How HP may lose $5 billion today…and what it might mean for BPM acquisition targets


An article on slate today walks you through how HP may have to take a $5 billion haircut on the value of Autonomy.  Meg Whitman, CEO of HP, is now saying that operating margins for Autonomy are around 30% – not the 40-45% origninally thought.  Remember, HP paid a little over $11 billion for Autonomy.  And now they have to write down almost half of that? Ouch.

How did they get it so wrong?  The Guardian gives you a couple of potential scenarios, like channel stuffing, mixing hardware and software sales together, and other ways to cook the books.

But one area that may cause problems for our industry as a whole is how you recognize pay-as-you-go revenue for cloud services.  Autonomy runs what they claim is the largest private cloud in the world – measured by amount of data stored at 50 petabytes.  This is offered as a pay-as-you-go service.  There is a lot of variation in how expenses for running data centers are booked – many times it is isn’t easily found in a company’s SEC filings – which can have a big impact on margins.

Specific to BPM and middleware, there have not been any issues with accounting like what we’re seeing at HP.  But as clients purchase software in increasingly complex ways, BPM portfolios grow, and people start blending on premise with cloud execution models, the need for good accountants is going to increase dramatically.  I think the biggest areas where this will be challenging will be for BPM vendors that are acquisition targets.  How will potential acquirers ensure that they have an accurate valuation of future revenue streams for cloud-based BPM vendors?  If the data center expenses are coming from a third party, such as Amazon, how are those reported?

In the meantime, it will be interesting to see how the drama at HP unfolds.