The brightest light in Apple's (AAPL) quarterly earnings report came from sales of its iPhone 4S, whose most defining feature is the voice recognition assistant Siri. The phone's eye popping growth, particularly in Asia where it launched in January, was likely behind Nuance's (NUAN) upside guidance issued on April 26th.
Of course, consumer sales to OEMs like Apple still account for less revenue than Nuance's healthcare division, which is riding a wave higher in medical transcription. But, voice driven consumer electronics are increasingly important to Nuance's growth story.
Following the launch of the 4S last fall, phones at Nuance were likely lit up by manufacturers looking to close the gap with Apple. In Nuance's Q4 earnings call, CEO Paul Ricci described interest in its solutions as "unprecedented". For Apple , the same description could easily apply to the iPhone.
The engine behind Siri
And, while suppliers like Nuance can't refer directly to Apple, the company was born out of DARPA funding to SRI International, just like Siri.
Possibly the best smoking gun related to Nuance providing the engine behind Siri comes from an SRI press release in 2010. In it SRI writes, "Siri has also partnered with Nuance Communications to power its robust speech recognition capabilities - the same technology behind the successful Dragon Dictation and Dragon Search and Apps for iPhone".
Sales growth is driving earnings higher
Apple has long wielded its purchasing power might among suppliers, pressuring margins at players including Qualcomm (QCOM), Broadcom (BRCM) and Triquint (TQNT). However, unlike chipmakers there are few alternatives for voice recognition. This gives Nuance a bit wider moat than some of the other members of Apple's supply chain.
Nuance expects FYQ2 earnings per share to reach $0.42-0.43, above the street's $0.38 guess. Revenue should reach $416-$418 million, which is also nicely higher than the $402.95 analysts expect. The company's CFO, Tom Beaudoin cited 14% organic revenue growth and strong enterprise sales behind the growth. The guidance is also solidly above Nuance's February projection of $0.36-0.40 per share in earnings on $395-415 million in sales. We'll get the full report on May 10th.
Future voice driven products offer growth
And, while Siri didn't find its way into the new iPad, a pared down version of voice recognition did. It's likely Nuance is behind that too. If it is, it isn't a stretch to assume Apple has its eyes set on a fully fledged Siri in its 2013 iPad update.
But, Nuance isn't limiting itself to computers, phones and tablets. At the Consumer Electronics Show in January, the company rolled out its Dragon TV offering. The product brings voice to television, allowing companies to build voice and touch apps specifically geared toward video. This offering would seem to dovetail nicely with future iTV products - a hobby whose mention was conspicuously absent from Apple's conference call.