A recent Wall Street Journal article reports that speech-recognition technology provider Nuance Communications (NASDAQ:NUAN) is considering a possible sale. The company, known for providing the technology for Apple's (NASDAQ:AAPL) Siri, soared on the news. It is sitting on year-to-date gains of almost 30% now. However, what if Nuance does not find a buyer, considering that it has a market capitalization of more than $6 billion and is still incurring a loss?

Finding a buyer will not be easy
Nuance is seeing strong sales of its voice-assisted documentation software to health care companies. In addition, the company has a number of factors working in its favor such as revenue growth, cash flow generation, and the increasing adoption of its subscription model.. However, at the same time, there are some weaknesses such as a disappointing return on equity and high debt levels, which could offset its strengths. So , it is possible that Nuance might not find a buyer due to a negative return on equity of 6.03%.

Naturally, the stock will fall in such an event. The company is making impressive moves to improve its business, and its prospects look bright. In case the stock falls if the rumor proves false then shares might be a good buy.

Trying to improve
Nuance is transitioning its business toward an on-demand subscription and transactional model. Although this will have an adverse effect on its revenue in the near term, it will strengthen its long-term prospects. The company saw a steady increase in on-demand revenue in the second quarter, which grew to 36%, up from 31% in the prior quarter. 

As mentioned earlier, the transition in the business model will pose various challenges, so Nuance has shifted its focus on improving its earnings. One of the key areas that Nuance needs to address is curtailing its expenses. In fact, management is carefully scrutinizing operating expenses already in an effort to improve gross margin going forward. . 

Nuance's focus on delivering innovative products and its expertise in the health care segment have helped it land a big client in the form of Oracle (NYSE:ORCL). Nuance signed an agreement to add voice capabilities to a wide range of mobile apps created by Oracle. Under this multi-year agreement, Oracle will use Nuance's cloud services to add speech recognition and synthesis to some of the mobile apps that support Oracle applications.

According to Robert Weideman, executive vice president and general manager, Enterprise Division, Nuance, "Our work with Oracle promises to deliver groundbreaking capabilities to the Enterprise by using speech to deliver rapid access to information within Oracle solutions, to make it easier to place information into those systems." Although no monetary terms were spelled out, this partnership is an endorsement of Nuance's strong product suite that is gaining traction in the market. .

Automotive growth
Apart from health care, Nuance is also making solid progress in the automotive business. After acquiring Tweddle Connect last year, the company has gained substantial traction in automotive. The combination of Nuance's Dragon Drive solution -- an in-car infotainment system -- and Tweddle's Connect is set up to deliver a personal-assistant experience for a safer, smarter connected car. Moreover, Dragon Drive has attracted brands such as BMW, Audi, Ford, Chrysler, Hyundai, General Motors, Toyota, and others into Nuance's fold.

A concern
However, there's a possibility that Apple can also become a threat going forward. Last year, it was reported that Apple is investing in its own speech technology to power Siri. Since Apple has set up a team of speech scientists in Boston, it might be looking to cut its reliance on Nuance. So, while Nuance has powered Siri in Apple's devices so far, there is a probability that it might lose this key account. 

Final words
Everything is not in Nuance's favor. The company is transitioning to a new business model, and this could curtail short-term growth. There's a possibility that Apple will go its own way. However, on the back of its product innovation, Nuance can do well in the future. The company has other illustrious clients as noted above, and its recent deal with Oracle is also a significant positive.

Nuance's business might improve in the future, and if the stock drops on the news that it is not finding a buyer, then investors should consider scooping up some shares.