Adobe Systems Faces Challenging New Year
By RACHEL KONRAD
SAN FRANCISCO – Adobe Systems Inc. reported record fourth-quarter revenue Thursday, but analysts sounded notes of caution regarding the company’s bullish prospects for 2007, which is expected to be a tumultuous year for the software industry.
Adobe reported that net income for the three months ended Dec. 1 rose to $181.86 million, or 30 cents a share, from $156.25 million, or 31 cents a share, in the same quarter of last year.
Quarterly sales were a record $682.18 million, up 34 percent from $510.37 million in the fourth quarter last year.
Excluding costs for expenses such as restructuring charges related to the December 2005 acquisition of Macromedia Inc., profit was $196.99 million, or 33 cents per share.
Analysts were expecting Adobe to earn $198.87 million, or 33 cents per share, on fourth-quarter sales of $670.76 million, according to a Thomson Financial survey.
The 16 percent increase in profit and record revenue shot the stock up $2.40 in after-hours trading. Shares closed Thursday at $40.81, up 51 cents or 1 percent from Wednesday on the Nasdaq Stock Market.
"Both the year and quarter were great," Adobe President and Chief Operating Officer Shantanu Narayen said in a phone interview with The Associated Press.
Adobe executives said Thursday the company would report revenue of $640 million to $670 million in the current quarter. Adobe expects to earn 17 to 20 cents per share in the fiscal first quarter, or 28 to 30 cents per share excluding one-time charges.
But some analysts said investors should consider Adobe a high-risk stock in upcoming quarters.
Adobe is launching new software in the first half of 2007, including Creative Suite 3, which includes updates to the widely used Photoshop and Illustrator programs and Dreamweaver Web development software.
Although CS3 should run more smoothly on Apple Computer Inc.’s new Intel chip based systems, mainstream customers typically hold off on purchasing expensive upgrades, making it tougher for executives to confidently predict sales.
Adobe and other software companies are also bracing for the general release early next year of Microsoft Corp.’s new Windows operating system, Vista. If Vista’s rollout stumbles, it could discourage consumers from upgrading other programs.
Also, it’s unclear exactly how the wild popularity of self-expression Web sites such as MySpace.com, YouTube and virtual reality alternative worlds such as Second Life – where subscribers use proprietary tools to build their own cities and online characters – will affect demand for shrink-wrapped design software. Big companies are acquiring startups and venture capitalists are throwing millions of dollars at entrepreneurs to be at the forefront of so-called Web 2.0, making the competitive outlook murky.
"This is the first time in the history of the software industry when so many big changes are happening at the same time, and there’s no precedent to it," said analyst Trip Chowdhry of San Francisco-based Global Equities Research. "What software industry investors have to figure out is, who will be the winner in the Web 2.0 phenomenon? It’s very fragmented with open source, Google, Adobe, Microsoft and others competing. There’s no clear winner."
San Jose-based Adobe employs about 6,000 people and makes graphic design, publishing and imaging software. In the fourth quarter, it released a new version of its Acrobat PDF creation and reading software.
Adobe reported that net income for fiscal 2006 dropped 16 percent to $504.4 million, or 82 cents a share, from $602.8 million, or $1.19, in fiscal 2005.
Annual sales were $2.58 billion, up from $1.97 billion in fiscal 2005.
Excluding costs for stock options and other expenses, profit was $752.54 million, or $1.23 per share.
Analysts were expecting Adobe to earn $750.57 million, or $1.24 per share, on annual sales of $2.56 billion.
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