A frail L&H still gives voice to sales pitch

Attendees at SpeechTek 2000 lined up for demos of the company's signature voice recognition program, Dragon Naturally Speaking (DNS), collecting pens and plush red dragons, and trying out the company's new software for handheld PCs and multilingual translation.

"I can show you the whole company in 360 degrees," said William DeStefanis, vice president of product management. He circled L&H's booth, encouraging onlookers to try out the company's new products: the beta version of DNS 6.0; RealSpeak Compact, speech-recognition software for handheld PCs; MediaIndexer, which performs searches on audio and video content; and the Multilingual TTS, or text-to-speech translation product.

But the brightly colored cardboard display and lineup for demos belie a dark history of corporate turmoil, one that drags on even as the Belgian company continues to show off its newest products. Indeed, the effort to pitch L&H products leaves one question hanging: How can a company pitch its wares when its future is so uncertain?

"What you are looking at is the walking dead. What you're seeing in those booths is inertia," said Earl Perkins, an analyst for the Meta Group, referring to L&H and its new products. He explained that 90 percent of the technology in these new products is left over from the company's heyday, with the remaining 10 percent representing "what they've managed to get done since the trouble started."

"Their products were the best in the late '90s; I couldn't say that now," Perkins said.

Walking wounded
In the latest dose of bad news for the company, a Belgian court on Thursday ousted the CEO of L&H.

The troubles began in the summer of 2000, when the company came under scrutiny from U.S. regulators after The Wall Street Journal questioned its sales numbers. Co-founders Jo Lernout and Pol Hauspie resigned, only to be jailed last spring after the company was sued for obstructing an audit. They await trial.

In the meantime, the company was delisted from the Nasdaq, appointed Philippe Bodson as CEO and filed for bankruptcy protection.

The company has managed to sell off several of its business lines since, including its Mendez translation unit, Dictaphone Transcription group and Kurzweil Education--and just last week it sold its medical transcriptions group to Medquist for $25 million.

L&H came close to selling another $12 million worth of its remaining assets to a publicly traded U.S. company, SpeechWorks. The company's bid on Oct. 22 valued L&H's assets at $12.2 million, including two of the eight parts of its Speech and Language technology division. Both companies declined to give further details about the deal.

Then, days later, on Oct. 24, just as the company was making its SpeechTek appearance in New York, a Belgian court took away the company's bankruptcy protection and called for CEO Bodson's departure. That put an end to the SpeechWorks' bid, and it means L&H will likely be forced to liquidate its remaining assets.

A SpeechWorks spokesperson declined to comment.

There is some hope for the company: Because the U.S. courts haven't taken away bankruptcy protection for L&H, which has its U.S. headquarters in Burlington, Mass., it could sell some of its U.S. assets, which make up around 50 percent of its business. A hearing in Camden, N.J., could help settle the remaining questions, but it will take time to iron things out since there's no protocol between Belgian and U.S. courts for settling such issues.

In addition, the original owners of DNS, Jim and Janet Baker, from whom L&H bought the product in its acquisition of Dragon Systems, have also considered buying parts of the company, Gartner analyst Jackie Fenn said.

All those moving parts have put executives and remaining employees in a bind. L&H executives present at SpeechTek, along with everyone else at the company, aren't allowed to talk about the company's legal issues. Even if they could, they acknowledge they don't know what's going on.

"We haven't been given a formal statement of where we're going and are told we shouldn't even try to speculate," said Pam Ravesi, a three-year employee of L&H, who came to New York to promote its new line of products at the conference.

"The important thing for me is that we continue to release new products," Ravesi said, adding that L&H's product news has taken a backseat because the public is focused on the management problems.

"All this stuff is going on, and it's really painful, but come look at Dragon Naturally Speaking 6.0--it's a great product," she said.

The products
Like Ravesi, other employees are trying to pitch the company's products. And there's a good reason for that: Despite all of its recent problems, L&H still has a lot of market share.

According to Fenn, L&H's major competition is IBM; the two companies split the market for voice-recognition software in the United States.

The beta version of the company's new speech-recognition software has four main updates: improved accuracy to weed out utterances like "uhms" and "ahs"; natural language commands that can be used with other software programs; RealSpeak, a text-to-speech engine that provides a human-sounding voice for editing documents or listening to e-mail messages; and the ability to create customized voice commands. The product will be available to retail customers in early November.

L&H also offers professional-grade versions of the software for medical, legal and other industries. The company said one of its most challenging accomplishments has been to develop a version for jails, which need software to keep up with prisoners' vocabulary.

And the progress isn't stopping at Version 6, DeStefanis said. "DNS 7 is already in the lab." Changes to the company's next version include improving dictation for commas, periods and other "automatic punctuation."

"Our research departments are on three- to five-year horizons. Research hasn't slowed," DeStefanis said. The company aims to produce within three years a technology that reads e-mail to consumers over the telephone, he said.

Industry analysts, however, remain wary of L&H's technology and corporate prospects. Meta Group's Perkins, for instance, said the company's products lag behind those from Nuance Communications and SpeechWorks.

For their part, L&H executives shrug off criticism and remain undeterred even by threats such as Microsoft's inclusion of speech-recognition technology in its new XP operating system.

"It only validates the importance of our market," said DeStefanis, who believes the Microsoft technology is too "low end" and "behind the scenes" to pose a threat to DNS.

"This is truly a positive time for us," Ravesi said.

The future
Because of the uncertainty of L&H's future, analysts say they expect the company to lose some customers no matter how good its products are.

However, a mass exodus hasn't occurred yet. The company has long-term contracts with its larger clients and reasonable retail prices for consumers that protect it from losing customers, Fenn said.

"It's not a strategic decision to go out and spend $100 on speech recognition," she said.

Indeed, the company's customers have indicated they will stick it out. They say their business is proceeding as usual with the company, largely because they expect a buyer to eventually emerge.

"Amazingly, (L&H has) moved forward with developing a new product. They've been able to do that despite bankruptcy," said customer Greg Christopher, general manager of Assistive Technologies. His company integrates, trains and sells the DNS line to government and corporate customers.

"We looked at other speech technologies, but found nothing was as easy to use or provided the accuracy that Dragon (Naturally Speaking) does," Christopher added.

"We're pretty much going on as usual" said Nancy Klotz, vice president of Cyber Records, a medical records software company that develops and markets its own technology with DNS.

Klotz said she hasn't told her programmers to switch from L&H because its products are strong. "It's an excellent speech engine, so whether they're going bankrupt or not, I'm certain someone is going to pick it up and continue with it."