Haha. Here's another one I am skeptical about - BlinkX.
Edit: I just went to check their stock price - it's down 12%. Hmmm, I thought, has Autonomy cast a shadow on UK techs? Wait a minute - who's this grimmacing at me down the bottom?
We at OpenDNS have believed BlinkX to have something less than above board going on based on some VERY UNUSUAL traffic patterns that we started to notice a couple years ago related to ad clicks. Ad clicks that we couldn't explain in any legitimate way.
We never dived too deep, and never pursued, so no evidence to present, just a theory we had internally.
If you don't mind, could you perhaps shed a bit of light on this (or if not on this situation in particular, on the type of data to which you're referring)? I've often thought of DNS-derived data as a potential source of independent info on traffic patterns, fraudulent clicks, etc., so I'm particularly curious.
Do to the frequency with which I see people attempting to alert a hell banned party (which obviously defeats its purpose), I wouldn't be surprised to learn that the hell banned can't see any post that contains the word 'hell banned'.
Sorry continuing this off-topic thread, but I'm actually curious what it takes to become 'hell banned'. I've noticed several banned users lately, and this is another case where none of the user's comments/submissions seem overly trollish or offensive.
Unfortunately I can't seem to find it, but I thought there was a quote from Larry in all the HP/Oracle mudslinging about Autonomy barely being worth $1Billion. That's pretty impressive forecasting given that HP now values them at about 1.5B (10.3B purchase price minus the 8.8B write-down).
[disclaimer: worked for Autonomy. This view represents my personal sole oppinion and not of the (former) employer]
I can't tell too much, but everyone I knew was in shock when they announced the price (12$bn), this was, way, way over what I internally valued the company ( I was counting about 2$bn max - stock was better but is a result of offer/demand).
Either Mike was/is a good seller, or HP ( or Leo Apoteker ) was corrupt or dumb.
Actually, after reading more about the subject, it seems that Apoteker actually was fooled. The due diligence was done by KPMG ( and Deloitte ), both very big customers of Autonomy. Again, can't tell too much, but a lot of gratuities went beween them at some point.
On a side note, Apoteker did a lot of unhealthy stuff for HP, like webOS, PC division are one of the biggest. So adding Autonomy bluff on the list seems natural. Nice for him, he got about $25m in compensations. So, no, money is not a measure of intelligence, but good lawyers ;-).
Nassim Taleb talks about this phenomenon in Fooled by Randomness, in a chapter titled "If You're So Rich, Why Aren't You So Smart?"
Namely, we can't judge a person’s intelligence by their wealth. Just because someone is successful now doesn’t mean that success wasn’t generated in a risky, inconsistent manner.
To be fair, he made money largely because he was well connected. His ability to steer a large enterprise and maintain a vision has made him a horrible excuse for a CEO. Doesn't surprise me that this all comes down to money and not real value.
I think we'd all agree that luck plays a big part in all of our lives, but he did become the CEO of one of the largest companies in the world.
If you think this was due to "luck" then I'd strongly disagree. Luck provides opportunities, but people have to take them and make the absolute most of those opportunities to even come close to the career that this man has had.
Sorry. That was a typo. I meant "Did he [Apoteker] make money for his companies or himself?" Apoteker has enriched himself, but that does not necessarily make him a good business man. His tenures at SAP and HP did not end well.
I worked for a competitor and I was shocked at the price autonomy got and then disappointed a bit when my company was acquired. Now it seems like HP didn't really do their homework on this deal.
Mike Lynch (ex-Autonomy CEO) is speaking today at a start-up conference in London. Who wants to bet he won't be taking questions?
What the HP press release doesn't mention, but what the BBC and others are reporting[2] is that HP are both planning to refer it to the SEC/SFO and take civil action against "various parties". It's not a huge leap of faith to suggest Mike Lynch is probably one of the parties involved.
I have to say, I can't recall hearing about Autonomy...not that I keep up with all the tech news, but a $10B valuation is pretty big. Is it just accounting fraud that's going on, or was the technology not what it was claimed to be? $10B for tech that would encroach on what Google/Apple/the NSA would do seems like it would make Autonomy more of a household-tech name, even if it was based in the enterprise sector:
http://en.wikipedia.org/wiki/Autonomy_Corporation
> Autonomy's technology attempts to "understand" any form of unstructured information, including text, voice, and video, and based on that understanding perform automatic operations, for example inferring what the user wants and on that basis finding other information that may be of interest.
They're well-known in Cambridge circles, though mostly as a place that hires graduates and offers a poor working environment until they leave a year later.
Autonomy was one of the places I worked very early on while getting enough of a CV to pick and choose. I was only there for a matter of months though, and in systems, but I really rather liked that job. In the end I left fairly rapidly because I couldn't cope with living in Cambridge (I like smaller places and I like being near the coast).
