Hewlett-Packard's $10.3 billion acquisition of enterprise search company Autonomy last October came to a head today when the software company announced an $8.8 billion write-down and quarterly loss, claiming "serious accounting improprieties" by former Autonomy employees and an alleged "willful effort" to inflate its financials pre-acquisition.
According to Reuters, Autonomy's former CEO, Mike Lynch, "flatly rejected HP's allegations," though HP is conducting an internal investigation and forensic review after "a senior member of Autonomy's leadership team came forward" to address questionable accounting practices pre-acquisition.
Many have made the claim that Autonomy's valuation was grossly inflated. But according to Gartner research vice president Anne Lapkin, the issue is not so much about how much was too much or too little for the buyout. "The issue is that [HP] did not have a coherent strategy about what they would do with it once they had it," she says. "[It was unclear] how Autonomy was going to fit in overall into the portfolio of HP offerings…[and] there was a decision to run Autonomy as a separate company under the HP umbrella, which further exacerbated the issue."
Autonomy's technology is valuable, says Gartner analyst Sheila Childs, and the company continues to show vision in its approach to managing data. "However," she notes, "in 2012 we saw issues with customer service, sales, and support, and, unfortunately, this event may cause further customer concern, despite the fact that the company has made a concerted effort to turn this around."
In the CRM magazine 2012 Service Awards, Autonomy etalk was named as a solution leader in the Contact Center Search category; while customer satisfaction improved, analysts were hesitant about the company's overall direction post-HP acquisition. John Ragsdale, vice president of technology research at the Technology Services Industry Association, had remarked that Autonomy created a "very robust" search platform popular with direct customers and OEM'd by multiple vendors. However, he pointed out that the year following the acquisition would be crucial to the company's success at maintaining those relationships.
As far as how the write-down will affect current Autonomy customers, IDC's executive vice president of worldwide research, Crawford Del Prete, says he does not expect it to have too much of a direct impact on customers. "The core technology that Autonomy maintains is not affected. This is really more about the valuation that HP put on it and what HP alleges it was told about that value at the time of the transaction."
The write-down's long-term effect on HP, according to Nucleus Research vice president Rebecca Wettemann, is not exactly positive—"HP didn't need this." At the tail end of Nucleus' Top 10 Predictions for 2013 report, the research house predicted the need for HP to rethink its strategy and position in a post-millennium world after undergoing three management changes and multiple hits in quarterly earnings.
"We expect Oracle, IBM, and others to benefit from the disruption in Autonomy's business and customer concerns about viability given their pushes into the customer experience and big data space," Wettemann says in response to today's HP and Autonomy news.
The good news, as analysts point out, is the fact that the market for enterprise search technology and content analytics is strong. "There are few real competitors for sophisticated enterprise search, and I hope the [alleged] financial malfeasance of Autonomy's former management doesn't take away from the strength of the technology," Ragsdale says.