The Truth Behind HP's Autonomy Fiasco

Hewlett-Packard (NYSE: HPQ  ) placed a huge bet on data management specialist Autonomy. The $10 billion purchase price was at stake, not to mention then-CEO Leo Apotheker's vision -- and his own future with the company. Everybody knows that HP suffered dearly when Autonomy didn't deliver on its transformative promise, but nobody has explained exactly what went wrong.

Until now.

In a piece of serious investigative journalism, Reuters pulls back the curtains on how that tragic deal went down. As it turns out, I was right about Apotheker, Autonomy, and HP all along.

What happened?
According to the Retures report, Autonomy was far from Apotheker's first choice of buyout options. He came into HP with decades of software expertise and a clear plan to transform his new company into a software and services powerhouse -- in the big, blue mold of IBM (NYSE: IBM  ) . To get the ball rolling, he touched base with software experts Comverse Technology and Amdocs (NASDAQ: DOX  ) , nearly sealed a deal with instant data analysis guru TIBCO Software (NASDAQ: TIBX  ) , but was ultimately sent home empty-handed from every negotiating table.

So when he finally homed in on Autonomy, "Apotheker was determined not to miss out." He told his board of directors that HP needed to get something done in the software space, even if the price wasn't right. "It was out of frustration and desperation to a large degree," says Reuters' inside source.

Bada-bing, bada-boom, and there you go. The final deal was hammered out over red wine and shrimp cocktails in a posh French resort. An army of HP staffers audited Autonomy's business over the next month, but found nothing to worry about. And the rest is history.

The deal was consummated, but only long after Apotheker had left the building. Culture clashes with HP's bureaucracy clogged up Autonomy's high-growth machinery, and HP never took that planned trip down to Software Town. New CEO Meg Whitman prefers to spread her efforts across a metric ton of diverse markets, and the results aren't pretty:

HPQ Chart

HPQ data by YCharts.

What if?
I can't help but wonder what HP would look like today if Apotheker's other options had worked out instead. Comverse is far too small to move HP's huge needle, but could have set the tone for a successful buyout binge across small-cap software specialists.

Amdocs or TIBCO would have been immediate game-changers, if only HP's board had loosened Apotheker's purse strings a few months earlier. Any of these three options would have created a whole new HP, where software and services reigned supreme and the low-margin hardware operations could have been sold to someone like Lenovo or a gaggle of private equity investors. Heck, Autonomy should have worked out that way as well if the board hadn't blinked at the wrong moment and fired Apotheker.

In the end, I believe that Leo Apotheker was basically fired for doing exactly the right thing. I'm not the first to say this, but HP's board of directors should be hung out to dry for their wishy-washy strategy and horribly wrong decisions. But 78% of HP's shares are in the hands of insiders or financial firms, none of which have felt inclined to rock the boat. The day of reckoning still hasn't arrived, well-deserved as it may be. And HP keeps running at full speed in the wrong direction(s).

Like Shakespeare's Hamlet, it's a sad story that only grows gloomier every time you turn the page.

TIBCO and Amdocs play increasingly vital parts in the big-data ballet, where software specialists of all stripes hustle to squeeze business value out of today's data-soaked world.

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  • Report this Comment On December 01, 2012, at 12:20 PM, twasserman wrote:

    I disagree: HP acquisition or Amdocs and/or TIBCO would not have changed the game, except for the major shareholders of those companies.

    Even before the Autonomy acquisition, HP had a long series of failed software acquisitions, including Verifone, Bluestone Software, and Mercury Interactive, though the latter still exists. One could also argue that the Compaq acquisition was a failure, driven mainly by Carly Fiorina's desire to be seen as a star.

    HP is King Midas in Reverse on all of its acquisitions, often because they are unable to integrate the other company. They never get the sales organizations merged, and the leaders of the acquired company often leave very shortly after the acquisition closes. They often rename the products of the acquired company to give them an HP identity, wiping out any existing brand equity of the acquired company's products.

    With its last 4 CEO's having fired about 100k people, R&D has been gutted and HP is left with little more than the ability to stick its logo on products designed and built by others. When they finally get around to announcing a Windows 8 tablet, it will be a me-too product, sold to people who still place some value on the HP brand.

    But the equity play here is strictly on the likely breakup of the company and what they can get an Indian or Chinese company to pay for the hollow shell that is the remainder of this once-proud company.

  • Report this Comment On December 01, 2012, at 2:58 PM, Colorado1969 wrote:

    This article is a joke, right?

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