This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Greenberg: Nuance Epitomizes the Reality of Rollups

By: Herb Greenberg | 11/26/13 - 10:12 AM EST

SAN DIEGO (TheStreet) -- At some point in time a rollup -- companies that grow by acquisition -- can't keep up the pace of acquisitions. It happens to the best of them and when it does you get what I like to call The Reset.

That's what appears to be happening to Nuance Communications (NUAN), the voice-recognition company and one of the the longest-running of all rollups. And like many rollups, when the acquisitions stop, so does the growth. Or put another way, the businesses it acquired aren't growing, either. Last quarter revenue growth at Nuance barely budged ahead at 1%. That compares with 8.8% the prior quarter and 27.7% the year before.

 



Worse, strip out more recent acquisitions organic growth tumbled by 9%. And, for what I believe is the first time, it was negative for each of the company's four segments.

And suggesting the commoditization of speech recognition, Nuance turned in an operating margin of just 2.6%, roughly half that of the quarter before and a fraction of the 12.8% a year earlier.

Perhaps most notable was mobile, which is believed to be the voice recognition power behind Apple's (AAPL) Siri. Mobile's organic growth plunged by 24%. There was a time, just a year or so ago, that Nuance was rising on the hope and hype of mobile, especially the iPhone. (Google's (GOOG) Android and Microsoft  (MSFT) use their own voice recognition technologies; Blackberry (BBRY) relied on Nuance but, well, you know how that has worked out.)

Nuance CEO Paul Ricci pretty much conceded the commoditization of mobile on the company's earnings call when he told a caller: "We won't see organic growth, we won't see meaningful organic growth in the mobile phone segment of the overall mobile business this year."

"We will see growth in the automotive and we will see growth in the other segments of mobile but I think not in the Smartphone segment."

But not to worry: In its presentation Nuance said organic growth should turnaround by 2015 and 2016, "achieving mid-single digits in fiscal 2015, as we realize the benefits of the increased bookings growth in fiscal 2015, with a further increase in the growth rate in 2016."A

In the next sentence the company said, "This growth will be broad-based across our divisions...."

To which I say, "will be broad based...?"Not we expect, or should but will?

This from a company that has been playing the manana card for years?

Reality: It's hard enough to say, with certainty, what will happen next month. Two years from now, in this world, is an eternity.

P.S.: This is one of Carl Icahn's most recent investments. In recent months he has become the company's largest holder with a 16.9% stake, bought at higher prices. His investment has sparked hope and hype that Apple will or should buy Nuance. My guess: It's cheaper for Apple to license the technology than buy the whole company.

-- Written by Herb Greenberg

>You can email me at: herbonthestreet@thestreet.com.

To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.

Markets

DOW 17,112.42 +41.20 0.24%
S&P 500 1,982.03 +4.23 0.21%
NASDAQ 4,513.4440 +7.5920 0.17%

Herb's Tweets

Brokerage Partners

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
Real Money Pro

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Trifecta Stocks

Trifecta Stocks analyzes over 4,000 equities weekly to find the elite 1% of stocks that pass rigorous quantitative, fundamental and technical tests.

Product Features:
  • Model portfolio
  • Trade alerts
  • Recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
Stocks Under $10

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Dividend Stock Advisor

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Breakout Stocks

Bryan Ashenberg, using sophisticated stock screening and fundamental research, identifies potentially explosive small and mid-cap stocks.

Product Features:
  • Model portfolio
  • Small-cap and mid-cap focus
  • Intraday trade alerts
  • Weekly roundups
Options Profits

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
Top Rated Stocks Top Rated Funds Top Rated ETFs