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$8.8-b Autonomy charge may add to HP’s troubles …

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Meg Whitman, HP CEO
Meg Whitman, HP CEO

…but won’t affect PC maker’s India operations

The woes of Hewlett-Packard Co, which is struggling to reinvent itself as its PC and printer sales shrink, are set to rise following the allegations of financial fraud. However, the issue is unlikely to have a major impact in the country.

On Tuesday, HP alleged it is the victim of a multi-billion-dollar fraud, following the acquisition of the British company Autonomy Corp. The UK company had “wilfully” boosted the company's figures through various accounting tricks, persuading HP to pay $11.1 billion in October 2011.

“This is an added trouble for HP, which has been impacted by the lack of product innovation, especially in emerging technologies like cloud computing. Only time can tell what went wrong. Whichever way you look at it, $8.8 billion (write down by HP) is too huge a figure to ignore,” according to Jagannathan Thunuguntla, Equity Head at brokerage firm, SMC Capitals.

HP’s Chief Executive Officer Meg Whitman said executives at Autonomy “wilfully” boosted the company's figures through various accounting tricks. The Nasdaq-listed company said it is taking $8.8 billion in charges to align the purchase price to what HP terms is its real value.

More than $5 billion of that charge is due to false accounting, HP said, but the allegations were denied by Autonomy’s former officials.

“I don’t think this has anything to do with India, and the country’s IT sector. This is an issue for HP. However, the charges would mean that the company would now tighten its purse and, maybe, would have lesser fund allocations for acquisitions or expansions,” Harit Shah, senior research analyst at Nirmal Bang Institutional Equities, said.

Motilal Oswal, Chairman and Managing Director at Motilal Oswal Securities Ltd, concurs: “I don’t see any impact in India”.

allegations

Whitman was quoted by global media as stating that Autonomy had booked the sale of computers as software revenues and cost of making machines as marketing expenses. Revenues from long-term contracts were booked upfront, instead of over-the-time booking, which needed to be done depending on the tenure of the contract.

Autonomy, among other things, makes search engines. HP had acquired the company to strengthen its portfolio of high-value products and services.

The deal was approved by Leo Apotheker, former HP CEO and Whitman's predecessor, even though it was completed during the initial days of her tenure as CEO.

(This article was published on November 21, 2012)
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