Autonomy Slumps Most in 12 Months After Margins Miss Analysts' Estimates

Autonomy Corp., the U.K.’s second- largest software company fell the most in 12 months in London trading after gross margins retreated.

Autonomy dropped as much as 13 percent, the biggest fall since July 2009. Gross margins declined to 86 percent in the second quarter from 88 percent a year earlier, the company said today in a statement. “The small variation” in gross margins was due to the sales mix which included hardware-based appliances, Autonomy said.

“We estimate that after adjusting for one-offs, Autonomy failed to grow its core business,” said Paul Morland, an analyst at KBC Peel Hunt. “Margins were well below expectations.”

Corporate and government clients have remained “cautious” on spending, Cambridge, England-based Autonomy said today. New contracts with other technology equipment makers such as Oracle Corp., a lead indicator of investment, declined to 9 from 11 in the previous quarter.

Autonomy fell as much as 236 pence to 1,577 pence and traded 11 percent lower at 1,610 pence as of 10:56 a.m., giving the company a market value of 3.89 billion pounds ($5.94 billion). The stock has risen 6.6 percent this year.

Acquisition

The company forecast “unpredictability” for the split in revenue between the third and fourth quarters due to seasonal effects, indicating estimates for sales may fall, Michael Briest, an analyst at UBS AG said today in a note.

Autonomy, which gets about 70 percent of revenue from North America, is “very actively” working on an acquisition that may take place in the fall, Chief Executive Officer Mike Lynch said today in an interview.

Autonomy raised 500 million pounds by selling convertible bonds in April and is seeking acquisitions to “defend” its market share, rather than buying revenue growth, Lynch said. “We’re looking for situations whereby when we do it, we create more and more defensive walls.”

Second-quarter net income rose 2.9 percent to $52.5 million from a year earlier as sales climbed 13 percent to $221.1 million.

To contact the reporter on this story: Jonathan Browning in London jbrowning9@bloomberg.net.