Nuance benefits as prospects for speech recognition grow

Shares of Nuance Communications Inc. rose after an analyst upgraded the stock due to improving growth prospects for its speech recognition technology in the mobile phone and other markets.

Broadpoint AmTech analyst Brad Whitt raised his recommendation of the company to “Buy” from “Neutral.” It is scheduled to report third-quarter earnings after the close of the regular trading session Monday.

“Nuance is the clear market leader for speech recognition technology with several growth drivers that could re-accelerate in fiscal 2010 as the economy improves,” he said in a research note.

He expects the company to meet or slightly exceed third-quarter analysts’ expectations while maintaining its fiscal 2009 outlook. Analysts are expecting third-quarter revenue of $249.8 million and earnings of 25 cents per share, according to Thomson Reuters.

Whitt expects that better-than-expected performance in mobile enterprise, solid recurring revenue growth and strong margin expansion will offset sluggish growth in license revenue.

He said some of the difficulties in the mobile enterprise division, accounting for half of revenue, faded in the third quarter. Whitt expects further improvements in fiscal 2010.

A strong global rebound in mobile handset sales in the quarter should boost royalties. Whitt noted that the new iPhone 3GS is shipping with Nuance technology and he expects the company to land more mobile phone contracts by year-end.

Its call center business should show some stability, which was experienced by other software rivals in the business.

The national “Cash for Clunkers” program could be a catalyst for the company’s auto business, which is based on royalties. For instance, Nuance’s speech recognition technology is part of Ford Motor Co.’s in-car communications system.

Shares of Nuance were up 37 cents, or 2.7 percent, to $14.23 in afternoon trading.

Source: The Associated Press.

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