Looking back I'm fairly sure I was woefully underpaid for the position ... but also not nearly as good at it as I thought I was at the time. So if anybody reading this thread remembers my work less than fondly, sorry :)
Yeah, when HP said they were going to buy Autonomy, my first reaction was "Who?" And it's my job to stay up on this stuff...
Frankly, I expect this to cause huge problems for HP, possibly even sound a death knell. HP has been fucked for some time, but the real problem here is that they had no fucking clue what they were buying. I could have told them, if they'd asked, that there's no market for a Baysian search pack. I think anyone here could have said as much to them, but HP wasn't really paying attention to anything except the Autonomy people.
If I was an HP share holder, I would be on the phone to a lawyer right now, creating a class action suit.
Autonomy is more of a household name in Europe -- when I lived in London I remember seeing billboards, etc., like you do with Oracle in the bay area. That said, enterprise software is never particularly "famous"; you would be surprised at the number of $10bn-valued companies you've never heard of.
(Of course, that doesn't preclude them being super-shady; Enron was a household name)
For me, this highlights why tech investing is so frustrating.
I saw this coming and would have shorted Autonomy if I had the money. But guess what? I'd have lost a fortune even though I was (allegedly) right.
DHH has been shorting Salesforce for a good while. He's losing that bet as well.
Equity investing often bears no relation whatsoever to reality. The "bigger fool" element is huge.
That said, I think this may be the end of HP. A bold claim, but they are going to have to fight some serious allegations of corruption, incompetence and negligence.
The market can stay irrational longer than you can stay solvent.
I think it's like any other kind of investing: You have to diversify your doom and gloom. DHH was short Zynga too, and he claims that his last short of Salesforce ended up in positive territory:
It is sad that there isn't a "better" way to bet against (or for) a company. Per pg's startup ideas though it does seem to suggest a small opportunity. Sort of a variation on the sports book where you get to bet for or against company outcomes. The tricky bit would be to capture this sort of event (purchase then giant write down) as a wager.
You could use prediction markets for something like this (disclaimer: i founded a prediction market software company) but unfortunately using real money isn't allowed in the States which would limit the interest of more serious traders.
Presumably because this is classified as a form of gambling right? (how the stock market gets away with it I'll never know.) Given that options are a financial instrument that converts a prediction market into something you can invest in, I wonder if there is some other financial instrument you could work out here.
Going through DHH's tweet history a couple of months ago when I was trying to get into a short CRM position, I'm not sure he's losing much on the CRM short. Based on the times that he was tweeting about taking or adding onto positions, my guess is that his cost basis for the short is somewhere in the $140-$155 range. That is assuming that he didn't short more when it dropped to around $100 (which involved a lot of tweets about how overvalued they were, but no indications that he was increasing his short position.) So he may be down 5-10%, but probably not losing his shirt.
I have no comment on Autonomy's finances. We did however evaluate it's product vs Google's search appliance.
The Google Appliance we pretty much plugged in and let it do it's thing. After a few days it was giving excellent results on our massive (80,000 people) company intranet.
The Autonomy server had to be constantly tweaked and fiddled with to even get it near to the relevance of the results.
Unfortunately, Autonomy had flogged a loads of licenses to another part of the business for peanuts, so we had to go with their inferior product.
"Fourth quarter and full year fiscal 2012 results include a non-cash goodwill and intangible asset impairment charge of $8.8 billion relating to the Autonomy business within the Software segment"
"The majority of this impairment charge is linked to serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy Corporation plc that occurred prior to HP's acquisition of Autonomy and the associated impact of those improprieties, failures and misrepresentations on the expected future financial performance of the Autonomy business over the long-term. The balance of the impairment charge is linked to the recent trading value of HP stock. There will be no cash impact associated with the impairment charge."
This is an "intangibles and goodwill" writeoff - its not nothing but it is also a "guesstimate" of value.
Essentially they "guessed" a year ago Autonomy was worth 10bn, now they are guessing its worth its yearly sales cash income - ie no goodwill at all.
Given that at the time of purchase it had 1bn in sales, and now they have lopped that (plus deprecation) to the same suggests the problem is to do with allocation of revenue than the actual viability of the software
Given the nature of the economic meltdown we had just a few years ago, I think the system allowing massive fraud to occur is a given. The question is, what can be done about it, short of letting it all burn and rebuilding from scratch?
This looks like a huge capital loss for HP. But, is it actually a move to lower HP's tax burden ahead of the expiring Bush tax cuts?
It seems to me that they valued it one-way a year ago, based mainly on intangible value. But now, they are valuing it another way, based on actual sales, that gives it a lower value that looks like a capital loss for HP.
In real terms though, what capital has been lost? They still have all the Autonomy resources they paid for a year ago.
