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To: Kelvin Taylor who wrote (39280)	4/28/2002 5:46:55 PM
From: DanZ	Respond to of 53068

Thoughts on SPWX, NUAN, and INTV. Kelvin: You asked how bad SPWX's earnings would have to be before I would not consider it a good risk. I'm not going to answer that specifically because I don't think their earnings were bad enough to justify what happened to the stock. Instead of answering that question, I'd rather discuss why I like these companies and why I think their stock prices are so volatile. All three companies are in the speech recognition sector. Speechworks and Nuance compete directly with each other and Intervoice uses Speechworks' and Nuances' speech to text (STT) and text to speech (TTS) software in their IVR systems. The decline in the economy has hurt all three companies because their customers have cut back on information technology systems, and that includes IVR systems. However, IVR systems are known to increase productivity and cut costs since many routine calls can be off-loaded to automated systems. Because of this, I think that this will be one of the first of the IT sectors to recover, along with infrastructure equipment that will increase bandwidth and upgrade older systems. Most of the systems that Intervoice has installed are touchtone systems. You interact with a database by entering keys on your touchtone phone. I'm sure that you have used them when you call your bank, credit card company, directory assistance, etc. Intervoice also has some voice systems installed, but there is a lot of room for growth in this industry. I believe that speech recognition systems will be installed in many more applications than where touchtone systems are installed. For example, several automobile manufacturers are installing speech systems in 2003 vehicles. PCs will soon have voice interactive interfaces. An alliance of major companies is working on a speech recognition interface for the Internet. I can think of applications in television for the deaf, and I also believe that many of the current touchtone systems will be replaced or enhanced with speech enabled systems. My broker already has a speech enabled system for getting quotations, and I hope that they eventually expand it to include logging in and placing orders. Why? Because when I'm driving, I don't like fumbling with the keys on my cell phone. I'd rather talk so I can keep my eyes on the road. Ok, enough of where I think the market is for these companies...now onto the stocks. All three of these companies are currently losing money. Speechworks and Nuance are young companies, and have never earned a profit. They are tiny companies in comparison to the size of their markets, and even the size of most other companies. They are microcap companies and their stock prices are volatile. It is hard enough to value a stable company that has been in business for many years and has fairly consistent earnings. Even the stock prices of those companies trade all over the place. The fact that NUAN and SPWX have never made any money makes it that much more difficult to evaluate how much they are worth. The value that an investor will place on them depends primarily on their balance sheet, cash flow, perceptions about the market, perceptions about their products and technology, and when they think they might be profitable. All of these companies have a fairly wide analyst following, which I think is both unusual and good for microcap stocks. However, analysts also have a hard time figuring out how much these companies are worth and their ratings changes can have a profound, albeit temporary effect on the stock prices. SPWX is in the greatest danger of not making it since they have the least amount of cash and are burning it at an alarming rate. NUAN has nearly $5.00 per share in cash and investments and their stock price got down to 5.25 last week. In my opinion, it got there only because of the decline in SPWX and I personally loaded up on it on Thursday. I did take some profit on Friday but still hold a core position. It was one of only a handful of stocks that were actually up on Friday. The stock should be very attractive to managers of small cap value funds. Based on the current market valuations, I like NUAN, INTV, and SPWX in that order. I think that SPWX would be acquired before they ever went bust, and that is another factor that leads to its volatility. They have good technology and a relationship with Cisco. If they were to be bought, I think that Cisco is the front runner. The market cap is less than $200 million, and that's a drop in the bucket for Cisco. When the economy turns around, I think that the sales of all three of these companies will increase several times. If things work out like I believe, sometime within a year or two, you'll be able to sell INTV, NUAN, and SPWX at a price two to four times where they trade today. In the meantime, the stocks will trade all over the place. So in a nutshell, or not so nutshell (gg), that's why I like these companies and why I think their stock prices are so volatile. Last quarter's earnings aren't all that important in the grand scheme of things, and that's why I was willing to step up and buy the weakness on Thursday.