Yet that’s an incredibly myopic view, reflecting only what is taking place in the company’s business divisions right now in 2013. It’s as if investors have chosen to ignore the powerful long-term trends that have been in place for a decade and are using recent tepid quarterly results as a sign that speech recognition has a limited future.
Yet it’s hard to fathom how speech recognition won’t become a larger part of our lives. Here’s an example: The next generation of refrigerators will already know what’s inside, as consumers can scan each item before it goes in or out. Using speech recognition, time-stressed parents will simply ask the fridge, “What can I cook for dinner based on the ingredients inside?” I could cite other examples, but I’ll point you toward this article in MIT Technology Review instead.
The Road Ahead
Here’s what to look for over the next six months.
After Icahn boosted his stake in late August, he is likely talking with the company about getting a seat on the board. That allows him to argue his case from the inside. (Nuance subsequently adopted a poison pill, so a hostile takeover is unlikely.)
Look for Nuance to give Icahn a board seat on or before the company’s mid-November earnings release. At that time, expect another set of tepid quarterly results.
In December, during the annual meeting with analysts, look for a discussion of the new products that have resulted from the recent big push in R&D. Analysts will also more hear about the rising traction of the new sales force hires, who typically need nine to 12 months to become productive (which is how long it has been since the sales force was expanded).
Later in the winter, if shares still haven’t budged from current levels, look for Nuance to extend its current $500 million share buyback program (initiated last April) and to become more receptive to selling one of its divisions.
Risks to Consider: This is clearly a company in transition, so don’t look for a sudden uptick in quarterly results any time soon.
Action To Take –> Carl Icahn’s timing is perfect. Nuance is a proven industry leader with a technology focus suitable to the decade ahead, yet its shares are currently deeply out of favor. You’d be wise to follow Icahn’s lead, despite the obvious challenges the company is facing right now.
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