ScanSoft Shrinks the Speech Recognition Market

ScanSoft Inc. has expanded its presence in the speech
recognition software market with its acquisition of SpeechWorks
International Inc. in a stock deal worth close to $132 million.

Analysts say the deal between the Boston-area companies strengthens ScanSoft’s place in the market for
translating human voice commands into text on the computer screen. But the market for speech recognition software is still nascent and specialized and it is unclear whether research estimates of annual growth in excess of 25 percent will materialize in the mainstream computer market.

Despite an unproven market opportunitity, IBM and Microsoft Corp. have repeated their commitment to developing speech recognition-based software products.

For its part, the merger shows that ScanSoft is either trying to increasing its size and market share so it doesn’t become swamped by major players, or positioning itself for takeover by one of the larger companies.

The merged company’s workforce will be 900 worldwide, with close to 100 of those expected to lose their jobs as a result of the merger, the company said.

ScanSoft’s acquisition of SpeechWorks comes on the heels of its recent moves to acquire a variety of speech software assets, including the speech processing business of Philips Electronics and parts of the now bankrupt company Lernout & Hauspie.

ScanSoft said it sees SpeechWorks adding close to 5 percent to its earnings for the first full year of the merged companies, and 10 percent (accretive) for full 2004.

In 2004, combined revenue of the merged company is expected to be more than $200 million, with offices in Australia, Belgium, Canada, Germany, Hungary, Japan and the U.S.

In a related development, ScanSoft said Friday it will work on expanding its server, embedded and desktop speech technologies with IBM. ScanSoft, which calls itself a leading supplier of imaging, speech and language solutions, said it has struck a series of agreements with IBM, which will extend speech technology and applications across enterprise, desktop and multimodal environments.

The company statement went onto say the deal encompasses dictation applications, telephony-based speech recognition technology and applications, and text-to-speech solutions.

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