Nuance: Can you hear me?

Nuance's quarter sounded better, but can they repeat the performance? Organic growth was up 36% year over year; when you add the purchased companies it was up 47%. Integration of Nuance and ScanSoft appear to be working out better than expected. In my mind this was much better than expected. The growth and profoma profit showed a robust surprise. Before the merger, Nuance and ScanSoft were major factors in the speech recognition market. Since they merged it appears that the industry has become less competitive. With less competition there is less need to discount to "win" the deal. The company stated that this current quarter would still have some digestion issues. This was the first quarter that speech-recognition revenues have exceeded the slower growing scanning business. Usually during the first quarter of a merger, a company has real integration problems. Seldom does a company report that growth is well above the market and organic growth is inline with the industry. "Voice business services will be one of the fastest growing value chain segments through 2008, with a CAGR of 35%". Source: Research and Markets November 21, 2005. The Nuance Speech Recognition Market Network Call Centers Embedded Mobil Devices Automotive Hands Free Devices Nuance Company forecasted flat gross margins and believes it will be able to reduce costs by taking out redundancies caused by the mergers. For 2006, it forecasts $315-325 million in sales. They also forecast 29-31c per share in profit. With a forward PE of 22 and 3.65 times sales, this appears to be a company with a low valuation, especially with a leading position in a 35% growth industry. Conclusion More and more states are requiring hands free calling when driving a car. The networked based voice recognition call center is often rated higher than operators or "press 1" for x and "press 2" for y maze solutions. When you consider that it often saves companies money significantly over time, it's understandable why the industry receives such a high growth forecast. It appears that voice recognition is starting to receive growth from the upturn in the high-end cell phone market along with others. Keeping in mind that some integration issues still need be worked through, if Nuance can achieve organic growth at industry levels, in my opinion, this company could be valued significantly higher. We offer complimentary email @ research services [url]http://www.durig.com/page5.html[/url] Discolsure I own Nuance in discretionary clients portfolios and in my own account. Past performance is not a guarantee for future returns especially since we were rated #2 U.S. Equity, Large Capitalization Blend, Ranked by 1 year annual return 4th Quarter 2004, By Money Manager Review