(Rewrites, adds analyst comment) By Lilly Vitorovich Of DOW JONES NEWSWIRES LONDON (Dow Jones)--U.K. software group Autonomy Corp. PLC (AU.LN) slightly missed expectations for second-quarter earnings Thursday and posted disappointing margins, sending its shares sharply lower on the London Stock Exchange. But Chief Executive Mike Lynch was nonetheless upbeat, noting the first half of 2010 "continued to show a gentle recovery with discretionary spend continuing." "Overall, we face the rest of the year with a strong balance sheet and, in light of the continuing macro recovery, we are confident in our ability to continue to deliver strong growth for the full year," he said. Lynch also said the company is on track to announce a deal by the Autumn, but declined to elaborate. Autonomy's fully diluted earnings per share excluding exceptional items--the key figure tracked by U.K. analysts--rose 7% to 28 cents in the second quarter ended June 30 from a year earlier, compared with expectations of 29 cents. The miss was due to a higher interest charge from convertible loan notes issued in March and more shares in issue, which was slightly mitigated by a lower tax charge. Second-quarter net profit rose 2.9% to $52.4 million from $50.9 million a year ago on a 13% rise in revenue to $221.1 million, broadly in line with expectations. Operating margins fell to 43.6% in the second quarter from a year ago, hit by higher marketing spend and hardware costs. That compares with a 44.4% margin in the first quarter of 2010 and 47.2% in the second quarter of 2009. As a result of a mix of lower gross margin, higher interest charges and lower tax, Panmure Gordon analyst George O'Connor will trim his 2010 EPS and revenue forecasts and cut his target price on the stock, although he maintains a hold rating. At 0859 GMT, Autonomy shares were down 131 pence, or 7%, at 1687 pence, making it the biggest faller on the FTSE 100 index, which is flat. However Autonomy is often a volatile stock and has a history of falling sharply on results day as the market expects it to beat forecasts. Autonomy, which makes software that helps companies and governments keep track of their e-mails, phone calls and documents, has an extensive client list including General Electric Co. (GE), Deloitte, Citigroup Inc. (C), Lloyds Banking Group PLC (LLOY.LN) and Barclays PLC (BARC.LN). The regulatory burden of information recording and retrieval has substantially boosted demand for its products and, through a series of well-placed acquisitions, the company has increased demand for its core technology platform, Intelligent Data Operating Layer. -By Lilly Vitorovich, Dow Jones Newswires; 44-0-207 842 9290; lilly.vitorovich@dowjones.com (END) Dow Jones Newswires July 22, 2010 04:13 ET (08:13 GMT)