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Nuance cuts forecast on delayed deals, move to subscription

Luke Peters demonstrates Siri, an application which uses voice recognition and detection on the iPhone 4S, outside the Apple store in Covent
Luke Peters demonstrates Siri, an application which uses voice recognition and detection on the iPhone 4S, outside the Apple store in Covent

(Reuters) - Nuance Communications Inc , whose software powers the Siri voice feature in Apple Inc's iPhone, cut its forecast for the year as some of its mobile customers delayed contracts, sending its shares down nearly 8 percent.

The company, which also reported lower-than-expected third-quarter revenue, has not been able to demand higher prices from handset makers due to intensifying competition and customers looking for cheaper deals.

Some analysts have said the company has been trying to hold on to its pricing, a move that has led to delays in signing contracts with a few of the smaller handset makers.

"We in the mobile business are prepared to let deals be delayed for the sake of price discipline," Chief Executive Paul Ricci said on a conference call with analysts. He said the delayed deals would add to revenue in fiscal year 2014.

Revenue from its mobile business, which accounts for about 30 percent of total revenue, fell 14 percent to $108.7 million in the third quarter.

The company also said it would lose some revenue and take a hit on its margins in the short term as it shifts to a cloud-based subscription revenue model.

Subscription models bring in less money upfront as payment is spread over the entire period of use unlike traditional packaged software, but typically ensure more predictable recurring revenue.

Rival Adobe Systems Inc has also shifted to a largely web-based subscription service, Creative Cloud, from a licensing model.

Nuance said it now expects adjusted earnings of $1.27 to $1.35 per share on revenue of $1.84 billion to $1.87 billion for the year ending Sep. 30.

It had previously forecast adjusted earnings of $1.33-$1.45 per share on revenue of $1.86 billion to $1.90 billion.

Nuance reported a net loss of $35 million, or 11 cents per share, for the third quarter, compared with a net profit of $79.3 million, or 25 cents per share, a year earlier.

Excluding items, the company earned 34 cents per share.

Revenue increased 9 percent to $469.8 million.

Analysts on average had expected earnings of 32 cents per share on revenue of $487.6 million, according to Thomson Reuters I/B/E/S.

Shares of Nuance, in which billionaire investor Carl Icahn holds a 11 percent stake, were down at $17.85 in post-market trading. They closed at $19.33 on the Nasdaq.

(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Saumyadeb Chakrabarty)

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