Mike Lynch - Britain's first software billionaire - made his fortune as the chief executive of the intelligent search and retrieval software firm Autonomy (AUTN). But he has given up trying to understand financial analysts and the press after the expulsion of his company from London's FTSE 100 index of leading shares earlier this month.
Last year he could do no wrong, but now Lynch and his advisers are getting the impression that they have been singled out as the latest fall guy for the U.K.'s volatile new economy.
Analysts have raised doubts about Autonomy's software, which can search, retrieve and index data from a host of sources, including so-called unstructured sources such as e-mail. And there are fears that rivals are edging into the group's core market - the supply of information search-and-retrieval products to large companies. The truth is that Autonomy is still proving its business model.
In recent memory, few British stocks have split opinion quite as dramatically as Autonomy. Of the 15 analysts that follow the stock, a third have recommended that their clients bail out while the rest rate the shares a raging buy. Since November's IPO it has dropped from a historic high of £41.50 to its current price of £11. Analysts' forecasts for 2001 range between £5 and £50 a share. The only thing both sides agree on is that the stock was due for its recent correction.
"The multiples are outrageous on Autonomy," says Thomas Kessler at WestLB Panmure. "If you look at companies that have traded on high multiples and how much they have come down even after reporting good numbers, it was a correction that needed to happen." All the same, Kessler is recommending the stock.
But Lynch believes he is the victim of a misunderstanding. "People in London do not know Internet software companies. There is one software company in the FTSE 100 now and that is Sage," he says. "As for the analysts - an understanding of how they work is something that I try not to confuse myself with any more."
Instead, Lynch is spending his time on building up the business. But the deals Autonomy has signed to date with original equipment manufacturers (OEMs) - software firms that will embed Autonomy into their products - are a gamble. Autonomy is grabbing these second-tier customers in order to force the major players to sign up. High-profile corporate customers, such as Lloyds TSB and Ericsson, are intended to prove the company's case and attract more OEM contracts.
Autonomy made its technology available for OEMs over a year ago, but because of the long lead times involved, revenues have only just started to appear from a handful of the more than 40 contracts signed to date.
But, according to some customers, Autonomy's technology is not quite as user-friendly as the company likes to think. The Standard Europe has spoken to several customers, many of whom said the software was hard to implement. The chief technology officer at a major British ISP which uses the technology in its portal explained that Autonomy was leading-edge technology and so involved a necessarily high degree of expertise.
A major complaint is that Autonomy's software functioned efficiently while it was processing information for companies with a few thousand staff, but it becomes unreliable for larger concerns.
But SageMaker, which uses Autonomy's core technology in its own software, says Autonomy has dealt with this problem. "Scalability is being catered for now by Autonomy's new architecture," says Malcolm Hafner, senior European vice president of SageMaker. "We have not come across a problem and scaling up to several hundred thousand internal users is now a capability."
More damaging than technological doubts is the threat of rivals moving into Autonomy's core market. Microsoft (MSFT)'s Cambridge-based research centre has gained a lot of publicity for a project code-named Tahoe. The final product, SharePoint Portal Server, is now out and looks a lot like Autonomy. But it only runs on
