Nuance Expands Product Reach With Tegic Acquisition

Nuance Communications, the lead vendor in the growing speech-recognition software category, plans to acquire Time Warner’sTegic Communications for US$265 million. The acquisition will add $45 million to $48 million in net revenue in fiscal 2008, the company reported.

The addition of Tegic, which develops predictive text-input software for mobile phones, is part of Nuance’s strategy of expanding beyond its speech-recognition competency, which it strengthened last month with its acquisition of VoiceSignal Technologies, a vendor in the speech-enabled mobile devices and services submarket.

Nuance said the $292 million acquisition would allow it to serve more than a billion consumers within the next three years with voice-based mobile services that navigate, retrieve and transact in mobile phones, automobiles and personal navigation devices.

The Tegic play is part of the same strategic spectrum; in this case, it will help the company develop software that will allow users to control multimode mobile devices through an interface that offers not only voice and touch input, but also text.

Smart Move

It is a smart move for Nuance, Yankee Group analyst Ken Landoline told CRM Buyer. “In a multimodal world, which is what we have now, people want to be able to switch among voice, a stylus and the keyboard — depending on the situation — when using their devices.”

These lines will continue to blur as other voice vendors reach into the text space and vice versa, he predicted.

The Enterprise Market

The consumer market is the obvious destination for such functionality, but there could be an opportunity in the enterprise space as well.

“There is obviously a huge trend towards the convergence of voice applications and smartphones,” Sheryl Kingston, a Yankee Group analyst, told CRM Buyer. “The next step is to be able to move voice and text data back into the enterprise systems.”

The consumer business case for mobility applications is clear to vendors, she said. “I think the next evolution will be to take these new technologies and adapt them for enterprise use.”

Both consumers and businesses are already starting to see glimmers of such functionality, Roger Kay, president of Endpoint Technologies Associates, told CRM Buyer. He pointed to Vonage, which can deliver voice mail as an MP3 file to the PC, as one example.

The Market Speaks

In the immediate term, Wall Street appears unsure whether it likes the massive — for Nuance — acquisition, perhaps in part because the business case will take some time to be realized. Meanwhile, the numbers are a bit worrisome to investors, Frederic Ruffy, an analyst with the investor education firm Optionetics, told CRM Buyer.

“At approximately $265 million, the Tegic acquisition is a big one for Nuance,” he emphasized. “The company currently has a market value of approximately $3.1 billion and had annual revenues of $388.5 million for the fiscal year ended Sept. 30.”

Investors seem a bit concerned about the potential effects from the merger, Ruffy concluded, evidenced by the $1.15 drop per share in earnings after the deal was announced.

“The decline in the stock seems to indicate that investors are worried about the short-term impact on earnings,” he commented. Nuance said that the move will add $45 million to $48 million in revenues in fiscal 2008, but will contribute a per share loss of 12 cents to 13 cents.

Friedman Billings analysts, Ruffy noted, disagree with the strategy and lowered the stock to “market perform” from “out perform.”

“The downgrade is also one of the factors underlying the stock’s weakness today,” Ruffy said.

However, prior to the 6.3 percent drop that occurred after the deal was announced, Nuance’s stock was up $6.52, or 57 percent, year to date, he added. Nuance “has been in a steady uptrend during the past year and more than doubled in value since July 2006. So, today’s news might have inspired some profit-taking as well.”