I previously commented on my views about the decline of HP in “HP – RIP“, but it seems Meg is moving to spin the decline. Like other Repugs perhaps Meg needs to go back to the conventional arithmetic rather than the alternate fact-free universe of Repugs.
The flap now is about the writedowns, nominally for Autonomy. This is the latest in a series of recent article. As low an opinion as I have about Autonomy (based on past experience long ago) it seems logical to agree with former CEO Mike Lynch ” it just doesn’t add up”. Already this morning Deloitte LLC, Autonomy’s former accountant, has denied Meg’s claims (of course, they have plenty of CYA to do if Meg is right so one can hardly accept their or Lynch’s claims on face value). But the facts just don’t seem to compute.
The largest the financial irregularities in Autonomy (pre-purchase) just doesn’t justify the amount of writedown. Of course this writedown and also the (really stupid) EDS purchase writedown are just knocking goodwill of their books and often goodwill is really dubious as an asset (it is clear HP overpaid for both of these) but is this all cover. Now here’s what supposed Meg did:
Hewlett-Packard recorded an $8.8 billion writedown yesterday, and said more than $5 billion stemmed from accounting irregularities at Autonomy, which it bought last year.
The key point is that $3.8B is not explained by the excessive writedown of Autonomy, which may itself be a smokescreen. Perhaps there is more trouble than admitted in Palo Alto. Especially given:
Hewlett-Packard’s writedown follows the company’s August announcement that it would take a charge of $9.2 billion, largely related to its purchase of Electronic Data Systems Corp.
Again, note that largely related qualifier. In short, both these writedowns are smokescreen.
Based on some insider information I have I’m guessing Meg is really washing the books, all the way back to Carly’s days with all sorts of accounting irregularities HP did on its own books (booking non-existent deals as immediate sales). The more toxic failure Meg can write off now, under the guise of these botched acquisitions, the less she’ll have to take as writedowns in the future.
In short, it’s pretty standard that when corporations have to report bad news anyway, making the news really terrible doesn’t have much more impact on stock price. So clean up all the messes and then have a nice low base to start from for rebuilding.
I remember the good old days at HP, when layoffs didn’t happen at the first hint of trouble, that during slowdowns this was a good time to put otherwise possibly idle workers into cleanup projects. For instance in the normal course of business in good times inventory gets to be a mess (this is back in the pre-JIT inventory management where warehouses were stuffed with inventory). Literally stuff had be lost, put in the wrong bins, damaged, much was obsolete and should be sold as scrap, and so forth. Nobody did this kind of cleanup during busy “good” times. Also no one wanted to shut down production in order to rearrange inefficiently designed work areas, but a economic downturn was the perfect time to do that. So instead of laying everyone off to cook the books, HP actually did some good for their books of cleaning up messes and getting themselves ready for the next boom. It was then also interesting to see, at the first sign of business picking up, how operating margins also skyrocketed due to all the improved efficiency accomplished during the lean times.
So I think Meg is doing this. HP is a mess. All its businesses are in decline. Undoubtedly there has been a lot of cooking of the books to fake earnings (usually just booking non-existent orders, but also failing to account for returns). So all those other writedowns, hidden under the guise of bad acquisitions (conveniently blamed on her predecessor) Meg is washing all that off the books so it won’t bog down HP in the future.
That’s good, but it’s just accounting tricks. Is any of the writedown due to actually productivity or business improvements? I doubt much of it is. This is just accounting gimmicks to get ready to make the next couple of years look good and so a few people can make some short-term gains. HP is seriously in trouble and needs some serious surgery, not just setting up for future book cooking.
But at least Meg is doing this, long overdue. Now let’s see if she actually intends to fix the business.