Say What? Voice Recognition Giant Goes Bankrupt

Lernout & Hauspie reorganizes, but its troubles don't sound the final bell for voice technologies.

Tom Mainelli, Denny Arar, and Aoife McEvoy, PCWorld.com

Enveloped in a widening investigation of its finances, Lernout & Hauspie Speech Products, a giant in the voice recognition software industry, filed for bankruptcy protection Wednesday. The U.S. filing followed the breakdown of negotiations with European bankers over debt rescheduling.

Voice recognition lets people control their PCs by voice commands, and L & H has been one of the world's leaders in the field.

The Belgian company filed for protection from its creditors under Chapter 11 of the U.S. bankruptcy code, which allows companies to reorganize and continue to do business. The company said it intends to file for similar protection in Belgium.

Meanwhile, company cofounders Jo Lernout and Pol Hauspie announced earlier in November that they are stepping down from their positions as cochairs and managing directors of the company. The resignations came in the wake of announcements by Belgian prosecutors that they were investigating the company, which admitted that it may have concealed financial information from its auditor. The company is also the subject of a U.S. Securities and Exchange Commission investigation regarding financial statements from the last two years.

"The news today is just the tip of the iceberg for L & H," says Lanny Davis, an attorney and spokesperson for Lernout & Hauspie. "This is a classic story of the chicken coming home to roost."

Davis says a new management team came on board at L & H during 2000, including John Duerden, Daniel Hart, and Roel Pieper.

"Since last August, the new chairman of the board, Roel Pieper, came up against a cesspool of financial issues," Davis says. "There was a misrepresentation of financial data. Substantial sums of money were supposedly cash on the balance sheet in Korea, but it was discovered that the money either couldn't be found or didn't exist," he adds. Discovery of the missing Korean money was the critical trigger for the bankruptcy filing, according to Davis.

Once one of high-tech's highest fliers, Lernout & Hauspie saw its shares plummet from a $70 high in March to $3.50 earlier this month, when trading on Nasdaq and Europe's Easdaq stock markets was suspended pending clarifications of its bookkeeping procedures.

The suspension came in the wake of a November 9 announcement in which the company admitted to past accounting "errors and irregularities" in financial statements for most of the past three years.

A week later, L & H's accounting firm, KPMG International's Belgian subsidiary, announced it had withdrawn its audit report of the company's 1998 and 1999 results, saying its initial evaluation of the books was no longer reliable.

No Death Knell for Voice

Despite L & H's shaky future, the technology behind the voice recognition and speech-to-text software industry will progress, says Rob Enderle, vice president and research leader at Giga Information Group.

However, acceptance by mainstream customers is slower than what L & H and its main competitors, Philips and IBM, would like, he says.

The industry is growing slowly because the technology is still too hard to use, Enderle says. Training and using it is often time-consuming, and the applications don't always work the way they should. The technology is improving and remains useful for some legal and medical applications as well as for disabled users, he notes. But it still has a way to go before it breaks into the mainstream.

Dan Newman, president of Say I Can, seller of speech recognition guides and accessories, thinks people are too hard on the burgeoning technology. There's a very high abandonment rate, he says--but that's because people have unrealistically high expectations.

You need more than just the latest software to make voice recognition work, Newman says. You also need a good microphone and sound card, and you must take the time to properly program the PC and learn the correct commands.

When those factors are set up properly, voice technology "really does approximate Star Trek's" voice-input computer, he says. "It's never 100 percent accurate, but 90 to 95 percent accuracy is possible."

L & H's problems do not reflect poorly on the future of the industry, Newman says. He foresees an enormous future in desktops, telephone-based systems, and personal digital assistants. (See "Make Your Pocket PC Listen" and "Lernout & Hauspie Translates Free.")

Eventually, people will routinely interact with PCs by voice, but it won't be the dominant method for another four or five years, Newman says.

What's Lernout & Hauspie's Future?

Will L & H be around to reap the rewards of that future dominance? While a source inside the company says it still plans to ship its next-generation software by the middle of next year, Giga's Enderle doubts it will carry the L & H name.

"Few companies survive what L & H is going through," he says. The most likely scenario is another company will purchase L & H to get its technology, he says. Philips or IBM are likely candidates: By buying L & H they'd eliminate a strong competitor, much the same way L & H did by buying archrival Dragon Systems in March.

Another possible buyer is Microsoft, Enderle says. The company has integrated some L & H-derived capabilities into its programs and might wish to own the technology outright, he says.

PCWorld.com wire services contributed to this story.