Some Notes on HP


HP’s Boise, Idaho Campus

WC doesn’t want readers to think he is bashing HP, neé Hewlett Packard, in this post. After all, WC uses an elderly (2004) LaserJet 2055 laser printer for most printing, and a new HP Envoy 6458 color inkjet for his color printing needs. WC still owns and uses a truly ancient HP 12C calculator, manufactured in 1981 (a product still sold by HP, by the way).1

But HP the company has succeeded in spite of what may be the worst series of CEOs in American corporate history. Sometime back when Carly Fiona became CEO, HP abandoned internal development and innovation in favor of acquisition. Most of those acquisitions have been spectacular failures. The purchases of Compaq, Palm and dozens of others were expensive wastes of shareholder investment.

But the worst was surely the $11.1 billion HP paid for a British company called Autonomy. Autonomy, at the time, was the U.K.’s largest software company by market value. HP, just one year later, wrote off $8.8 billion of that massive purchase price because, HP said, it had been misled about the value of the company it was purchasing. An 80% write-down. That particular failed acquisition comes to mind because the legal fallout from that 2011 acquisition is still playing out in the courtrooms of the U.S. and the United Kingdom today, more than ten years later.

Last week the U.K. courts found that Mike Lynch, the CEO of Autonomy at the time, had engaged in massive fraud in the sale of Autonomy to HP. Essentially, the U.K. court found that the financial statements, prepared by accounting firm Deloitte, were false, misleading and contained material omissions. It didn’t help Lynch’s defense that Deloitte was fined £15 million by British accounting regulators for the deficiencies in Deloitte’s purportedly audited financial statements of Autonomy. Or that the two leader Deloitte auditors involved were fined and barred from practicing accounting for five years. Nor was Lynch’s defense helped by the U.S. conviction of his Chief Financial Officer, Sushovan Hussain, for wire fraud arising out of the same financial statements. Hussain is serving five years in U.S. prison.

The U.K. courts have not yet determined the “quantum” – the amount of damages – that HP is entitled to recover from Mike Lynch and Sushovan Hussain. The U.K. judge has telegraphed that will be less than the extra $8.8 billion HP paid and wrote off, more in the range of $4.5 billion. But the amount has yet to be determined.

But that’s just the start of Mike Lynch’s problems. He was indicted in the U.S. for fraud and other crimes. His extradition was delayed, both by the pending civil case and by all the defenses that a billionaire can raise with an expensive squadron of lawyers. But with the determination of liability in the U.K. civil case, Lynch’s extradition to the U.S. has been approved. Doubtlessly, Lynch will appeal both the civil liability decision and the extradition, but U.K. appellate courts rarely overturn fact decisions of the lower courts – they use a much more deferential standard on review than U.S. c. So HP will “win” in the sense of getting a damages award and seeing Lynch in prison. But the chances of HP recovering a substantial portion of those $8.8 billion written off in 2012 and pretty much zero.

HP has apparently determined to recover those lost billions instead by adopting King Gillette‘s marketing strategy from way back in 1909. King Gillette – who names their kid “King”? – pretty much gave his namesake razors away, because the money, he said, and proved, was in selling the razor blades. Or, in WC’s case, the inkjet cartridges. But even at HP’s extortionate prices and WC’s struggles to get a decent print, it’s going to take a lot of inkjet cartridges.2

1 Ah, the sublime joys of RPN, Reverse Polish Notation. Efficient, natural and a perfect fit for binary calculation.

2 HP has had a big presence in Boise for many years, but in the last decade that presence has shrunken considerably. The HP campus, on the Bench in West Boise, is now being converted to State of Idaho offices. That might be a metaphor.

3 thoughts on “Some Notes on HP

  1. I just put my little bit older Laserjet MFP on Craigslist. You are not giving me hope anyone will buy it. 😦

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  2. Reverse Polish Notation emerged from a footnote-of-a-footnote mathematical oddity to its well-deserved prominence solely through Hewlett-Packard’s adoption of it for its handheld masterpieces. That was at a critical time in my own development and I credit much of my particular transformation from floundering in math to reveling in it – (and receiving the #1 test results in my grad school college’s “post-entrance” exams…in math, anyway) to the ease with which RPN allowed computations.

    Summary? HP’s engineers get an “A”; its 21st c managers get a gentleman’s (gentlelady’s) “D-“.

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