewlett Packard and CEO Meg Whitman are denying that the company has tried to sell Autonomy and SAP is saying that they were approached.  In addition, for Hewlett Packard, April showers brought…  May lawsuits, as they are now facing a $1 billion shareholder lawsuit over the acquisition.  The California suite filed at California's San Francisco district court, which accuses those who oversaw the deal of conducting "cursory due diligence on a polluted and vastly overvalued asset".  $1 billion buys a whole lot of HP tablets.  http://www.guardian.co.uk/business/2013/may/07/shareholders-sue-hp-autonomy-deal

 

The stock has been recovering somewhat in price from its 52 week low of just under $11.35 to a 52 week high of $24 in late March.  When Meg Whitman took over the reins of Hewlett  Packard as CEO, the stock was trading at around $23.  For their first fiscal quarter of this year, net revenue was down  $28 B, lower than in fiscal Q1  2012.  Earnings were positive at $1.2 B, versus a loss of just under $7 B the previous quarter.  The stock is essentially unchanged, though, from a year ago while the Dow and NASDAQ are up about 25%.  Hewlett Packard has outperformed beleaguered Dell (another interesting story) but not by much. 

  

Whitman may make it through the end of 2013.  If so, Oracle’s Hurd, formerly of Hewlett Packard, will have to find a different partner for “Dancing with the Stars”.  The earnings conference call for the latest quarter is scheduled for May 22 after the markets close.    

http://www.techweekeurope.co.uk/news/hp-autonomy-sap-denial-116304

http://h30261.www3.hp.com/phoenix.zhtml?c=71087&p=irol-EventDetails&EventId=4881977

Hewlett Packard - The Adventure Continues for HP and CEO Meg Whitman

For Hewlett Packard and CEO Meg Whitman, there is never a dull moment.    Board Chairman Ray Lane was essentially given a vote of no confidence by shareholders and has relinquished his chair position.  . John Hammergren, who has been on the board since 2005, and former Wachovia CEO G. Kennedy Thompson, a director since 2006, will resign, as well.  The three could perhaps offer themselves as a package deal for Dancing with the Stars.

All three have   been on the board for much of Hewlett Packard’s precipitous decline in stock price.  There for Autonomy.  There for the  tablet debacle.  You really can’t  really  blame the board for these, in some respects.  External smartest guys in the room and others in the Hewlett Packard organization did make the recommendations. 

After hitting a 52-week low of $11.25, that stock has gone up to $20.66.  This is still substantially below the just under $45 they were trading at a couple of years ago.  On a percentage basis, the Dow has increased about 20% and Dell has decreased about 10% over the same period.

So, what is HP going to do?  Meg Whitman is still saying recovery will be a four-year process.  Hewlett Packard has been investing in security as part of their strategy.  Tablets were revived from coaster status to being part of the strategic mix. Smart phones may be part of the mix in 2014.   Last week, as part of project Moonshot, Hewlett Packard introduced a line-up of super servers.  These are designed to appeal to the biggest social-media, cloud-computing, and e-commerce sites.

Autonomy is going to continue to be part of HP.  Even after the massive writedown.  "We remain committed to Autonomy; we remain committed to the brand, to Cambridge, to the U.K.," she said at a  recent news conference.   "It is an almost magical technology. ... It plays into a big shift in the market, the area of Big Data, which HP should be in."  Bets are being taken as to who will ultimately be thrown under the bus for the analysis of this deal and from which side of the pond.   http://www.denverpost.com/business/ci_22999671/hewlett-packard-ceo-meg-whitman-remains-committed-autonomy

 

The laptop/PC business won’t drive a recovery.  Printer sales and ink revenue won’t increase if laptop/PC sales tank.  According to IDC, laptop/PC sales dropped over 11% in Q1 versus the same period in 2012. For HP, the drop was 24%.  Windows 8 sales have not been astronomical, as well. 

The takeoff in tablets has sucked the growth out of PC and laptop sales.  Tablets will   out-ship desktop PCs this year, according to IDC.  They are also forecasting that by the end of 2013, desktop PC shipments will dip 4.3 percent.  Tablet shipments will rise to 190 million units, an annual growth rate of 48.7 percent, according to the firm.

Whitman was named CEO in September 2011, replacing Leo Apotheker.  “The pressure is on Meg,” stated Toni Sacconaghi, an analyst with Bernstein Research.  A housecleaning of the board “bought her a year.” according to an April article in the New York Times.  More bold moves are needed by Hewlett Packard and Whitman.  Going private (unlike what Dell is trying to do) isn’t an option.

