It Makes Sense That the iPhone 5 Has Advanced Speech Features from Nuance (NUAN) - UBS

UBS commented on Nuance Communications (NASDAQ: NUAN) Wednesday following speculation that Apple's iPhone 5 will offer deeper speech functionality with technology from the company.

Analyst Brent Thill notes that Nuance already has a history of working with Apple, with basic voice features embedded in iPhones & iPods, and Mac OS X Lion includes enhanced text-to-speech functionality. This could easily go further he said.

"We believe it is rational to expect iPhone 5 to add more advanced speech features powered by NUAN given: (1) In April 2010, Apple acquired Siri, which made an iPhone app powered by NUAN, (2) iPhone 5 is expected to have a faster processor, enabling complex on-device speech processing."

While royalty from an iPhone 5 won't be material, if the two can implement a highly accurate and simple/easy to use speech interface "it could create a halo effect to induce other smartphone OEMs to increase their NUAN content." Also "it could put a spotlight on the value of NUAN’s portfolio of 4,000+ issued/pending patents."

The firm maintained a Buy rating and $24 price target on NUAN.

In an opposing view, theStreet.com contributor Eric Jackson warned about "piling in" NUAN on the news, noting the recent run-up in the stock. He thinks the stock could actually pull back after the iPhone 5.

For more ratings news on Nuance Communications click here and for the rating history of Nuance Communications click here.

Shares of Nuance Communications closed at $20.90 yesterday.

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