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Translating Web into profits

It's been tough translating effort and innovation into success for speech technology maker Lernout & Hauspie.

Fresh off its CeBIT tour, Lernout & Hauspie (LHSPF) is looking to hurdle language and economic barriers with its speech recognition and translation products.

It's been tough going not only for Lernout but also other companies looking to make gains in an industry that for years has been considered just a breath away from hitting it big.

"Analysts have usually been too optimistic when looking at these companies, but we remain conservative. It's always been a technology that was supposed to be here next year, next year, next year, but we're taking a wait-and-see approach," said Joseph Noel, an analyst with Hambrecht & Quist.

He noted, however, that recent changes in the computer industry have made the prospects better these days.

"It's starting to take off, but it will still be at least another two- or three-year process," Noel said. He pointed to affordable pricing on computers that now offer enough disk storage and microprocessing power--key elements in running speech technology--as the driving force behind this change.

Gaston Bastiaens, Lernout's president, agrees. "High processing power and low-cost PCs have helped speech grow into real applications," he said. "And we are the market leader in core technology licensing."

Analysts estimate Lernout ranks among the top three of about half a dozen companies that are close to "hitting it big" in speech recognition technology. The competition includes IBM and Philips, Noel said, but they are developing the technology for use in their products, while Lernout is in the business to license the technology.

Lernout announced plans last week at CeBIT to expand its translation services--one of its three core business areas--by developing technology that can be used with search engines and machine translation.

Through the multilingual search architecture, a German-speaking user could conduct a search of Web sites with text in other languages, retrieve the information, and translate it into German.

Brussels Translation Group, a private fund, awarded the company a $35 million contract to develop the translation services for the Internet in multiple languages over the next two years. Lernout's translation services account for 35 percent of its $20.3 million in revenues in 1996.

The company is also in the business of licensing speech technology, which accounts for 45 percent of its business. That includes automatic speech recognition, text-to-speech recognition, and digital speech compression. For example, email messages can be read aloud to computer users, or users can bark out commands to their computer and it will perform such functions as "stop" reading email messages or "repeat" requested messages.

Lernout's speech-dictation services make up the remainder of its business and the company hopes to have a speech-dictation engine developed by summer that can recognize 140 continuous words a minute that will be marketed to doctors and the medical community.

"Lernout and the other companies have the technology to take speech mainstream, but now the issue is the time it takes to do all the coding and programming for the database of words and programs," Noel said. The situation is similar to having the technology to build a dictionary with blank pages, but having to fill those pages with words.

Daniel Blake, an analyst with Cowen & Company, said Lernout faces the challenge of moving from a company that solely licenses its technology to one that also develops applications for its use.

"I think they are capable of overcoming this challenge. The management they brought aboard has a strong background on application development," Blake said.

Bastiaens, who joined Lernout in October, had previously served as chief executive at Quarterdeck before he was forced out as the company's financial state eroded and the company waited to ship new products.

Blake noted that Bastiaens has indicated Quarterdeck did not move to broaden its line of applications fast enough, a move that he is undertaking at Lernout. "Learnout has the broadest range of technologies...Their goal is to be the de facto for speech technologies," Blake said.

Bastiaens said the company is expected to generate revenues of $85 million in 1997, more than a fourfold increase over the previous year. The company reported a loss of $7.9 million for 1996, down from a loss of $14 million the previous year.

Lernout also acquired Berkeley Speech Technology for $15.5 million in cash last year, in an effort to increase its range of product offerings and languages.