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Apple Inc. (AAPL), Nuance Communications Inc. (NUAN): Why a Deal Would Make Sense

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When activist investor Carl Icahn recently disclosed his large stake in Apple Inc. (NASDAQ:AAPL) on Twitter, the company’s ailing stock surged. Investors believed that Icahn could finally force CEO Tim Cook to make some dramatic changes to boost shareholder value. When Icahn recently revealed that he also owned a 16% stake in speech recognition pioneer Nuance Communications Inc. (NASDAQ:NUAN), the creator of Siri, frenzied speculation that he would force Apple Inc. (NASDAQ:AAPL) to finally buy Nuance Communications Inc. (NASDAQ:NUAN) flooded the Internet.

Apple Inc. (NASDAQ:AAPL)

There could be huge implications for the health care industry if this happens, as it is already a major consumer of Apple Inc. (NASDAQ:AAPL)’s iPads and Nuance Communications Inc. (NASDAQ:NUAN)’s voice-recognition software in electronic health records, or EHRs.

Would Apple Inc. (NASDAQ:AAPL) buying Nuance Communications Inc. (NASDAQ:NUAN) actually make sense for either company, though? Let’s take a look at the facts and figures fueling these rumors.

Stagnant growth at both companies
Both Apple Inc. (NASDAQ:AAPL) and Nuance Communications Inc. (NASDAQ:NUAN) posted unremarkable top and bottom line growth last quarter. Apple’s revenue inched up 0.9%, but its earnings dropped 21.8% from the prior year quarter. Nuance’s GAAP-adjusted revenue rose 8.8%, but it posted a GAAP-adjusted net loss of $0.11 per diluted share compared to a profit of $0.25 a year earlier.

Revenue at Nuance Communications Inc. (NASDAQ:NUAN)’s health care business surged 29.1% to $238.1 million, but its mobile and consumer segment reported a 16.2% decline to $111.0 million. This suggests that pressure from other voice recognition products on the consumer end, most notably Google Inc (NASDAQ:GOOG) Now, is starting to take its toll. Nuance also suffered from an ongoing shift from sales of upfront licenses to cloud-based options.

Apple’s Nuance-free Siri could be Apple Maps revisited
To add further pressure to Nuance, Apple Inc. (NASDAQ:AAPL) is creating a Nuance-free version of Siri that could potentially end the companies’ longtime partnership. That looming threat is one of the main factors that have caused Nuance shares to slide 20% over the past twelve months.

The development of its own speech-recognition engine is part of Apple’s broader plan to free itself from Google Inc (NASDAQ:GOOG)’s ecosystem. In June, Apple announced that Siri’s default search engine in iOS 7 would be Microsoft‘s Bing instead of Google Search. The company also announced that it was deepening its ties with Yahoo! to create more apps for the iOS ecosystem.

This desire to free itself from Google also led to Apple’s worst failure in recent memory, however: Apple Maps. The combination of several different GPS mapping technologies in the software melted digital roads and left travelers stranded.

Google then struck back by releasing the Google Chrome web browser, which has proven to be a popular alternative to Apple’s Safari. It then released Google Now for iOS, pushing the voice wars straight back into Apple’s backyard.

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