Adobe’s record revenues fail to impress all

The big news of the week revolves around Adobe’s financial situation. Adobe has outlined its record performance for its second quarter of 2007, but not everybody is impressed.

The big news of the week revolves around Adobe’s financial situation. Adobe achieved record revenue of $745.6 million, compared to $635.5 million reported for the second quarter of fiscal 2006 and $649.4 million reported in the first quarter of fiscal 2007. This represents 17 percent year-over-year revenue growth, and should be compared to Adobe’s second quarter revenue target range of $700 to $740 million. The record result was likely driven by Adobe’s upgrade cycle, which saw recent updates to both its Acrobat and Creative Suite products. Between them, the two products now account for about 80% of Adobe’s total revenue. In any case, the pending French, German and Japanese versions of Creative Suite 3, coupled with the fact that CS3 has only been shipping for about six weeks, indicate that Adobe’s Q3 revenue forecast of $760-$800 million may be conservative.

Despite the record result, not everyone is impressed. According to an article by Keith Ragan of E-Commerce Times, investors were disappointed that, given the strong results, Adobe did not raise its targets for the rest of 2007. This inference was perhaps based on the slight (3.3%) dip in Adobe’s share price on Friday. Adobe CEO Bruce Chizen explained the choice not to revise estimates by pointing out that Adobe was entering a ‘seasonally weak quarter’ which included the European summer.

Computer Business Review Online’s Madan Sheina argues that, while CS3 has certainly driven Adobe’s revenue growth, this does not necessarily indicate an unbroken upward trajectory. Sheina points out that CS3 was the first to be written for Mac computers using Intel processors and incorporate acquired Macromedia technology. Not only that, it had been highly anticipated during its two-year design and development. As Sheina correctly argues, the combination of these factors are not easily replicable. Consequently, while Adobe can certainly expect strong sales of CS3, this may not translate into revenue increases of the same magnitude for CS4 and beyond.

Perhaps Adobe’s caution in revising its financial targets is well advised? Only time will tell.

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About the Author: Dan Shea

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