Questions arise over HP’s Autonomy channel stuffing claims

British business software company Autonomy has found some allies among the analyst community which does not believe it did anything wrong.

HP, which bought the company, wrote down the value of its investment by €6.8 billion this week claiming that it had been fooled by the company’s channel stuffing.
But Gartner and Deloitte have both come out in defence of Autonomy.

Martin Reynolds, managing VP at Gartner, told Tech Central  that any accounting irregularities, or channel stuffing at Autonomy were moderate. He thinks this inflated the value of the company by €155 million and not €6.8 billion).

Reynolds said that there was no money missing. No secret payments, bribes for dictators, off the books accounts, loads to dodgy corporate officers, slush funds, non-existent customers, or other things that usually show up as ‘accounting irregularities’.

The problem was how the money was reported, rather than money going missing.

HP said that Autonomy was made to look more valuable than it was prior to acquisition.  It gives two examples. Autonomy booked license revenue to the channel, not to the end customer, and used hardware sales to inflate software sales. This meant that it could hide the cost in marketing expenses to inflate margins.

But Reynolds smelt a rat when HP cited Dell PCs and computer mice. Not only was it strange that they mentioned the mice, it was impossible that auditors would not have noticed payments to Dell, or computers recorded as a marketing expense.

He admitted that the booking of channel revenue was hard to call. It could just be a problem as simple as a difference between reporting standards.

While Reynolds did not think that the writedown was not a surprise. Autonomy was not meeting HP’s expectations, but some of htat was HP’s fault. Irregularities such as this tarnish the value, they don’t destroy it, he added.

Deloitte has also waded into the situation although it does have a vested interest. It was Autonomy’s auditor at the time of the acquisition by HP and if something was wrong, it could be in trouble.
However it denies that it had any knowledge of any accounting improprieties or misrepresentations in the Autonomy’s books. It has offered to help with any investigation.

So far HP CEO Meg Whiteman has blamed the company’s former CEO, Leo Apotheker, and former head of strategy, Shane Robinson for the mess.

They have also found an unlikely ally is Howard Sklar who is Senior Corporate Counsel at Recommind, a competitor to Autonomy.
He said the blame should run deeper than Apotheker and Robinson.
That before Whiteman arrived diligence function reported ‘to strategy’ which was the same unit that wanted the acquisition. There must be a few more heads who are still working for HP whose heads should roll over the Autonomy purchase he said.
Forrester’s Leslie Owens told the New York Times that HP’s problem with Autonomy isn’t its questionable sales, but rather its technology which was rubbish.
She said that HP thought it was an entirely new platform, but Autonomy’s clients moaned that it was not as good as Google’s corporate search product.