Stocks to watch: Nuance Communications Inc. (Nasdaq: NUAN) stock continues its climb today, rewarding investors with 12% gains in the last 24 hours. The voice recognition company, whose technology is used to power Apple Inc.'s (Nasdaq: APPL) Siri, is said to be looking into a sale of the company – possibly to Apple's rival, Samsung.
Word of a potential sale by Nuance surfaced Monday in The Wall Street Journal. Based in Burlington, Mass., Nuance's voice recognition technology is used in smartphones, televisions, and GPS navigation devices. Top clients include Apple and Samsung.
Nuance's relationship with Apple, while long assumed, wasn't made public until last year. You see, Apple strongly encourages its suppliers not to discuss any dealings. Most comply with Apple's request, as they don't want to lose $527-billion-market-cap Apple as a customer.
Nuance Chief Executive Officer Paul Ricci, however, confirmed its relationship with the iPhone maker at 2013's AllThingsD conference. "We are the fundamental provider of voice recognition for Apple," Ricci said.
That sparked speculation that Apple would make a move to take over Nuance for $7 billion. Industry watchers maintained it simply made sense for Apple to own the technology behind its personal assistant, Siri, and to cut out competitors.
Indeed, in addition to its own Dragon dictation software and its affiliation with Apple, Nuance works with Samsung, Daimler AG, Nintendo Co., Panasonic, and others to develop voice applications. Nuance also announced last September that its voice and language technologies, already bundled in Samsung's handsets, televisions, and tablets, will be used in Samsung's wearable devices – a red-hot sector.
Surprisingly, Nuance's biggest business isn't in the smartphone market. Its healthcare unit, which produces software designed to digitize patient records, is its largest. The company's mobile unit, with a focus on phones, cars, and tablets, is the second biggest. In its last fiscal year, Nuance booked $1.86 billion in revenue.
Also on Nuance's books is that activist investor Carl Icahn is its biggest shareholder. Icahn owns about 19% of Nuance and has two representatives on the company's board, according to March 31 filings. The billionaire investor is known to use his significant clout to steer public companies' financial policies – and to sharply move share prices.
Icahn also holds a substantial position in Apple, which he just boosted. Following Apple's recent 7-for-1 split, Icahn boosted his stake in the iPhone by 2.8 million shares, worth some $1.65 billion. He now owns 7.5 million shares.
It's not clear where talks between Nuance and Samsung, some of which happened earlier this year, currently stand and whether they would result in a deal, according to The Journal.
But Icahn's considerable stock positions in both Nuance and Apple could be troubling for Samsung and lucrative for those investing in Nuance stock. Icahn's involvement in companies can trigger double-digit returns in weeks.
Even better for investors: As we pointed out weeks ago, there's a lot more to liking NUAN stock than just the Icahn factor…