United we stand, divided we fall
The desire to resolve that central conflict and help Apple and Nuance start growing again in Google’s shadow is the reason why investors believe that Icahn should push Apple to simply buy Nuance instead of trying to outsmart it.
With a market cap of $6 billion and $2.35 billion in debt, Nuance wouldn’t be a huge purchase for Apple, which has $42.68 billion in cash and equivalents. Assuming an acquisition premium of 50%, the whole purchase could cost less than $15 billion.
Apple’s health care ambitions
With the Nuance purchase, Apple would control one of the two most widely used speech recognition technologies used by the health care industry — the other being Medquist’s M*Modal.
Nuance’s Dragon speech recognition software is widely used by leading EHR providers, such as Epic, General Electric, Allscripts, Greenway, and Cerner Corporation (NASDAQ:CERN). These companies all implement a combination of Nuance’s CLU (clinical language understanding) and NLP (natural language processing) technologies to help physicians document patient data more quickly.
Prior to the installation of Nuance and M*Modal’s speech recognition software in EHR programs, 93% of physicians surveyed by Nuance stated that their EHR software had slowed down their daily routines. Around 79% believed that the solution was to merge a spoken physician narrative with the point-and-click templates widely used by EHR programs. The result has been an explosion of CLU solutions, such as Nuance’s 360 mobile health care products.
Cerner notably has one of the strongest relationships with Nuance in the field. Last October, Cerner Corporation (NASDAQ:CERN) integrated Nuance’s cloud-based medical speech recognition software across all of its EHR platforms, and tied its radiology information product with Nuance’s radiology reporting suite. It strengthened that partnership further with an agreement in March 2013 to integrate Nuance’s CDI (clinical documentation products) into its EHR programs.
The Foolish bottom line
In the world of health care, Apple already has an overwhelming lead over any other tablet maker. Thanks to its identical hardware and software configuration in every generation, iPads are much easier to develop apps for in comparison to Google’s fragmented universe of Android devices.
According to Manhattan Research’s annual survey of digital usage statistics in the health care industry, 72% of physicians are currently using tablets. Over half of them favor using the iPad, thanks largely to its wider selection of medical apps such as medical reference app Epocrates and full-featured mobile EHR apps like Cerner’s PowerChart Touch.
In closing, I believe that Apple is looking the wrong way. Rather than struggling to free itself from Google and Nuance to go at it alone, the company should simply buy Nuance for an instant lead in the booming health care tech industry. This would be a better use of funds than any stock buybacks or increased dividends that other investors are demanding.
The article Should Apple Buy Nuance to Boost Its Health Care Footprint? originally appeared on Fool.com and is written by Leo Sun.
Leo Sun owns shares of Apple. The Motley Fool recommends Apple, Google, and Nuance Communications. The Motley Fool owns shares of Apple, Google, and Nuance Communications.
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