The Nature of Software Sales

The latest accounting “mishap” at Autonomy which results in almost a $9 billion write-down by HP is not novel. However this comes after a $10 billion acquisition making the acquisition worth $20 billion approx and not to mention the bad brand splash that HP got. It may even result in board shuffle adding to the weak market sentiments and costs, eventually leading lesser value to the shareholder.

Now when I say, this is not a novel case, it is because there had been previous similar accounting scandals almost a decade ago. Examples are Computer Associates, Lernout & Hauspie & Microstrategy.

Autonomy, some say, has been known to get it done “one way or the other” when it came to meeting sales target. The industry at large is wondering, whether it in nature of the software sales, that makes it easier for executives to deviate from “standard practices”.

String ho-hum acquisitions, tough split between software bundles sales, software coupled with hardware sales etc, tend to land in gray area. It is also possible to book services sales earlier than actual sales taking place. This is gross misrepresentations, however the nature of software (or services) industry as such, makes it less quantifiable and difficult catch especially for outside auditors.

All this makes it easier to conceal expenses, or tweak the timing (deferred revenue) or even inflate the revenues.

HP still claims that Autonomy will be a growth engine - How big a growth engine, it would be, certainly questionable.