When billionaire investor Carl Icahn revealed his large stake in Apple (NASDAQ:AAPL), shares of the company moved north. He further boosted his stake in the company last week after shares fell more than 5% because of the rumored underperformance of Apple's two new iPhones. Shareholders of Apple were expecting Icahn to force the company's CEO Tim Cook to take some initiatives in order to boost investors' return.
Earlier this month, Icahn revealed that he also holds a 16.9% stake in Nuance Communications (NASDAQ:NUAN), the company which created Siri. Following this disclosure, rumors started circulating across the Internet that Icahn will convince Apple to buy Nuance.
As of now, the healthcare industry is already a big consumer of Apple's iPad and the voice recognition software of Nuance. But, does this acquisition make sense for either company? Let's analyze the facts and statistics that propelled these rumors before drawing a conclusion.
Mediocre growth of Apple and Nuance
The quarterly performance of these companies wasn't much impressive. Even though Apple reported an increment of 1% in its revenue, the company's bottom-line shrunk 22% year over year. On the other hand, Nuance's top line jumped 9%, but the company posted a net loss of $0.11 per share. This was a huge step backwards for Nuance because it posted a profit a profit of $0.25 in the corresponding quarter of the prior year.
Nuance's healthcare segment jumped roughly 30% to $238 million, but on the flip side, the company's mobile and consumer business took a huge hit from the voice recognition products of other companies like Google. A decline of 16.2% in this segment indicates that Google is making its presence felt.
Eliminating dependence on Nuance and Google
Shares of Nuance have plunged around 20% in the span of one year. The reports suggesting that Apple is working on its own speech technology for Siri has put pressure on Nuance's share price. The possibility of this happening is extremely high as at least two of Nuance's speech scientists have left the company to join Apple. Also, Apple has a history of cutting-ties with third-party companies and Nuance possibly will be the next one on the list.
Apple has been planning to free itself from Google's apps. The company's last attempt to move clear of Google -- Apple Maps -- ended in a disaster. But that setback hasn't diminished Apple's desire to free itself as in the previous quarter, the company announced that Siri's default search engine in iOS 7 would be Bing. Furthermore, Apple proclaimed that it was boosting its ties with Yahoo! in order to develop more applications for iOS 7.
Doing away with Nuance a bad move?
Apple's urge to eliminate Nuance may not be fruitful as many reports suggest that Google's Voice Search is better than Siri. This is the primary reason why investors want Icahn to force Apple into buying Nuance rather than outfoxing it.
Also, considering the fact that Apple has more than $146 billion in cash and equivalents, buying Nuance is easily within Apple's reach. Nuance has a market cap of $6 billion and $2.35 billion in debt, therefore this purchase is possible.
What's in it for Apple?
If Apple buys Nuance, it would give the company control over Nuance's Dragon speech recognition technology. Dragon is one of the two most commonly used speech recognition software in the healthcare industry and is extensively used by Electronic Health Records (EHR) suppliers. The companies use two of Nuance's software called CLU and NLP, which help the physicians to document patient's information more swiftly.
Cerner has a strong association with Nuance in this field. Approximately a year ago, Cerner embedded Nuance's cloud-based voice recognition software across the entire EHR platforms. Besides that, Cerner also united its radiology information product with the radiology reporting suite. The companies have further boosted their ties with an agreement which will embed Nuance's clinical documentation products with its EHR programs.
In the healthcare industry, Apple is the leading tablet supplier. Thanks to the uniformity of the iOS software and easy to use hardware, developing apps for iPads is much easier than developing for Google's Android devices that are made by different companies.
According to an annual survey by Manhattan Research on digital usage statistics in healthcare , almost three-fourths of physicians currently use tablets. More than 50% of them favor the iPad. This is because of the wider selection of medical apps such as Epocrates and comprehensive mobile EHR apps like Cerner's PowerChart Touch.
In my opinion, Apple is probably making the wrong move. Rather than breaking ties with Google and Nuance, it should consider buying Nuance for a significant lead in the growing healthcare tech industry.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.