Palm Beach, FL 2/10/12 (StreetBeat) – Apple (Nasdaq: AAPL) is edging ever closer to $500 a share, but not all of its suppliers are basking in the iPhone maker's glow. Just ask Nuance Communications (Nasdaq: NUAN).Apple has long been known to drive a hard bargain with its suppliers. The company continually tries to find a way to maximize its own margins, while squeezing those of its partners. Apple products are largely deemed must-haves, and suppliers are willing to do whatever they can to insert their products into the iPhone and iPad.
CEO Tim Cook may continue to drive harder bargains in the future than his predecessor Steve Jobs did, as Cook's experience and intellect are on the operational side of the business.
Nuance Communications reported weaker-than-expected first-quarter earnings as the company said its relationship with mobile companies has become "more comprehensive and complex" lately. Nuance makes part of the technology that goes into Siri, the personal and voice recognition assistant in the iPhone 4S.
This could eventually mean that Apple and other handset makers like Research In Motion (Nasdaq: RIMM) and phones that use Google's (Nasdaq: GOOG) Android operating system may wind up developing their own technology, or potentially moving on to another partner, squeezing Nuance shares even further.
Wedbush Securities analyst Scott Sutherland believes this could eventually happen, as he wrote in a recent earnings note. He believes Apple could eventually build its own automatic speech recognition (ASR), as Google has already done and Microsoft (Nasdaq: MSFT) has done with Kinect.
"...[W]e believe Apple will follow Microsoft's and Google's lead and build its own ASR, especially after Siri's co-founder indicated Nuance ASR could be swapped out," Sutherland wrote in his note. He rates Nuance shares underperform with a $18 price target.
Sutherland also said he believes that the other handset makers Nuance works with could squeeze Nuance even more..
Deutsche Bank analyst Nandan Amladi also suggested that other handset makers may eschew Nuance's products in the future, as they have developed in-house alternatives. Amladi maintained his buy rating and $30 price target on Nuance following the earnings report.
Nuance reported quarterly earnings of 34 cents a share on revenue of $360.6 million, well below what analysts were looking for. Analysts polled by Thomson Reuters expected the company to report earnings of 36 cents a share on $391.6 million in revenue.
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