Autonomy Disappoints a Year After HP's Big Software Bet

"HP lacks the pure enterprise focus of IBM and EMC yet will have trouble competing for consumers without strong tablet and phone businesses like Apple and Samsung," wrote Milunovich in an Aug 8 initiation of HP shares with a sell rating and a $16 price target.

"We question whether HP is 'better together' and that it might be 'smart to be apart,' specifically spinning off printers and PCs," he added.

In May, Jefferies analyst Peter Misek said that the company's future stock gains hinge on improving performance at Autonomy.

"We believe HP is one of a handful of players that has or is close to having the components of a full stack (i.e., software, storage, networking, services)," wrote Misek in a May note to clients. Were Whitman's restructuring efforts to work, Misek calculated that cross selling opportunities from Autonomy could lift HP's 2012 earnings per share to $4.20 from a base of $4.07. Such improvements would warrant a $40 share price because HP's price-to-earnings multiple could rise to 9.5 times 2012 earnings from a base of 7.5x.

Full year EPS guidance of $4.06 - unveiled on Wednesday - signal that software's not been the cure to declining PC sales, which fell 10% in the quarter. Meanwhile, the company's stock remains over 50% below Misek's bullish estimate.

In a decisive call, Whitman retained HP's PC unit -- contrary to Apotheker's plan -- and cast high expectations on the benefits of Autonomy. HP chairman Ray Lane said in September that Autonomy's software and analytics revenue could grow from present levels of $1 billion to $5 billion or even $10 billion. "Hopefully, we'll see a bigger software portfolio and we'll see more value-added services at HP, but we have $120 billion of hardware business that we care dearly about," said Lane in September.

Since then, HP has enacted other turnaround efforts under Whitman, including a merger of its PC and printers divisions in a move to cut costs.

"When you try to go from $40 million to $400 million to $1 billion to $2 billion, boy it takes -- it's a whole different ball game," Whitman said in May, of weak Autonomy's-based results.

Whitman didn't think Autonomy should stand on its own two feet, but as part of HP's larger software unit, the legs seem equally shaky.