Tech Malaise Hits Adobe

Posted by: Aaron Ricadela on December 04, 2008

The funk in technology spending that’s hit hardware bellwethers including Intel and Cisco Systems is starting to reach the software sector too. Adobe Systems is cutting 600 jobs, or about 8% of its staff, and lowering its sales outlook for the next two quarters.

Adobe, which makes the popular Photoshop, Flash, and Acrobat software, said on Dec. 3 it would take pre-tax charges of $44 million to $50 million for the layoffs, including $28 million to $30 million in the fourth quarter that ended Nov. 28.

Shantanu Narayen, who’s been CEO for a year, said in a statement that weak demand for Adobe’s Creative Suite 4 software that started shipping in October is behind the sales shortfall. A company spokeswoman wouldn’t elaborate on who’s stopped buying—more details will come on the company’ conference call with analysts Dec. 16, she says. But the new Creative Suite, which includes Adobe’s Photoshop and Illustrator software, is aimed at graphics pros who work at magazines, ad agencies, and other media houses—not exactly the types of businesses that are flourishing these days. Trip Chowdhry, an analyst at Global Equities Research, has another theory. He wrote in a Dec. 3 research note that 2007’s Creative Suite 3 was Adobe’s first version of that product written expressly for Intel-based Macs, which means Apple-happy designers already got the technology they wanted last time around.

Adobe now expects fourth-quarter sales of $912 million to $915 million, chopping $40 million off the high end of its guidance. The forecast also fell about $15 million below Wall Street’s expectation of $930 million in fourth-quarter sales. Earnings may come in at 45 cents or 46 cents per share, vs. analysts’ expectation of 51 cents. Yet two favorable tax items will actually left Adobe’s diluted earnings per share, the company said. The software maker also took an axe to its first-quarter forecast, targeting $800 million to $850 million in sales, vs. Wall Street expectations of $931 million.

The announcement comes amid a spate of new layoffs in American business. AT&T on Dec. 4 said it would cut 12,000 jobs, or 4% of its workforce. DuPont, Credit Suisse, and Viacom also announced job cuts. And the bad news in the tech sector keeps coming: Chipmaker Advanced Micro Devices on Dec. 4 sliced its sales forecast, saying fourth-quarter revenues would be about $300 million below Wall Street’s expectations.

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Reader Comments

Daniel Rosenstark

December 5, 2008 08:20 PM

Adobe does not realize that they have the technology that could revolutionize everything. That technology is Flash. We need a strong UI for the desktop and the Web and Flash/AIR/Flex could do it. But Adobe doesn't understand that making the SDK free is not enough: the stuff has to be easy to develop for and easy to distribute, without requiring a signing certificates for every amateur developer out there.

Anyway, on the financial front, sales are down and whatever, but does anybody really think that in the two- to five-year horizon they'll stay down? Probably not...

Mike

December 5, 2008 11:13 PM

We are in the midst of a terrible recession the likes of which most people have never experienced. Most people still do not understand that there will be many years of depressed economic activity ahead, including depressed sales for Adobe in a 2-5 year time horizon.

JohnG

December 6, 2008 05:41 PM

Earnings per share may be down ... but they are still making $$$. When will the market realise this?

John Excelsior

December 10, 2008 01:04 PM

Executive greed. Those quadruble digit salaries, trips to the bahamas and fat stock options with Christmas bonus are coming back to haunt them now, aren't they?

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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