C Corporations don't pay capital gains and dividend taxes. Their investors do. Unless this announcement has a positive effect on HP's stock, there are no additional gains or dividends to be had ahead of the tax rates going up.
For a real example of corporate maneuvers around the 'fiscal cliff', see Wal-Mart, which is moving up its dividend to help its investors avoid a potentially higher rate:
I can't comment on the 2 companies financials, but as an ex-FAST employee, I can vouch that working there in a pre-sales role was fun times for me. I have only heard of people saying it's horrible to work in Autonomy, but it might be selection bias.
If anyone of you are in the enterprise software space as an engineer, you really ought to consider working in pre-sales. You get to build a highly valuable skill set that compliments what you know already.
I once asked this when I started at the hedge fund I currently work at.
The answer I got was that for a large company, hiding things on the balance sheet is like getting a home inspection and finding out later that the house has some big problems with it. The point being is that inspections find somethings but can never find all issues.
What they meant was that if you dig deep enough you can always find out the problems, but when your going through the aquisition, you often don't have the proper access to the records you want, or the time to do the entire audit.
HP has owned autonomy for over a year and just found out this quarter. There is no way they would have had such access to autonomy's books during the due diligence phase nor is there anyway that autonomy would have let them take over a year to do their due diligence
Here the fundamental problem seems to be a very poor understanding of Autonomy's marketing and margins models.
CNBC is reporting that Autonomy was booking losses on hardware sales as marketing expense, and that its arrangements with resellers amounted to kickbacks. That may reflect improper accounting and practice. But any serious understanding of how the company goes to market and wins business should locate these expenses and arrangements no matter where they reside on the income statement -- and having located them, realized their implications for the value of the business. Clearly HP missed these items, which means they didn't understand the business model. The End.
Maybe Deloitte did a poor job on Autonomy's books. But anyone spending this kind of money at these multiples on the basis of an auditor's opinion is an idiot. And it does not speak well of HP that they are trying to place responsibility for this on someone outside their organization.
> "And it does not speak well of HP that they are trying to place responsibility for this on someone outside their organization."
If HP are prepared to pass on their information to the SEC and SFO, as well as talk about potential civil action, it would suggest they believe they have a valid case and this isn't just pomp and bluster for the benefit of shareholders.
I'm not saying the acquisition wasn't a stupid idea, or that HP's auditors couldn't have spotted these problems sooner - but if what HP claim is true then you can't hold it entirely against HP and the auditors.
The point is that a proper understanding of the business model allows you to conduct valuations, capturing all revenues and expenses, away from the financial statements. Those should absolutely reconcile back to statements. But they aren't driven by statement classification of items. Properly done, those models would have shown these problems.
HP is essentially saying "They didn't tell us X was in the marketing costs!" Well, then HP weren't asking the right questions about marketing strategy and drivers, and about relationships with customers and partners.
I take your point - what I meant to add in my reply but forgot to was that I doubt allocation of marketing spend / revenue was the only problem. Autonomy's revenue in 2010 was $870m - I'm sure the accounting issues are considerably more complex than what's been reported so far.
I don't think HP escape culpability, but for all we know someone at the auditors or HP were asking the right questions, and were being deliberately misled.
I understand that due diligence is hard and there's always going to be things which get missed... but I have trouble understanding how it's possible to miss 8.8 billion dollars.
> but I have trouble understanding how it's possible to miss 8.8 billion dollars.
I think we all are this morning. Unfortunetly the chatter we are hearing is that this type of accounting cover up, if true, would require help from their auditor.
Which means we may be down another accounting firm by the time this is over.
It's also not in anyone's immediate short-term interest to find a reason to scotch an 1.0x10^10$ deal, and whatever we'll kick this stinker of a deal down the road for the next CEO/CFO/&c.
I agree. When I heard HP was buying Autonomy for that much, I immediately thought of MS's purchase of aQuantive. And now both end up with huge write-downs.
Wouldn't doing due diligence mean you spend this time, however long it requires, to find out the reality of the company? From another commenter who worked there, said KPMG (and Deloitte) were the auditors, and I can imagine HP would be suing them..
> Wouldn't doing due diligence mean you spend this time, however long it requires, to find out the reality of the company?
Possibly, but consider my analogy of buying a house.
When you do a house inspection you get a professional to do it for you. You have to trust his opinion in a lot of cases and in even more cases you understand that he can't vouch for some things.
ie wiring behind walls, mold checks on hidden surfaces, foundation cracks behind finished walls.
if you wanted to do all this on your house inspection you'd have to kick out the tenants for 3-4 weeks and tear the house down to the studs to be 100% sure there were no problems.
Now go back and consider the purchase of a company by another. If they wanted to know every detail it would take 2 years and shut down the company being aquired while they do it.
