UPDATE 3-Nuance Communications snaps up Swype, eyes bigger mobile pie

Fri Oct 7, 2011 12:03pm EDT

* Says $102.5 mln payable to Swype shareholders

* Says has already paid $77.5 mln

* Says to pay rest 18 months after closing the deal

* Deal to enhance smartphone, tablet offerings

By Soham Chatterjee

Oct 7 (Reuters) - Speech recognition and digital imaging software maker Nuance Communications Inc bought rival Swype Inc for $102.5 million to enhance its offerings for the red hot smartphone and tablet market.

Nuance's acquisition comes on the heels of Apple Inc releasing its latest iPhone 4S featuring "Siri" voice recognition software. Siri uses Nuance's speech recognition technology.

"Nuance is bulking up on the mobile front so that they can have a bigger presence on the next-generation handsets," FBR Capital Markets & Co analyst Daniel Ives told Reuters.

"They can't just stand by and just stick to their core competency of being a voice recognition technology player on mobile."

Android, the most popular mobile operating system, has its own voice recognition software -- Google Voice Actions. Microsoft also has its own speech recognition technology.

Swype, founded by Cliff Kushler, makes a keyboard that allows users to input words on a touchscreen device by sliding a finger or a stylus from letter to letter.

It is one of the most popular alternative keyboards for devices running on Google Inc's Android and Nokia OYJ's Symbian mobile-phone operating systems.

Nuance already offers the FlexT9 keyboard -- which lets users speak, trace, write or tap in information using its Dragon dictation and T9 predictive text input technologies -- on Android.

It is a crowded market, with Swype and FlexT9 going toe to toe with TouchType Ltd's SwiftKey X Keyboard, Dasur Ltd's SlideIT Keyboard, Beansoft's Thumb Keyboard and Dexilog LLC's Smart Keyboard Pro.

"Right now the name of the game is patents. This is Nuance trying to own more patents," analyst Ives said. "Ultimately, the company is going to have a much more integrated software set that they can sell to OEM and handset providers."

KUSHLER AGAIN

This is the second time Nuance has bought a company founded by inventor and entrepreneur Cliff Kushler.

In 2007, Nuance bought Tegic Communications -- a company co-founded by Cliff Kushler -- that created the T9 predictive input software used on mobile devices.

The Swype deal marks Nuance's fourth acquisition this year.

In August, Nuance bought Telecom Italia's speech technology unit Loquendo for about $74.66 million.

Last year, Nuance bought ShapeWriter, an application similar to Swype, from an IBM Research spin-off.

Nuance said in a filing with the U.S. Securities and Exchanges Commission that it has already paid $77.5 million to Swype shareholders and will pay the remaining amount 18 months after the deal closes, provided certain key executives do not terminate their employment with Nuance.

Shares of the Burlington, Massachusetts-based company were trading flat at $21.75 on Friday morning on Nasdaq. Nuance shares have risen about a fifth this year on speculation that Apple may expand its licensing deal with the company.

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