Nuance Acquires Philips Speech Recognition Systems

Nuance Communications acquired Philips Speech Recognition Systems, a business unit of Royal Philips Electronics, this week for $96.1 million in a move an analyst says will help position the company to expand its healthcare-related business in Europe.

While not a large deal in terms of incremental revenue, the acquisition will help Nuance expand its healthcare business overseas, says Steve Cramoysan, Gartner research director. "In terms of revenue, this will provide Nuance with an extra $35 million, or about 10 percent more than the [previously projected for 2008] revenue of $350 million" for the company’s healthcare business, Cramoysan says. "This acquisition will help them build better relationships in the healthcare industry in Europe."

According to Nuance, $15 billion is spent on medical transcription in North America and Europe each year, but the businesses tend to operate quite differently. Bob Wise, president of Nuance’s healthcare division, said the firm had little presence in Europe, while Philips has a strong presence as well as good relationships with software vendors and original equipment manufacturers.

Those relationships are important, according to Cramoysan, because selling to the healthcare industry has as much to do with incorporating the technology into the workflow as it does with the actual speech capabilities. Wise agrees, saying that speech technology enables a doctor or other healthcare worker to attach verbal information in addition to charts and check-off lists. The verbal information is more detailed, and therefore, more accurate.

Wise expects the acquisition to be accretive to earnings this year. Tom Beaudoin, Nuance's chief financial officer, adds that Nuance expects to have positive cash flow in the fourth quarter and into 2009, so the company should be able to fund the acquisition with cash. This is particularly important now because worldwide credit markets are extremely tight.

Beaudoin adds, "We anticipate that our healthcare business will now deliver worldwide revenues in excess of $410 million in fiscal year 2009. Operating margins in our healthcare business should be up sharply, above the corporate average for the full fiscal year."

According to Wise, demand should remain strong for Nuance’s healthcare business even though firms are slowing down some of their planned technology spending in the current economic environment.

In a related announcement, Nuance says it expects its financial performance for the quarter to be better than previously projected. The company now expects revenue—including an acquisition-related contribution that will be written down—to range between $258 million and $262 million. Nuance previously projected $255 million to $262 million. Analysts were expecting $259 million, according to published reports.

Nuance expects to report a loss of a penny to two cents a share. Previously, the company projected a loss of 2 cents to 3 cents a share.