Some positive industry related comments from Red Herring:
redherring.com
nvestors recognize the potential of voice
By Stephen Lucey
Redherring.com, August 02, 2000
Speechworks International (Nasdaq: SPWX) soared in its market debut on Tuesday. Shares of
the Boston-based speech recognition software company climbed as high as $67.25 in mid-day
trading before closing at $56.75 -- a gain of 183 percent.
The strong performance by Speechworks came after the company increased its offering price
range to $17 to $19 per share from the previous range of $13 to $15. Still, the demand for the
stock proved to be so strong that the shares priced above the final range at $20.
The early success of Speechworks resembles the performance of its key competitor, Nuance
Communications (Nasdaq: NUAN), which went public in April and has soared 650 percent from its
offering price -- despite an 8 percent drop on Tuesday in the wake of the Speechworks IPO.
WHY THE SUDDEN DEMAND?
The early excitement among investors for these two offerings might be a bit premature for an
industry that is just on the brink of its growth cycle and only really hit investors' radar screens
in the last six months.
There are three factors that are driving the demand in this new area of the market, according to
Matt Luckett, an analyst at Wit Soundview in New York. (Wit Soundview was one of the
co-underwriters for the Nuance offering.)
The first is the proliferation of wireless products, especially cell phones, which are driving the
need to make the so-called "voice Web" a reality. Companies such as Tellme Networks and
BeVocal allow customers to access information such as restaurant listings, the weather, and
stock quotes through voice command. Both companies use Nuance's voice-recognition
technology.
The second factor that Mr. Luckett points to is the continued demand among the public for
self-service information outlets. With the explosion of the Internet, people have become
accustomed to using it for everything from shopping to stock trading, and completing those
tasks at their own pace.
But technology is probably the largest factor driving this boom in voice-control software. The
computer power needed to run these products is so large that the option of using them on a
desktop computer to complete simple tasks such as "speaking" or "listening" to emails has not
been an option for most PC users in the past. But with the speed of computers and servers
increasing, trading stocks on the Fidelity Investments Web site with just voice commands is now
a reality.
BUT IS IT ACCURATE?
With so many different voice tones and dialects, not to mention the issue of languages, is the
new voice software just as reliable as a real person or a keyboard?
According to Katherine Egbert, an analyst at Thomas Weisel Partners in San Francisco (which
also served as a co-underwriter for Nuance), the quality of the software is continuing to
improve each year and currently operates at about a 96 percent accuracy rate for many
enterprise usages, such as booking airline tickets over the telephone or tracking packages with
UPS.
Although Nuance and Speechworks tend to be the two better-known players in the voice
software space as of late, Lernout & Hauspie (Nasdaq: LHSP) is actually the larger and more
established player.
Lernout is expected to have a revenue run rate of $1 billion by the fourth quarter of 2000,
according to Rob Stone, an analyst with S.G. Cowen in Boston. The company has firmer roots
planted in the Asian markets and is the leader in medical voice dictation software, which is a $6
billion industry in the U.S. alone.
The key for the industry, according to Mr. Stone, will be how rapidly voice software technology
proliferates in the automobile, consumer electronics, and PC/multimedia sectors. As more
manufacturers embrace voice technology and the cost curves flatten, Speechworks and Nuance
should start to generate the types of healthy revenue gains that investors are obviously
anticipating. The industry as a whole is expected to grow to $12 billion over the next five years,
according to Ms. Egbert.
Investors looking at these companies should take note of this estimate -- not because of the
dollar amount but regarding the time frame attached to the figure. The space will grow as the
technology continues to be the main driver of developments in the capabilities and accuracy of
the software. But in a market regularly led by investors looking for overnight gains, there may be
some rocky days ahead until the sector matures. |
