Apple's Gain Is Nuance's Pain (Correct)

(Updated from 2:08 p.m. to include clarification on Deutsche Bank comments about Nuance's market opportunity).

NEW YORK (TheStreet) -- Apple(AAPL) is edging ever closer to $500 a share, but not all of its suppliers are basking in the iPhone maker's glow. Just ask Nuance Communications(NUAN).

Apple has long been known to drive a hard bargain with its suppliers. The company continually tries to find a way to maximize its own margins, while squeezing those of its partners. Apple products are largely deemed must-haves, and suppliers are willing to do whatever they can to insert their products into the iPhone and iPad.

CEO Tim Cook may continue to drive harder bargains in the future than his predecessor Steve Jobs did, as Cook's experience and intellect are on the operational side of the business.

Nuance Communications reported weaker-than-expected first-quarter earnings as the company said its relationship with mobile companies has become "more comprehensive and complex" lately. Nuance makes part of the technology that goes into Siri, the personal and voice recognition assistant in the iPhone 4S.

This could eventually mean that Apple and other handset makers like Research In Motion(RIMM) and phones that use Google's(GOOG) Android operating system may wind up developing their own technology, or potentially moving on to another partner, squeezing Nuance shares even further.

Wedbush Securities analyst Scott Sutherland believes this could eventually happen, as he wrote in a recent earnings note. He believes Apple could eventually build its own automatic speech recognition (ASR), as Google has already done and Microsoft(MSFT) has done with Kinect.

"...[We] believe Apple will follow Microsoft's and Google's lead and build its own ASR, especially after Siri's co-founder indicated Nuance ASR could be swapped out," Sutherland wrote in his note. He rates Nuance shares underperform with a $18 price target.

Sutherland also warned that the other handset makers Nuance works with could squeeze the company even more.

Deutsche Bank analyst Nandan Amladi noted that Siri on the iPhone 4S has made the voice interface a "must have" feature, adding that this has created a "pull" with other device makers, expanding Nuance's market opportunity and average selling price.

The analyst, however, excluded devices that are not likely to use Nuance technology from his projections, such as Windows Phone and Xbox, as well as Android devices, although he acknowledged that some use Nuance's speech engine instead of the embedded engine from Google. Amladi maintained his buy rating and $30 price target.

Craig-Hallum analyst Jeff Van Rhee downgraded Nuance, as the company's earnings were "relatively low quality", in addition to the recent run-up in shares based on too much hype. "The business overall put up a mediocre quarter and guide, with earnings of relatively low quality (as measured by CFFO vs. PF Net Income)," Van Rhee wrote in his note. He downgraded shares to hold with a $28 price target.

Nuance reported quarterly earnings of 34 cents a share on revenue of $360.6 million, well below what analysts were looking for. Analysts polled by Thomson Reuters expected the company to report earnings of 36 cents a share on $391.6 million in revenue.