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 Autonomy CEO, Mike Lynch
Significantly, one of the new deals was with American Big Pharma – a $20m+ blockbuster that was Autonomy’s largest commercial success outside of the financial services sector.
Now Morgan Stanley has initiated on Autonomy with an overweight recommendation and a price target of 1100p (current share price: 923.5p). And the broker has warned Microsoft and other wannabees in the high-end web infrastructure market to ‘catch them if you can.’
Business Weekly understands US pharmaceutical corporation Eli Lilly, a $19bn turnover company employing over 40,000 people worldwide, and whose products treat depression, schizophrenia, attention-deficit hyperactivity disorder, diabetes, osteoporosis and many other conditions, has given Autonomy its largest non-finance sector windfall – a contract worth more than £10m.
The coup followed within 48 hours or so of Autonomy winning a deal worth over £32.6m with a global banking group headquartered in the States.
Both involved Autonomy’s unique Intelligent Data Operating Layer (IDOL) software. At a high level, IDOL integrates unstructured, semi-structured and structured information from multiple repositories through an understanding of their content.
Simply put, the software processes text, voice and video, and identifies and ranks the main concepts within them.
It then automatically categorises links, summarises, personalises and delivers the data. Autonomy’s infrastructure technology is used to automate operations within applications such as enterprise-information portals that support – among others – customer relationship management, knowledge management, business intelligence, and e-business applications.
Autonomy had started the year with a $70m deal from another unnamed US international bank as CEO Mike Lynch forecast that Autonomy’s software was ideal to help organisations deal with the sub-prime crisis in the US as banks and other financial institutions sought to provide more robust compliance and regulatory processes.
The order came through the Californian data archival suite provider, ZANTAZ, which Autonomy acquired for £186m in July 2007. ZANTAZ creates archives of electronic material for big banks and law firms so that it is available for investigation if the organisation is hit with a lawsuit.
Morgan Stanley says: “Our analysis shows that the ‘super deals’ for Autonomy can contribute nine per cent of the 20 per cent organic growth we expect in 2009.”
Autonomy was thrilled to win Business Weekly’s ‘Business of the Year’ title in March because it further underlined that its global success had been achieved from a Cambridge UK base.
But raking in the big bucks is what Autonomy is all about – it has become a money-making machine for Mike Lynch and his board. And yet the business is still underpriced according to Morgan Stanley.
It estimates that Autonomy has around 23 per cent of the Enterprise Search and eDiscovery market – almost double its nearest competitors, Microsoft (FAST) and Google.
According to Gartner’s estimates, this market has a 20 per cent CAGR to 2011 – roughly three times the growth it has penned for the overall business software market.
There are two key drivers: First, the quantity of data continues to rise almost exponentially – a six-fold increase over the next four years is projected by IDC – and organisations increasingly need to understand their information assets.
Secondly, compliance & regulation (Federal Rules of Civil Procedures, 2006) mean companies need to access and retrieve data ever more quickly, often for evidence (eDiscovery). Deploying Autonomy software is a relatively cheap solution set against the potentially crippling costs of a messy litigation, says the broker.
It says Autonomy’s IDOL platform is both best in class and differentiated and escalating sales to OEMs such as Oracle, IBM, Cisco and HP doubled last year.
The acquisition of email archiving leader Zantaz in California a year ago was a “game changer in the market,” according to Morgan Stanley.
One key element of the Morgan Stanley report suggests Autonomy will benefit from what the firm calls “the Swiss effect.” It says: “Autonomy can be helped by its independence, particularly after the acquisition of its main competitor, FAST, by Microsoft.
“The products in this market developed by Microsoft, as well as IBM and Oracle, are likely to see development that works best integrated into their own technology stacks. Autonomy can work equally well on any of these technologies.”
Three pure players – Autonomy, FAST/Microsoft and Endeca – operate in the high-end market and three majors operate in the medium-to-low end market (IBM, Microsoft and Google).
Microsoft became a key player by taking FAST but Morgan Stanley reckons: “Although Oracle, Microsoft and Google should not be discounted, we think they are more focused on the low-medium end of this market and here they will provide cheap and easy to use functionality.
“They will be less useful for the high end, which is focused on complex, information-intensive tasks. At the high end we think Autonomy stands out.”
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