Product Upgrades Will Bring Adobe Near-Certain Boost
investors.com
A major product refresh cycle is under way at Adobe Systems, (ADBE) and Wall Street is optimistic that it will provide significant growth for the company.
San Jose, Calif.-based Adobe 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 (AAPL) Macintosh PCs, he says. CS3 is the first version of the product suite to run on Apple's new Macs using Intel (INTC) chips.
About 20% of Adobe's total revenue comes from the Macintosh platform, MacMillan says. The rest comes from software for Microsoft's (MSFT) 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.
May 1 Release?
Pyykkonen predicts that Adobe will release CS3 on May 1. Adobe executives are guiding analysts lower in their financial targets for the firm ahead of the CS3 launch, he says.
Creative Suite 2 came out in April 2005. The Creative Suite bundles products — such as Photoshop, Illustrator, Acrobat and InDesign — popular with graphic artists.
Nearer term, Adobe is preparing to launch Acrobat 8, its first major product since the Macromedia deal closed. Acrobat 7 came out in January 2005.
Acrobat 8 features a streamlined user interface. The interface is task-based and presents users with options for the documents they create in Acrobat's PDF, or portable document format. For instance, users will be directed to secure a document, digitally sign it, share it or combine it with other files to create a package.
Another option for users will be to have an online meeting about a document.
That's a new feature in Acrobat 8, thanks to the inclusion of Macromedia's Breeze Web conferencing technology. The meeting application is called Adobe Connect.
"The key for us in this release is to expand the definition of Acrobat in a lot of people's minds," said Tom Hale, senior vice president at Adobe. "We want to drive home the message that this product is about a lot more than just PDF creation."
Acrobat 8 also gives small and midsize firms the ability to create online forms, Hale says. Previously, only large enterprises had access to the forms technology.
Work Flow Approach
Adobe is transforming Acrobat from a document-creation tool to a collaboration-work flow product. Microsoft is taking a similar approach with its Office productivity software suite.
Both the document creation and Web conferencing markets have much room to grow, Hale says. About 500 million PC users have the free Adobe Reader product for consuming documents. But only 25 million have Acrobat for creating PDF documents, he says.
Hale estimates that the Web conferencing field is only 25% penetrated. In that field, Adobe will compete against WebEx Communications (WEBX) and Microsoft's Live Meeting.
Pricing for Acrobat 8 is unchanged from the current release. Prices are $449 for the professional edition, $159 for an upgrade of the professional edition, $299 for the standard edition and $99 for an upgrade of the standard edition.
The Adobe Connect service costs $39 a month for anyone wanting to initiate a Web conference.
Analysts overall are bullish on the company's stock, but expectations are high. Adobe's sales and profit growth should be in the mid- to high teens over the next two to three years, Pyykkonen says. |
