Oct 4, 2006

Product Upgrades Will Bring Adobe Near-Certain Boost

A major product refresh cycle is under way at Adobe Systems, and Wall Street is optimistic that it will provide significant growth for the company.

Source: Investor’s Business Daily via Yahoo! News

San Jose, Calif.-based Adobe (NASDAQ:ADBENews) plans to release Acrobat 8, its latest software for electronic documents and work flow, in early November.

Adobe plans to release Creative Suite 3, the next version of its popular collection of graphic design applications, in the first half of 2007.

“As far as the next product cycle, everything seems to be lining up,” said Martin Pyykkonen, an analyst with Global Crown Capital.

Adobe shares have been rising ahead of the new Acrobat and Creative Suite releases. The stock closed Tuesday at 36.75. It’s up 39% since late July, but is 10% off its 52-week high.

The stock got a boost after Adobe beat Wall Street’s estimates for its fiscal third-quarter results announced Sept. 14.

The company posted earnings per share of 29 cents, excluding one-time charges, for the quarter ended Sept. 1. That was flat with the year-earlier period. Sales rose 24% to $602 million.

Adobe is now integrating into its own products the products it got from its December acquisition of Macromedia.

These products include Flash, for delivering multimedia content online, and Dreamweaver, for interactive Web design.

For instance, Acrobat 8 contains Macromedia’s Breeze software for Web conferencing. Creative Suite 3 also will contain former Macromedia products.

How To ‘Stimulate Purchases’

A big question hanging over Adobe is how much of a dip in revenue it can expect in its creative solutions unit ahead of the Creative Suite 3 launch. Some buyers looking to upgrade might decide to wait until CS3 comes out, says Ross MacMillan, a Jefferies & Co. analyst.

“No one really knows quite how sharp the deceleration is going to be ahead of the (Creative Suite 3) product cycle, particularly in the January quarter,” MacMillan said. “Everybody knows it (CS3) is coming. So how do you stimulate purchases of the existing CS2 product and the other products that sit within it, like Photoshop?”

There’s a pent-up demand for CS3 among creative professionals who use Apple Computer’s (NASDAQ:AAPLNews) Macintosh PCs, he says. CS3 is the first version of the product suite to run on Apple’s new Macs using Intel (NASDAQ:INTC – News) chips.

About 20% of Adobe’s total revenue comes from the Macintosh platform, MacMillan says. The rest comes from software for Microsoft’s (NASDAQ:MSFTNews) Windows PC operating system. But the Mac share could be about 40% for the creative solution segment of Adobe’s business, he says.

The company’s creative solution business unit accounted for 56% of Adobe sales through Sept. 1. Adobe’s knowledge worker solution unit, which includes Acrobat, was the second largest contributor, making up 26% of sales.

Adobe has done a good job getting creative professional customers to upgrade from CS1 to CS2 in recent quarters, Pyykkonen says. Adobe has explained to customers that it would be difficult to leap from CS1 to CS3, especially for work flow applications.

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