Mike Lynch, chief executive of Autonomy, said uncertainty over US orders could hit revenue, with "customers still showing volatility around their view of the current macro-economic situation". Photograph: Matt Lloyd/Rex Features
Autonomy shocked investors today when the software company warned that revenue could be hit by uncertainty around orders from the US, where it derives two thirds of sales.
The firm's financial performance is vulnerable to weakness in the American economy, as well as uncertainty ahead of the mid-term elections to Congress, said Mike Lynch, chief executive.
"We are noticing customers still showing volatility around their view of the current macro-economic situation," he said.
Shares in the group plunged 16% to £15.51 after analysts slashed their forecasts but the company is still expecting to lift profits 20% for the full year, and sales by 17%.
Lynch said underlying demand in the long term "was still strong" and the company's growth prospects "were extremely attractive".
But Bob Liao, a Canaccord analyst, said: "Things have not been coming together as expected … it throws into question Autonomy's] longer-term potential."
Goldman Sachs removed the company from its "conviction buy" list but retained its "buy" rating, saying it believed the stock would be in the "penalty box" in the short to medium term. "Apart from M&A [mergers and acquisitions] support and prospects of an accretive acquisition, we believe predictability of growth has become more uncertain in the short term until close rates across the various product lines stabilise," it said.
Autonomy's software searches unstructured information, such as emails, telephone conversations, documents and video for companies such as BP, Morgan Stanley and Sainsbury's.
Demand has been boosted by tighter regulation but the group was also hoping for a lift from its marketing software as the global economy recovered.
James Crawshaw, a Standard & Poor's analyst, said growth may be petering out for Autonomy's compliance-driven products, while demand for discretionary software remained weak. "We believe Autonomy will seek an acquisition to stoke its growth engine but that desperation may lead it to overpay," he said.
The Cambridge-based Autonomy, one of the UK's largest software groups, has repeatedly been named as a likely takeover candidate, with IBM and Oracle seen as possible bidders. But Lynch has brushed off the rumours, hinting instead that the firm is more hunter than prey. Autonomy paid $775m (£500m) last year to buy Interwoven, which specialises in management software for legal documents, and raised £550m in a bond issue this year.
The group has more than £600m available to spend on acquisitions; analysts suggest possible targets include Kofax, a document-capture software group listed on the London Stock Exchange.
Autonomy disappointed investors when it reported weaker first-half margins than expected, and Lynch warned that the market recovery was weak. But he accused bearish analysts of not understanding software companies or the markets in which they operate. Lynch founded Autonomy in 1996 and owns an 8% stake.
What a juicy bargain - If Autonomy isn't worth multiple billions in it's own right within the next year and a half I will eat my hat!!