No sane company would ever agree to that so you have the situation we currently have where you negotiate what the acquiring company can see and what the break fee is if they walk away.
Sadly the diligence phase is often farmed out to an IB who has no interest in seeing the deal break.
Okay, sure. Though it's $8 billion; 80% of the value paid! It seems like the there would have been wiring exposed, pipes burst and water leaking and doing external, visible damage..
There was a common view at the time that they had significantly overpaid and that was based on the straight books. Also only $5BN of the write down was for Autonomy. If they overpaid by 100% (possible as they paid 64% over the share price which could also have been overvalued) then it could be that accounting irregularity accounts only for a fraction of the write down. 10-20% of the purchase price feels as likely as 80% but we may see when it is investigated.
Large entities can often mask accounting fraud with the helpnof an accounting firm. Think Enron and Auther Anderson. I'm pretty sure HP is going to sue the begeezus out of a number of complicent players. They should start with the former CEO of Autonomy.
Back when the deal was announced I was exteremely skeptical. $10.2 billions for a relatively unknown UK software company that focuses on document management? 10 billions?! Their (Autonomy's) past acquisitions looked rather erratic to me. I also did not understand as to why a hardware company like HP would buy a software company in the first place. Then there were all the glassdoor posts discussed here on HN... the whole deal just looked shady even back then.
edit: http://news.ycombinator.com/item?id=2902749 I just stumbled upon this comment by AlexMuir, it was the most upvoted comment on the HN discussion about HP's acquisition of Autonomy
> In fact, HP should start suing the one that had the brilliant idea of acquiring Autonomy: Leo Apotheker
Why? for making a bad business decision?
The board approved it. That's why there is a board.
The finance department at HP signed off on it.
The tech department at HP looked at the tech and signed off on it.
"Why didn't the HP board question the purchase price in the first place?
That's what Benjamin Reitzes, an analyst for Barclays Capital, asked on the call. Whitman's answer: The board wasn't responsible. The two people who were responsible, in her view, are now gone: her predecessor, Léo Apotheker and HP's longtime strategy chief, Shane Robison, who retired in November 2011, shortly after the Autonomy deal went through.
"
It's true that the buck stops with the CEO. It was after all, his decision to make the deal.
My point was what are you going to sue him for? He did the right thing. He made up his mind, ran it past the board for approval, ran it past finance for approval, got an outside auditor to do due diligence.
All approved. The deal went through.
It turned out to be a stupendously bad business decision.
Should twitter be able to sue the developer who made the incredibly bad design decision to use ruby on rails and architect their system as a blog rather than than a message queue?
Bad decisions happen, people loose their jobs over them. it's much harder to sue someone when they've done the due diligence and had the decision signed off by many other people.
The same board that fired Hurd? The HP board needs to go away. They've been fucking things up for years. It's one of those situations where, after 3 CEO's, the first of which was kicking ass, maybe it's time to consider that the board is the problem, not the CEO.
Yeah. The same board that spied on itself and executives to find leaks.
They are clearly part of the problem. HP's vaunted culture isn't what they think it is and that's part of the problem too. They are too big for their britches, literally, need to cut some pieces off and get smaller again before they become smaller.
For the ones who say due diligence is constrained by time and the company not showing visible signs of fraud, accusations have been flying around for a long time. See http://email-museum.com/2010/04/22/autonomy-creative-account... for example. And note that HP and Autonomy were close partners, HP sells and deployed Autonomy's software. It's not like they have only worked together occasionally.
Wow, what would anyone do with billions of dollar if their reputation is hit so hard? I'm actually curious about moral position of people who engage in such frauds. Is there any research on such white-collar "crime"? What motivates them and why?
You know those charmingly manipulative psychopathic serial killers? It turns out many people like that just aren't violent. Instead, they like money and power.
A person like this probably feels just fine about what they did. "Psychopaths are without conscience and incapable of empathy, guilt, or loyalty to anyone but themselves."
Pretty much. That kind of money is "fuck you" money. You can go somewhere away from the business, and pay people to pamper you for the rest of your life. Who would even be able to get close enough to you to tell you yer a shithead?
And, of course, there's the standard business mantra that business is war, and all's fair in love and war. These guys tell themselves that they're just crazy slick and smart, not criminals.
The thought occurs, but lying to investors of a publicly traded company (ie. HP lying about accounting fraud) would in and of itself be massive fraud that would open HP and its officers and board to incredible penalties. I can't imagine how any scenario would make it worthwhile, especially if you consider the personal ramifications for the officers.
I'm not saying they're lying, but certain things like timing are under their control. I also wonder how much leeway they have for the amount of the writedown. Certainly the numbers need justification but you can always tilt the evidence to support your desired outcome.
and score one for Larry Ellison: http://news.ycombinator.com/item?id=3051730