Whitman and Hewlett Packard need to make even more aggressive  moves.   

http://www.datamation.com/mobile-wireless/tablets-to-surpass-desktop-pcs-this-year-idc.html

 

http://www.forbes.com/sites/connieguglielmo/2013/04/04/hewlett-packards-board-continues-to-deliver-drama-as-chairman-lane-steps-down/

“Hewlett Packard and Meg Whitman – The First Year.  Turbulence and Turmoil in the Valley” at

http://kensek.blogspot.com/2012/09/hewlett-packard-and-meg-whitman-first.html

Hewlett Packard to Expand Razor Product Line

Whoops, I meant their printer product line.  This expansion could  generate a fair amount of ink cartridge revenue for Hewlett Packard, as well.  "We haven't had a new product lineup in seven years," said HP CEO Meg Whitman in talking about Hewlett Packard’s plan to announce a new line of printers.  "It was very obvious that we had a product gap here."

Hewlett Packard will be introducing multi-function machines that combine printers with scanners and software to manage electronic documents.  The software will come from their Autonomy group.  The rumored price point, around $2500 to $3000, and targeted at small businesses and groups within larger companies.

In IDC's  “MarketScape: U.S. Shared, Networked Multifunction Peripherals for the Distributed Office 2012 Vendor Analysis” (Doc # 235820).  Companies in the Leaders quadrant include Xerox, Rico, HP, and Canon.  Konica/Minolta are close behind as Major Players.  IDC’s quadrant displays a company’s market share graphed against Capabilities and Strategies.  The Capabilities score measures vendor product, go-to-market and business execution in the short-term.  The Strategy score measures alignment of vendor strategies with customer requirements in a three to five year timeframe. Whitman's announcement will help keep HP in this section of the quadrant.

This announcement may portend good things for Todd Bradley,  head of HP’s printer and personal-computer businesses.  The printing unit has brought in over $25 billion in revenues to HP. Under the Hurd regime, R&D  suffered, dropping from  $3.7 billion to $3 billion between 2003 and 2010.  More will be spent under the Whitman regime.

Whitman also telegraphed some of her other strategies for the next couple of years  while speaking at the Gartner US Symposium/Txpo, held in Orlando.  She stated that HP would probably not release a smartphone until 2014.  She also expects HP to be a major contender in the tablet and mobile PC markets.

“There will be ups and downs in this business," Whitman said.  "PCs may be declining.  Tablets may be growing.  The business definition here is 'personal systems.’  It's not PCs.  It's personal systems.  And we think we can win.”  Whitman didn’t comment on which OS the smartphones will use.

Hewlett Packard’s stock decline has been steeper than the double diamond ski  runs at Squaw Valley in Lake Tahoe, California.  On October 26, the stock hit another 52-week low of $13.94.  This represents a 52-week decline of around 50%.  Competitor Dell has had a slide of almost 45% over the same period and also had another 52-week low of $9.19.

Whitman and Hewlett Packard need to make some bold moves.  She  said when she became CEO   that turning Hewlett Packard around would be a multi-year effort.  She’s now just into her second year at the helm.  There may not be a third if things don’t start improving.

“Hewlett Packard and Meg Whitman – The First Year. Turbulence and Turmoil in the Valley” at

http://kensek.blogspot.com/2012/09/hewlett-packard-and-meg-whitman-first.html

270 Days into Meg Whitman’s Tenure as CEO of Hewlett Packard

270 days into Meg Whitman’s tenure as CEO of Hewlett Packard and battleship HP is listing.  When interviewed by the Wall Street Journal June 26  about Hewlett Packard’s situation, CEO Meg Whitman replied, "Most turnarounds in American industry are anywhere between four and five years.  And we're at the beginning of the journey, not the end of the journey.  Ultimately, you will see the sales decline slow and start to grow again, with the caveat that our services businesses may be a smaller but more profitable business." 

The stock hit a one-year low of $16.24 on June 26.  This is even a 7 year low. Hewlett Packard’s  52 week high of $37.70 occurred last June. June 28 update - A new low of $19.12 was hit.

Some Recent Occurrences   

In a memo sent to channel partners (obtained by CRN) and signed by "The HP Channel Leadership Team,"  the channel was told that executives Scott Dunshire and Mike Parrottino are switching the roles within HP that they were assigned to only two months ago. 

  http://www.crn.com/news/data-center/240002591/hp-names-new-channel-leaders-searching-for-rauch-replacement.htm

 

The lawsuit over Hurd’s payout of $40 million by Hewlett Packard  was dismissed (this was good!) http://www.reuters.com/article/2012/06/22/us-hp-hurd-lawsuit-idUSBRE85L0XE20120622

 

The Oracle - HP court case still has not been settled.  It should be decided shortly.  http://www.eweek.com/c/a/IT-Infrastructure/HP-Oracle-Dispute-Over-Itanium-Now-in-Judges-Hands-473740/

 

HP announced that about 8,000 of the planned 9,000 of the layoffs  will be in the US.  Bad for the US.  She has announced that some of the cuts will be through attrition.  http://www.pcworld.com/businesscenter/article/258293/hp_to_trim_9000_jobs_in_us_as_part_of_costcutting_plan.html

 

Hewlett-Packard   released an open source version of WebOS that can be used on legacy TouchPad tablets on June 27.  This is good. Meg Whitman had talked about this soon after being named CEO.   http://www.computerworld.com/s/article/9228561/HP_releases_open_source_webOS_Community_Edition_for_TouchPads

