Adobe posts solid Q2, prepares for Macromedia takeover

Adobe turned in second-quarter revenue and income results meeting expectations, reassuring analysts as Adobe prepares to take over Macromedia.

As it prepares to take over Macromedia, Adobe Systems reassured Wall Street by turning in solid second-quarter financial results, with revenue and income hitting expectations and sales reportedly on target around the world.

Adobe's revenue rose 21 percent, to US$496 million, from the year-earlier period for the quarter ended June 3. Net income was US$149.8 million, up 37 percent from the prior year. Excluding special items such as investment gains and the tax effects of moving some foreign earnings back to the U.S., Adobe's net income per share was US$0.28, a penny ahead of the consensus estimate of analysts polled by Thomson First Call. Adobe also edged ahead of analysts' US$492 million revenue estimate.

Adobe said its Macromedia acquisition remains on track to close in several months. The deal will increase Adobe's heft in the document and Web publishing market by uniting under one corporate umbrella such popular technologies as Adobe's PDF format and Macromedia's Flash, along with Adobe's Photoshop image software and Macromedia's Dreamweaver development application.

"These are good results because of the company's consistency in its performance," Ovum analyst David Bradshaw wrote in a commentary on Adobe's results. "What it really signifies is that there is good cause for optimism for the technology market in general."

Adobe's Creative Suite 2, a bundle of its top design and publishing applications, showed strong sales in its first quarter of release and will likely gain momentum in the coming months as international versions ship, Smith Barney analyst Tom Berquist said in a research note. Adobe slightly reigned in its forecast for its next quarter, predicting revenue of US$470 million to US$490 million where the analysts' consensus estimate had been US$485.7 million, but Berquist expects sales to come in at the higher end of that range.

He did register concern about Adobe's long-term growth, as it has no major product upgrades scheduled for next year and will soon be saddled with the task of integrating Macromedia.

Analysts will be keeping a close eye on Adobe over the next few years to see how it fares in an increasingly competitive environment for enterprise Web publishing tools and standards. Microsoft recently released a beta version of Metro, its own document management format to rival PDF, and an array of software vendors such as IBM, BEA Systems, and Oracle are beefing up their own document management and publishing offerings. Ovum's Bradshaw cited Microsoft's "attempt to muscle in on Adobe's market" as a potential problem for Adobe, while Berquist wrote that Adobe will need to "clearly define their value proposition [to] customers" also being wooed by other middleware and management software vendors.

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Stacy Cowley

IDG News Service
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