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Comment: HP’s proposed USD10bn takeover of Autonomy makes perfect sense

Hewlett Packard’s proposed USD10bn takeover of Autonomy signals a shift of focus from hardware to software for HP, says Tim Daniels, TMT Strategist at Olivetree Securities…

It would make perfect sense for one of the big database players to want to own Autonomy – the software is indeed unique and growing in importance. However, a takeout price would have to be large, potentially 2500-3000p to take the stock close to valuations US “peers” trade at.  We don’t think Mike Lynch would recommend a sale below top dollar valuations, although once one move were made it would be very possible that counter bidders would be talked of. 
 
HP would be buying this as part of a refocus of the business on software. They have been talking for a while about a focus on software – clients now don’t have a problem accumulating data, the problem is the structuring of it – 80% of the data on the web now is unstructured (video, pictures, emails etc). Moves like SAP-Hana and Oracle-Exadata have been focused on this as a product area – HP buying Autonomy would fit into this too. HP aren’t the most obvious database acquirers – this will no doubt raise an eyebrow at the Oracle’s of the world.
 
Given the rapidly increasing amounts of unstructured data being created thanks to explosions in digital photographs, videos, music, email, instant messaging and social networking, the need to be able to search different types of data is increasing dramatically. Traditionally structured data, such as that in rows and columns generated by industry thru products such as those offered by SAP and Oracle is becoming less of a focus. Traditional search software isn’t intelligent enough to sort through unstructured data in a speedy fashion – it is unable to understand the contents of a video or a music track.
 
Autonomy’s software does all this. The bottom line to Autonomy’s product is that it is able to search unstructured data and work out what is relevant, in a way other products are unable to. The speed and success rates of searches are markedly superior than that offered by traditional software – which is often totally unable to search through unstructured data.

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