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Lernout & Hauspie: Recognizing a Huge Market

I remember -- back in the 1980s -- seeing voice recognition in action. It was cool stuff, but never seemed practical or accurate. The technology was much like artificial intelligence; that is, something that never hit critical mass.

While artificial intelligence is still far off, voice recognition has made great strides. In fact, with the emergence of wireless technologies, voice recognition is becoming much more useful. It may even be a killer app.

One of the pioneers and leaders is Lernout & Hauspie (L&H) (LHSP). The company has a full suite of product offerings: automatic speech recognition (ASR), text-to-speech (TTS), digital speech and music compression (SMC) and text-to-text (translation).

L&H has been on an acquisition spree. But of course, the mega deal occurred this week, when L&H acquired their rival Dragon Systems. The price tag was $580 million. As a result, L&H will have about 80 percent of the market for speech recognition in the US (according to Forrester Research). With the acquisition, not only will L&H get new customers (Dell and Deutsche Bank AG), but be in a position to shorten the time it takes to develop new speech technologies, such as for cars, wireless phones and other hand-held devices.

The company's acquisitions, as well as its growth in Europe and North America, have spurred solid financial growth. In the final quarter of 1999, L&H reported revenue of $110 million, up from $76.7 million the previous year.

L&H is capitalizing on their lead by making strategic partnerships. Recently, the company formed a venture with Intel Corp. to develop e-commerce solutions. Part of this deal, Intel invested $30 million in L&H.

Microsoft also has a 7 percent stake in L&H and a co-development partnership. What's more, L&H struck a licensing agreement with America Online to provide linguistic technology to enhance document searches, document management and spell checking.

Ultimately, speech will be the way people access the Net. This will be done via wireless devices, like cell phones and handhelds. And L&H will be the technology of choice for many of these devices.


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