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SpeechWorks: Calling on Investors

You know the feeling. You call a company to make a simple transaction and you are put on hold for an hour. Well, there is a solution: voice recognition.

A leader in the field is SpeechWorks. On July 31, 2000, the price range was $17-$19 for 4.75 million shares. The lead underwriter was Chase Hambrecht & Quist LLC.

Yesterday, the company went public and hit a high of $65.25 and ended the day at $56.75. The IPO was priced at $20.

Basically, SpeechWorks has a product line that makes it possible to interact with telephones using voice instructions. You can direct calls, obtain information, conduct transactions, and so on.

SpeechWorks introduced its first products in 1996 and since then, has been an innovator. The company has been the recipient of awards from Industry Week and Frost & Sullivan.

Currently, the company has two products: SpeechWorks 6 and SpeechSite. SpeechWorks 6 is a comprehensive suite of software applications for developing cutting-edge speech activated services. SpeechSite is based on the SpeechWorks 6 platform and allows for such services as answer and direct calls. SpeechWorks also has a professional services staff to help companies effectively and quickly implement the technologies.

An example of the power of the technoloy is the company's deal with United Airlines (UAL). UAL is the largest carrier in the world, with 2,400 flights a day to 138 destinations in 26 countries. In a five month project, UAL used SpeechWorks software to replace its old automated touch-tone system. Now, customers can easily get valuable flight information. The system receives more than 80,000 calls on a typical high-traffic day.

SpeechWorks has more than 170 customers worldwide. They include such biggies as DLJ Direct, Nortel Networks and E*TRADE.

Most impressive have been the recent deals. In June 2000, SpeechWorks entered a major deal with AT&T to create speech products. In the deal, AT&T gets 1 million shares of SpeechWorks. Next, there was a licensing deal with AOL, so AOL can develop voice portals. AOL has agreed to purchase $5 million in stock of SpeechWorks. Finally, there was a licensing deal with Net2Phone. And, yes, Net2Phone will buy $4 million in stock of SpeechWorks.

Revenues are not huge, with $14 million in 1999. However, the recent mega deals with AT&T, AOL and Net2Phone should have a substantial impact. What's more, a similar voice-recoginition company, Nuance Communications, had a great IPO. The stock was issued in April 2000 at $17 and now sells for $114.50.

As expected, SpeechWorks zoomed on its first day. But it would not be surprising to see some downside in the stock -- on a temporary basis. But, as shown by the performance of Nuance, the speech sector is hot and for those investors who have a high tolerance for risk, there could be more upside with SpeechWorks.