Adobe Warning Bodes Ill for PC Industry Recovery


Adobe Systems last night announced a drop in profits of 12% for its fiscal second quarter, while simultaneously issuing a warning that its third quarter revenues would not meet analysts' forecasts.

The world's second-biggest software publisher, which has released a raft of Mac OS X native products over the last few months, saw its stock fall to $33.50, its lowest level in four months.

Revenue forecasts from Adobe are only down slightly, from $1.3 billion to $1.2 billion. Analysts quoted in Reuters' report argue that the fall in revenue is very little in real terms, and that markets may well have overreacted by driving Adobe's stock down.

In the breakdown of the data on software titles issued by Adobe, Acrobat sales have flattened, while Photoshop revenues were healthy, given the release of Photoshop for Mac OS X which would have added to the bottom line. Notably, Photoshop experienced its second-best quarter in the company's history.

Acrobat, however, which accounts for around one third of revenue, has not experienced sales growth recently, and demand for the product is expected to remain flat during the third quarter.

Adobe CEO Bruce Chizen did not forecast a global economic recovery, but he did not see conditions growing any worse at present. However, he said to Reuters that he did not foresee any indication of an economic upswing in the short term.

Analysis: As ever, Adobe realizes, but rarely acknowledges, its dependence upon the Mac market: its key industries, encompassing illustrators, photo editors, publishers and designers, among many others. Mac OS X was clearly responsible for a sizeable chunk of these revenues, and without OS X versions, Adobe would be in deep, deep trouble. PDF/Acrobat is clearly a critical part of Adobe's market, but Acrobat is still limited in what it can do and Adobe needs to make Acrobat upgrades compelling if it is to get customers to move up to Acrobat. It has to become as indispensible as Photoshop. And Adobe's got to do this - before Microsoft decide to own that market as well. In 1996, Gates said, "Where is our competitor to Acrobat?" And, in time, Mr. Chizen, Microsoft will always come to get you.