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Nuance profit forecast hit by shift to subscriptions

CEO Tim Cook talks about Siri during an Apple event in San Francisco, California March 7, 2012. REUTERS/Robert Galbraith
CEO Tim Cook talks about Siri during an Apple event in San Francisco, California March 7, 2012. REUTERS/Robert Galbraith

(Reuters) - Software maker Nuance Communications Inc forecast fiscal 2014 profit below expectations as its shift to a subscription-based business model hits margins and the company struggles to hold on to its pricing in the handsets business.

Shares of the company, whose software powers the Siri feature on Apple Inc's iPhones, fell more than 6 percent after the bell on Monday.

A subscription-based model brings in less money upfront as payment is spread over the entire period of use unlike traditional packaged software but typically ensures more predictable recurring revenue.

"We are embracing this transition despite its effect on near term revenues because our customers are demanding it and because we value the recurring nature, predictability and longevity of these revenue streams," Chief Executive Paul Ricci said on a conference call with analysts.

Nuance forecast adjusted profit of $1.05 to $1.15 per share and adjusted revenue of $2.03 billion to $2.09 billion for the year ending September 2014.

Analysts on average were expecting earnings of $1.41 per share on revenue of $2.08 billion, according to Thomson Reuters I/B/E/S.

Bookings, which the company defines as the contract value of transactions closed and recorded in the period, are expected to be between $2.15 billion and $2.25 billion for fiscal 2014.

Ricci said Nuance had deferred certain deals with phone makers as it had been trying to hold on to its higher pricing, which was reflected in the outlook.

"We won't see meaningful organic growth in the mobile phone segment of the overall mobile business this year."

The company's mobile and consumer business had accounted for 29 percent of total revenue for the year ended September 2012.

FOURTH-QUARTER RESULTS

Nuance said in August said it would take a hit on its margins in the short term as it shifts to subscription revenue model.

Nuance's adjusted operating margin fell to 25.3 percent in the fourth quarter from 37.2 percent a year earlier.

The company reported a net loss of $32.3 million, or 10 cents per share, in the fourth quarter. It had posted a profit of $117.6 million, or 36 cents per share, a year earlier.

Excluding items, the company earned 30 cents per share and revenue of $490.4 million.

Analysts on average had expected earnings of 29 cents per share on revenue of $489.6 million.

Nuance shares have dropped 13 percent since October 8, when it agreed to activist investor Carl Icahn's board nominees including his son Brett Icahn. The stock closed at $15.99 on the Nasdaq on Monday.

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

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