Hewlett-Packard’s (HPQ) or H-P's allegations of accounting misappropriations in Autonomy’s financials gained credibility as the U.S. Air Force also reportedly found irregularities in Autonomy’s accounting books. Nonetheless, the U.S. Air Force has stated that it will not debar former Autonomy executives from conducting business with the federal government.
The U.S. Air Force was conducting an internal investigation against one of its defense contractors, MicroTech. The investigation revealed that Autonomy was a vendor of MicroTech and it helped the U.K. software maker to inflate revenues and margins.
However, all these allegations have been denied by Autonomy founder Mike Lynch. H-P’s much-hyped Autonomy acquisition was marred by several lawsuits from investors claiming that they were misled by the above-mentioned irregularities.
Additionally, H-P had to bear the $8.8 billion charge related to the Autonomy acquisition. The bulk of the charge (roughly $5.0 billion) was to nullify the improper accounting practices relating to Autonomy’s financials prior to the acquisition. Investigations related to the allegations are still pending in the U.S. and the U.K.
On the brighter side, Autonomy’s integration into H-P’s Software segment has strengthened its SaaS portfolio. Buoyed by Autonomy’s performance, H-P’s SaaS revenues in the last-reported quarter increased 15.0%.
The company’s traction in the cloud, security and big data segments are the positives, going forward. Restructuring initiatives and management changes are also expected to keep H-P on the growth path. The company’s shift to the core software business will also help it to achieve long-term profitability.
However, continuing macroeconomic challenges, tepid IT spending and competition from International Business Machines (IBM) and Oracle (ORCL) are the headwinds, going forward. The Autonomy investigations could remain an overhang on the stock as well.
Currently, H-P has a Zacks Rank #3 (Hold). Investors can also look at Western Digital (WDC) which has a Zacks Rank #1 (Strong Buy).
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