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Despite Problems, HP Says It Will Not Sell Autonomy and EDS

Hewlett-Packard this week denied reports that it is planning to sell its Autonomy and Electronic Data Services (EDS) units.

The reports come in the same week as the departure of Zorawar "Biri" Singh, HP's senior vice president, general manager and the architect of the company's public cloud effort.

HP acquired EDS nearly five years ago for $14 billion. Though the EDS business has struggled recently -- HP last year took an $8.9 billion write-down for the deal -- services are a key driver of business for rival IBM and it's hard to envision HP selling the unit at this time. As for Autonomy, HP acquired the unit in 2011 for the astronomical price of $10.3 billion amid much skepticism. Autonomy's roughly $1 billion in revenues seemed to hardly justify the valuation, a conclusion Oracle reportedly made many months before HP announced the acquisition.

Indeed, HP CEO Meg Whitman ultimately concluded that HP not only overpaid for the British company, but that HP was also duped by Autonomy's founders. Whitman accused them of "serious accounting improprieties" and "a willful effort by Autonomy to mislead shareholders," thereby taking a massive $8.8 billion write-off. Autonomy founder Mike Lynch, whom HP fired last May, adamantly denied the accusations and set up a blog to defend his position and accuse HP of backtracking.

Former HP CEO Leo Apotheker pushed for the deal but was unceremoniously dismissed before it closed. Whitman decided to go ahead with the purchase. After a whistleblower apparently came forward, HP investigated the matter and Whitman appeared on CNBC, making no bones about the fact the company felt it was the victim of massive fraud. HP has referred the matter to the Securities and Exchange Commission and the UK Fraud Office.

According to a Reuters report, Apotheker and then-Chief Strategy Officer Shane Robison, whom Whitman later dismissed, blindly went into the Autonomy deal out of desperation. Apotheker defended the deal in a statement to Bloomberg.

Most of this controversy took place in in the closing weeks of 2012, but it resurfaced this week amid reports that several Silicon Valley companies were interested in acquiring EDS and Autonomy. Though Whitman's denial certainly could be posturing for a better deal, many industry watchers believe Autonomy is of value to HP despite the incredulous price it paid for it.

"When you talk to customers, what you find is that if you have an unstructured data problem, if you have a problem around syntax, if you have a problem around search, Autonomy has got some really useful technology," said IDC chief research officer Crawford Del Prete in an interview with CNBC. "Autonomy can really help in a world where you have a mix of structured and unstructured data."

HP also owns Vertica, a company it acquired in 2011 to help build data warehouses to discover structured data. The move to manage big data is a hot agenda item among other key IT players, including Microsoft, IBM, Oracle, EMC and Google.

About the Author

Jeffrey Schwartz is editor of Redmond magazine and also covers cloud computing for Virtualization Review's Cloud Report. In addition, he writes the Channeling the Cloud column for Redmond Channel Partner. Follow him on Twitter @JeffreySchwartz.

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