Another day, another acquisition. Such is life on Wall Street these days. Speech and dictation specialist and Motley Fool Hidden Gems recommendation Nuance Communications (NASDAQ:NUAN) is doing its part in keeping the acquisition spree going by snapping up Seattle-based Tegic Communications from Time Warner's (NYSE:TWX) AOL division for an estimated $265 million.
Tegic is a little-known maker of a very well-known technology already shipped on an estimated 2.5 billion handsets from phone makers such as Nokia (NYSE:NOK), Motorola (NYSE:MOT), and Sony Ericsson -- the joint venture between Sony (NYSE:SNE) and Ericsson (NASDAQ:ERIC). The company makes the T9 predictive text software preloaded on most phones. An alternative to "triple tap" typing on a phone keypad, Tegic's software helps text messaging novices enter messages by predicting and completing words based upon the order of single key presses.
Nuance has already been collaborating with Tegic since a 2005 partnership to integrate voice, text, and touch into a seamless interface for mobile devices. The company envisions a future where devices will benefit more from multimodal input -- not just the pressing of buttons -- to navigate the Internet and access applications. To this end, the company also recently announced the acquisition of VoiceSignal to boost its presence in the speech end of the mobile market.
Shortly after the announcement, however, analyst Daniel H. Ives from Friedman Billings Ramsey sounded off by downgrading the stock, helping shares dip more than 8% in a day. Ives is concerned that the acquisition is a diversion of managements' focus on core operations in the call center business and that integrated cell phone input solutions are still years away from adoption.
But Nuance's management expressed confidence that the mobile business is where the company should be investing. With prospects of continued growth in excess of 30%, Nuance wants to be first with the best integrated solution for human input to a mobile device. Tegic also offers deeper relationships with Chinese customers and supports 60 languages around the world.
So while management admits that Tegic had tepid growth as a stand-alone company, they contend that integration with Nuance's speech expertise will make the whole solution bigger than the sum of the parts. Investors wanting more immediate returns may be somewhat dismayed, but those agreeing with management on the long-term opportunity might consider buying the stock on the recent dip.
Speaking of Foolishness, check this out:
- Top or Flop: Nuance's Midyear Update
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- Foolish Forecast: Nuance a Step Ahead
Nuance has returned Motley Fool Hidden Gems subscribers 140% since being recommended in Jan. 2006. To see what other recommended stocks are beating the pants off the market, take a free 30-day trial.
Fool contributor Dave Mock is predictably unpredictable. Betcha couldn't predict that he owns shares of Motorola, either, or that Dave is the author of The Qualcomm Equation. Hey! Hey! Hey! The Fool's disclosure policy is here to stay!
