Adobe says performance is improving


AP Technology Writer

After reporting solid third-quarter earnings Thursday, Adobe Systems Inc. hopes to crush Wall Street's long-standing concerns that the company can't perform consistently and across all divisions.

San Jose, Calif.-based Adobe, which makes publishing and design software for digital documents, said acquisition costs dented quarterly profit, but revenue soared nearly 24 percent.

The announcement helped push the stock up $2.31 in after-hours trading. Adobe shares closed Thursday at $33.65, up 12 cents from Wednesday on the Nasdaq Stock Market.

Net income for the three months ended Sept. 1 declined 35 percent to $94.4 million, or 16 cents a share, from $144.9 million, or 29 cents, in the same quarter of last year. Sales were $602.19 million, up from $487.04 million last year.

Adobe closed its $3.4 billion purchase of Macromedia Inc., which makes Web software, in December. The company disclosed Thursday that it spent $70 million in the third quarter on direct and indirect acquisition costs.

Excluding costs for that acquisition, stock options and other expenses, profit was $171.5 million, or 29 cents per share in the previous quarter. Analysts were expecting Adobe to earn $152.52 million, or 26 cents per share, on revenue of $595.12, according to a Thomson Financial poll.

The company reported strong sales in all four divisions.

Creative software — the historical core of Adobe, with its flagship Photoshop — took in $328.1 million. Knowledge worker software such as Acrobat took in $154.1 million. Enterprise software for corporate servers took in $49.4 million. Mobile devices took in $9.1 million.

"Our revenue is no longer dependent on any one segment as it was in the past," Chief Executive Bruce R. Chizen told investors Thursday during a conference call.

Piper Jaffray analyst Gene Munster called the report for the third quarter "great news." He was impressed with revenue from creative software, which represents nearly 60 percent of sales and includes titles such as Illustrator and Flash.

"People were worried particularly about the creative products," Munster said. "These results show that, despite the fact that there's a slowdown, demand is still strong."

Adobe generally entices consumers and corporate clients to keep spending money by periodically upgrading applications. The danger with this approach is software could become bloated with extra features that slow performance and, eventually, force customers to look to competitors.

So-called "feature bloat" is a major challenge for Microsoft Corp.'s Windows operating system, and analysts worry that Adobe faces similar issues.

"Adobe is a shrink-wrapped, product-cycle company that has to offer new products every 18 months," said Analyst Trip Chowdhry of Global Equities Research.

Adobe is gearing up to release new versions of some of its best-known products in upcoming months.

The next version of the PDF reader, Adobe Acrobat, is due out in November. The third edition of its Creative Suite, which packages Photoshop, Illustrator and other programs, is expected to ship in the first half of 2007.

Adobe said profit after acquisition costs and other expenses in the current quarter would be 19 cents to 22 cents.

Not including those expenses, profit in the current quarter would be 32 cents to 34 cents. Sales are likely to be $655 million to $685 million, Adobe said.

Investors are expecting the company to earn $189.12 million, or 32 cents per share, on fourth-quarter revenue of $668.64 million.

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