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

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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.

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Trilogy buys Savvion

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Late last week, Trilogy announced that they were buying Savvion, Sonic, and a few of the remaining parts put on sale by Progress back in April.  From the press release:

The software investment arm of Trilogy Enterprises, one of the largest privately held enterprise software companies in the world, today announced that it has signed a definitive agreement to acquire four Progress Software businesses – Sonic, Savvion, Actional and DXSI. Trilogy will combine the businesses to form the core of a new “best of breed” intelligent business process, application, and data management company. The new company will be called Aurea Software and will be headed by enterprise software industry veteran Scott Brighton. Brighton currently serves as President of Trilogy Enterprises.

It is an interesting move for Trilogy, who has a few BPM products on the truck currently, including Versata.

Overall, it is good news for Savvion customers and the BPM market in general.  Savvion customers should expect to see a roadmap from Trilogy in the coming weeks, and will have a better basis to make their decision on future direction.

Contrary to what you might expect, the next 6-12 months are going to be pretty boring from a customer standpoint.  The focus is going to be internal.  You can bet that Trilogy is not going to tell existing customers that the world is going to change overnight.  Current products will be supported, a lot of the same staff will stick around to see how things play out.  It starts to get interesting in the 12-24 month time frame.  Which direction is Trilogy going to take?  Roll in BPM into their industry solutions?  Stand-alone BPM?  What about rules and events?  Progress kept those pieces (Corticon and Apama).  It will certainly be interesting to see how this unfolds.