Oops! Hewlett-Packard (NYSE:HPQ) is writing down $8.8 billion in a non-cash impairment on its miserable 2011 Autonomy takeover. Hey, didn't HP just lose $8 billion last quarter on its EDS acquisition? This is getting old fast. This company doesn't have a knack for picking up companies, does it?
To boot, HP is crying foul, alleging Autonomy execs perpetrated a fraud. HP claims it was duped by accounting improprieties and misrepresentations.
Come on. You could see this one coming from a mile away. Whether or not Autonomy cooked the books, this $11 billion acquisition was outrageous from the get-go. You can look at Autonomy's financials -- revenue and EPS growth was slowing, its P/E was well over 40. The deal was so bad I even offered to sell HP my childhood lemonade stand (as it turns out, that would have been a far better asset than either Autonomy or EDS). HP willingly went into the financial abattoir.
The legal hoopla isn't going to make a bit of difference. It isn't going to bring back the $5 billion. That's gone.
Whitman inherited quite a past of bungled takeovers. The old HP frittered away its money. Autonomy's former leaders may have swindled HP, but they're gone. The $8.8 billion has been written off. The miserable excuses that called themselves HP's leaders are gone as well. No more Hurd or Apotheker or Fiorina. No more squandering HP's cash and reputation.
The point: Investors have to look past stupid. HP is writing not only down the $8.8 billion -- it's writing down its mistakes. We're getting close to seeing a new HP, one without messes revealed every quarter.
All is not lost -- hidden in the atrocious selling today is the simple fact that HP's operating cash flow for the quarter was $4 billion, the year $10.6 billion. Free cash flow looks even better -- $3.2 billion this quarter, almost $7 billion this year. These numbers easily cover the billion-dollar dividend HP pays a year. HP is slicing away the trash that's been accumulating for 10 years. The whole point of writedowns is that you clear the deck. We're getting closer to a time when HP will be buyable. We're not there yet -- clearing out the pigpen does take time.