An analyst who all but predicted the scandal within Autonomy that forced Hewlett-Packard to write down the unit's value by $8.8 billion said Autonomy's core enterprise search and data analysis technology remains viable, but HP needs to do a better job getting it into the market.
"The Autonomy IDOL engine itself is super technology," said Alan Pelz-Sharpe, of 451 Research, in an interview. "It's just really complicated and expensive; HP will need to do a better job of leveraging it."
IDOL (Intelligent Data Operating Layer) is at the heart of HP's fraud claims against Autonomy's ex-management team, revealed Tuesday. The server-resident software uses an algorithm to perform enterprise-wide data searches. It was designed to be particularly good at sniffing out and providing context around the sort of unstructured data that makes up e-mail, voice, and video communications, as well as many types of information generated by websites.
[ HP's problems go much deeper than the Autonomy woes, says Art Wittmann. See HP's Identity Crisis Continues. ]
IDOL powers Autonomy products that are used in a number of corporate settings, including legal compliance departments, call centers and market research organizations. Autonomy customers at one time included industry giants like General Motors, Nokia, Coca Cola and Bristol-Myers Squibb. It's not clear how many of those, and other big-name accounts, have been retained under HP.
HP claims that, during acquisition talks last year, Autonomy executives vastly inflated sales and growth forecasts for IDOL. HP Tuesday accused the company's management team of "serious accounting improprieties, disclosure failures, and outright misrepresentations." Former Autonomy CEO Mike Lynch denied the claims in several media interviews later Tuesday.
HP ultimately sealed the deal to acquire Autonomy for $11.1 billion on Oct. 3, 2011. "It was a staggering multiple" given that Autonomy's revenues in 2010 were only $870 million, said Pelz-Sharpe.
Pelz-Sharpe said that while IDOL is a good product, it's complicated and expensive for customers to implement. He thinks HP would be better off pre-bundling it into servers and storage systems rather than trying to sell it as standalone software. "If you're managing terabytes of data in a hardware infrastructure, why wouldn't you want to make sense of it," said the analyst. "Selling standalone software was hard."
HP has taken some steps toward bundling Autonomy's offerings with other assets. Last November it rolled out its Next-Generation Information Platform, which combines IDOL with in-memory analytics software HP gained through its acquisition of Vertica last year.
Pelz-Sharpe said he believes that, going forward, IDOL has a better chance against competitors such as Microsoft's FAST search engine and Google Enterprise Search under HP. "HP customer care has stepped in and is picking up what was pretty poor customer care under Autonomy," he said.
Pelz-Sharpe strongly hinted that serious trouble was brewing within HP's Autonomy unit in an August 9 report that, in hindsight, appears remarkably perceptive."The Autonomy sales organization ran largely on a dog-eat-dog basis, and relied heavily on 'selling futures.' To move from the current culture where the customer comes first, integrity and ethics are paramount," he wrote.
"For sure, some Autonomy customers have deserted the firm since the acquisition--both search and archiving competitors have reported picking up unhappy Autonomy customers in the past two quarters--but the scale of the problem points to something deeper, something that surely should have been discovered during the due diligence stage of the deal," Pelz-Sharpe wrote.
Pelz-Sharpe said his report caused a stir within HP, but received little media coverage. "Not many people really picked up on it," he said.
Doubtless many HP investors wish they had read it. The company's stock was off slightly in light, pre-Thanksgiving trading Wednesday, after falling about 12% Tuesday after HP disclosed the Autonomy write down and poor earnings. HP reported a loss of $6.9 billion for its fourth quarter, and a loss of $12.7 billion for its full 2012 fiscal year.
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