Autonomy to spin off consumer arm

Autonomy, the Cambridge-based search software company, on Wednesday announced plans to demerge and float its consumer division, with allows people to search internet TV and video clips.

The consumer division will be renamed Blinkx, and listed on London’s AIM exchange for growth stocks in May. Autonomy will retain around 10 per cent of the shares following the float.

The company is considering issuing new shares at the time of the float to provide funding for the new business, which is expected to be initially lossmaking.

Blinkx is looking to create an advertising-funded business, along the lines of the Google business model.

Autonomy creates software that can search unstructured information, such as emails and pictures. It is used by a hundreds of large companies to track and organise corporate data.

Autonomy has struggled to enter the consumer market, however. It launched a consumer internet search technology in 2000 but was dwarfed by rival search engines such as Yahoo and Google, and quietly withdrew the product.

In 2005 the company re-entered the consumer sector, when it began a joint venture with China Netcom, the telecommunications operator, called OpenV, to provide a internet video search for Chinese consumers.

Mike Lynch, chief executive, has always maintained that Autonomy’s search technology is ideally suited to help consumers search internet television, video clips and other online entertainment, which has become increasingly popular in the last few years.

Unlike Google and Yahoo’s search engines, Autonomy’s technology does not rely on text and keywords, but uses mathematical formulae to detect patterns in any type of information, including pictures and sounds. The technology is used by the BBC, for example, to search and organise its archives.

The demerger of the consumer business is a complex transaction, in which Autonomy will first take ownership of Blinkx, a separate company founded by Autonomy’s former US chief technology officer, Suranga Chandratillake, which already uses Autonomy’s consumer search technology. In exchange Blinkx will be given exclusive rights to the technology, everywhere outside China. Then the Blinkx business will be demerged again and floated.

Autonomy shareholders will be given shares in Blinkx in lieu of a dividend, which the company has do date never paid.

The Chinese OpenV joint venture will not be part of the Blinkx group, and will maintain exclusive rights to the technology in China.

The news of the demerger came as Autonomy announced record first quarter results, which saw adjusted pre-tax profits nearly doubled to $19.5m from$10.3m in the same period last year.

Revenues for the first quarter rose 17 per cent from $56.1m to $65.5m, thanks to new corporate customer wins, including SFR and the Shanghai Stock Exchange, and increasing adoption of the software by technology partners such as IBM, Oracle and Symantec, who are integrating it into their own products and services.

Earnings per share increased to 7 cents from 4 cents last time.

Shares in Autonomy, which have increased 37 per cent in value since the start of the year, rose nearly 9 per cent to 760p in early trade.