U.K. information-retrieval software company Autonomy Corp. PLC (AU.LN) has a history of success, outperforming market expectations every quarter for the last two years, but a 10% fall in its shares Thursday following yet another better-than-forecast performance reflects just how used to upgrades the market has become.

The company makes software that helps companies keep track of their growing mountain of e-mails, phone calls and documents, and the regulatory burden of information recording and retrieval has boosted demand for Autonomy's products substantially.

Through a series of well-placed acquisitions, the company has increased demand for its core technology platform, Intelligent Data Operating Layer, or IDOL - most recently, the buy earlier this year of content management software company Interwoven.

The second quarter ended June 30 was the first full quarter of Interwoven input, which has now been fully integrated, and while earnings were ahead of expectations, the share price reflects some disappointment that an upgrade to full year forecasts wasn't forthcoming, Seymour Pierce analyst Derek Brown believes.

At 0948 GMT Autonomy shares were down 10.3% or 137p at 1180p.

The company's deferred revenue also provided something for the bears, despite reversing a previous quarter slump.

The figure - which refers to sales already invoiced but not booked because the work hasn't yet been carried out - rose to $170 million in the second quarter, from $163.7 million.

It wasn't enough for Evolution Securities analyst Roger Phillips, who had been expecting something north of $185 million as the uncertainty caused by the Interwoven acquisition receded and its customers, which had put off committing to new services in the previous quarter, renewed contracts for Autonomy's products.

Autonomy's second key gauge of future performance, its order backlog, may have also affected positive sentiment despite the group saying this had increased slightly.

"We see this as a credible result given the macro backdrop, but given the expectations built into the current valuation it is likely that the market will be looking for more than modest growth," Investec analyst Julian Yates said in a note to clients Thursday.

Autonomy has managed to grow its business strongly in the current downturn due to increasing demand for regulatory compliance, according to Chief Excecutive Mike Lynch.

The first phase which spurred demand for Autonomy's products is the archiving of documents and basic e-discovery, or the search and retrieval of information for legal cases. Now the second phase is now starting to gather pace, with Autonomy's e-discovery product that can automatically identify and retrieve relevant information for a legal case from a swathe of company documents.

Lynch told analysts on a conference call Autonomy has already sold the service to one major client and has received interest from four or five more as companies rush to comply with the increase in litigation requirements.

It's also seeing a rise in deals, albeit smaller ones, for its means-based marketing products which track and target a company's online activities to improve marketing results.

Companies using this service include Tesco PLC (TSCO.LN), John Lewis Partnership and Barclays Group PLC (BCS).

While the economic downturn has stymied much of the growth from marketing services as companies look to cut budgets, Lynch believes this will be a strong area of growth in the economic recovery.

The Cambridge, England-based company reported a 55% rise in revenue in the three months to end-June to $195 million, and earnings per share adjusted for non-cash items, restructuring costs and share of losses from associates up 38% to $0.26, in line with a pre-announcement issued two weeks ago.

 
   Company Web site: www.autonomy.com

-By Kathy Sandler, Dow Jones Newswires; 44-207-842-9293; kathy.sandler@dowjones.com