Adobe Forecast Misses Estimates as Quake Curbs Japan Sales
March 22, 2011, 8:33 PM EDTBy Aaron Ricadela
(Updates with comment from CFO in fourth paragraph.)
March 22 (Bloomberg) -- Adobe Systems Inc., the largest maker of graphic-design software, forecast second-quarter profit that fell short of analysts’ estimates as the earthquake and tsunami in Japan cut into sales.
Profit excluding some costs will be 47 cents to 54 cents a share in the current quarter, Adobe said today in a statement. That compared with the 56-cent average of analysts’ projections compiled by Bloomberg. Revenue will be $970 million to $1.02 billion, Adobe said. Analysts estimated sales of $1.04 billion.
Adobe pared its sales forecast by $50 million because of the events in Japan, the company’s second-largest market after the U.S. Some analysts had projected a larger hit after the March 11 quake and tsunami shut down some power and transportation systems and disrupted business. Japan contributes 10 percent to 15 percent of the San Jose, California-based company’s revenue each quarter, analysts said.
“The big speed bump, of course, is Japan,” Adobe Chief Financial Officer Mark Garrett said in an interview. “We saw a noticeable drop in our revenue.”
Patrick Walravens, an analyst at JMP Securities LLC in San Francisco, said in a March 17 note to clients he was trimming his second-quarter sales estimate for Japan by $93 million because of the disaster.
‘Budget Flush’
The company doesn’t know how long sales that would have occurred in March, when many companies and the government in Japan approach the end of their fiscal year on March 31, will be delayed, Garrett said.
“March is their year-end, and you tend to get budget flush,” he said. “I don’t think anyone understands yet whether that flush rolls over into the next quarter, or just goes away until the next fiscal year.”
Adobe rose 54 cents to $32.88 at 4 p.m. New York time on the Nasdaq Stock Market. The shares were little changed in late trading.
Adobe garners more revenue from Japan in February and March than in other months, said Walravens, who has a “market outperform” rating on Adobe shares. Thirteen percent of Adobe’s sales came from Japan last year, the company has said.
Shareholders may have been bracing for a bigger change in forecast, said Yun Kim, an analyst at Gleacher & Co. in New York.
“Investors have probably digested that,” Kim said in an interview. Excluding the lower revenue in Japan, the rest of Adobe’s business is performing as expected, said Kim, who has a “neutral” rating on the shares and doesn’t own them.
Japan Sales
Walter Pritchard, a Citigroup Global Markets Inc. analyst in San Francisco, said in a March 15 note that slower sales in Japan may already be reflected in Adobe’s share price, which has dropped 5.7 percent since March 10, the day before the earthquake struck in Japan. Pritchard has a “buy” rating on Adobe shares.
In the first quarter, which ended March 4, Adobe earned 46 cents a share in net income. Sales rose 20 percent to $1.03 billion. Excluding some costs, the company said profit was 58 cents, topping analysts’ average estimate of 57 cents.
“The other portions of the business are doing well,” Garrett said.
Creative Suite
Adobe plans to release an update to its Creative Suite software that will make it easier for designers to build websites using the HTML5 Internet standard. Adobe released Creative Suite 5, which includes the Photoshop and Illustrator programs, last April. The next major version will arrive in 2012, Chief Executive Officer Shantanu Narayen said on a conference call today.
The HTML5 standard, which is supported by Apple Inc. and Google Inc., competes with Adobe’s Flash Internet video and animation software.
In the past year, Adobe has clashed with Apple, which bans Flash on the iPad tablet computer and iPhone handset. Selling HTML5 development tools and working with software developers who create applications for smartphones and tablets running Google’s Android operating system can help Adobe assert the importance of its tools, the company’s executives say.
By embracing HTML5, Adobe gives Web developers more options and positions itself to benefit whether programmers decide to use Flash or HTML5.
“We really think of this as a ‘heads we win, tails we win’ situation,” Garrett said. More than 1,500 apps for Android are built with Adobe’s Air technology, which is based on Flash, Adobe said last month. Devices running the Android system compete with those made by Apple.
Android became the world’s best-selling smartphone operating system in the fourth quarter, outselling the iPhone 2-to-1, according to Canalys, a U.K.-based research company.
--Editors: Jillian Ward, Nick Turner
To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
