Autonomy buy emptied HP coffers

Following some extravagant spending, HP is looking to tighten its purse strings as cash levels create growing concern among investors.

The firm completed a takeover of British software company Autonomy for $11.7 billion in October and has been wracking up debts like a small European nation.  According to the Wall Street Journal this could even lead to a downgraded credit rating from lending firms.

While headlines were dominated by HP leadership concerns – with indecision over the spin-off of its PC unit and Meg Whitman taking over as CEO – a cash flow problem has emerged.

Clearly, HP will not have the bailiffs knocking anytime soon.  According to Forbes figures, HP is raking in around $10 billion every year, though it has a relatively low valuation at $56 billlion.

However, there are concerns that its current lack of cash will hamper it from making further acquisitions.  Buying back stock in order to keep its prices up would also be problematic.

Whitman reportedly targeted cash levels as part of a raft of changes that needed to be brought in to steady the ship on her arrival.

This is because HP’s debt has risen to $19 billion in the first three quarters of this year, compared to $7.7 billion back in 2008.  Alongside its short term debt this means a total of $25 billion owed at the end of July, with another billion dollars needed for the culling of its tablet business.

A lack of cash means that it will be more difficult to continue to buy back stock from investors as it has been doing of late, with around $3.4 billion splashed out each quarter.

HP’s customer financing scheme could also take a knock, having provided around $6 billion during 2010.

The possibility of further acquisitions is shut off for now, which could see its rivals steal a march. 

While HP will be forced to cut up its credit cards for the time being, Cisco and Oracle will be free to manoeuvre in the acquisitions market.