 

"There is a lot of frustration and disappointment about what has happened" at HP, said J.P. Morgan analyst Mark Moskowitz, adding that the tech giant will have to demonstrate significant improvement within a year to reassure skittish shareholders.  http://www.mercurynews.com/business/ci_20908742/hp-hewlett-packard-long-term-turnaround-tests-investors-patience

There is not a lot of confidence within the channel or the marketplace.There has to be a rudder on this ship somewhere. Whitman has to explain how her actions fit into the big picture of a turnaround.  And the actions have to begin to affect positive change. Or she won't be around to celebrate her fifth or second anniversary of being named CEO.

Seminal Moment for Meg Whitman and Hewlett Packard http://kensek.blogspot.com/2012/05/seminal-moment-for-hewlett-packard-and.html

The Meg Whitman Era – Six Months In http://kensek.blogspot.com/2012/03/meg-whitman-era-at-hewlett-packard-six.html

 

Meg Whitman Era Begins at Hewlett Packard http://kensek.blogspot.com/2011/09/meg-whitman-era-begins-at-hewlett.html

 

Former HP Chairwoman Patricia Dunn Dies after Cancer Battle

Patricia Dunn, the former chairwoman of Hewlett-Packard (NYSE:HPQ)'s board who became a controversial figure in the company's "pre-texting" scandal, died Sunday at the age of 58 after a long battle with cancer.

This pre-texting at Hewlett Packard took place during the Hurd era. It was a big deal in the business press. Mark (I did not date that woman) Hurd, CEO at the time, admitted that he had approved the investigator’s tactics of using “pre-texting” to search for leaks among board members. Pre-texting the practice of presenting oneself as someone else in order to obtain private information. In colloquial terms, telling a lie about whom you are to get info.

This was one of the major incidents illustrating how far Hewlett-Packard had strayed from the HP Way and the ideals of their founders. Other tactics used included “tracking e-mails” and surveillance of reporters. Not pretty. Congress ultimately declared the practice of pre-texting illegal.

Hewlett Packard has come a long way since then. The family culture that HP had is probably gone forever, though. In fact, it may not be a successful culture for today’s business world. An interesting book came out about Hewlett Packard and this era in 2010 - "The Big Lie: Spying, Scandal, and Ethical Collapse at Hewlett Packard" by Anthony Bianco.

Sympathy to the family.

http://www.crn.com/news/channel-programs/232200764/former-hp-chairwoman-dunn-dies-after-long-cancer-battle.htm

Oracle Settlement of False Claim Lawsuit Could Top $200 Million

“In what will shape up to be the largest False Claims Act settlement ever collected by the General Services Administration, software maker Oracle Corp. and Oracle America will pay $199.5 million plus interest to the agency, according to a Justice Department Oct. 6 news release”. This is from an October 7 news story. http://www.govexec.com/dailyfed/1298/120798t1.htm

You can bundle the software with hardware. You can bundle the software with consulting fees. You can bundle it with support fees. But in the end, when it comes to GSA pricing, the federal government gets favored nation’s status. Well, the myth of the $600 government hammer notwithstanding. That came down to cost allocation and is another story. http://www.govexec.com/dailyfed/1298/120798t1.htm

In software pricing and licensing agreements, there’s list price. There’s street price. There’s a negotiated price. And then there’s the GSA Price List. It appears as if the courts decided that Oracle had licensed software to someone else for lower than GSA pricing.

From a competitive standpoint, if you want to know the lowest a competitor can go, check out the GSA price list. The government alleged that some customers had received higher discounts than they had received. That wasn’t a good thing.

The payday for a former Oracle employee because of the Federal False Claims act will be $40 as his portion of the settlement. That’s even larger than what Hewlett Packard paid Hurd to go away.

In an interesting comment, a company spokeswoman told the Federal Times in an email that "strong controls" would have insured government customers received fair prices. Colloquially, this could almost be translated to “someone in government should have paid more attention.”

To be fair to businesses, sometimes the press can be unclear on the concept of software licensing and pricing. It’s common for software companies to have a tiered licensing structure. With tiered licensing, prices decrease at greater tier levels. Assume that a company wants to purchase some internet security software. Let’s say that between 150 and 199 units, the price is $25 each. At 200 units, the unit price decreases to $20. Doing the math, it turns out that for anything greater than 160 units, they should purchase 200 licenses. Why? Because they’ll essentially get 40 licenses for free.

Years ago, the press vilified a company in CA for selling the state government more licenses for than they needed. But, it could have actually made economic sense for them to do that.

The above is probably “too much information”. But, it’s a useful example.

If you want to learn more about GSA pricing, go to https://www.gsaadvantage.gov/advantage/main/start_page.do

So, Oracle pays the fine for not providing the Federal Government favored nation’s status. The whistle blower receives $40 million. Now he can buy an island and have his own nation.