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conference date: June 15, 2006
for quarter ending: June 2, 2006 (2nd quarter 2006)
Overview: Challenging quarter with weak revenues; lowered guidance.
Basic data: Results include the acquisition of Macromedia; comparisons are to 2005 Adobe only.
Revenues of $635.5 million are down 3% sequentially to from $655.5 million the prior quarter, but up from $496 million the prior year, pre-merger. It was also below the bottom ($640 million) of their target range.
GAAP earnings were in target range at $.20 per share on income of $123.1 million, up sequentially from $105 million the prior quarter but below the prior year's $149.8 million. Non-GAAP earnings were .31 per share.
Quarter ended with $1.825 billion in cash and short term investments.
Guidance:
3rd quarter: $580 to $610 million in revenues, GAAP earnings of $.13 to .16 per share. Non-GAAP target of $.25 to .27 per share.
2006 fiscal year: lowering to $2.54 to $2.60 billion, with GAAP earnings of $.70 to .76 per share and non-GAAP of $1.20 to $1.25 per share. This is a lowering of guidance.
Expects typical Q3 weakness. Normal seasonal strength in Q4.
Conference Highlights:
Pleased with integration of Macromedia.
Creative Suite demand was lower than expected. Acrobat desktop revenue declined slightly. Revenues are below pre-merger. Softer than expected damand in US and Europe in April, but improved in May.
14.6 million shares were bought back.
Drop in Mac based revenue in Creative applications. In-Design momentum continued. Creative Suite 2 and In-Design doing well. Digital Video products had record revenue; Production Studio and Flash Player for Video Playback are gaining ground with large companies. Photoshop revenue made steady. Acrobat sales solid. Alliance with Ricoh for scanning and document management in PDF.
Flash enabled mobile handsets to be released by Verizon.
Adobe dispute with Microsoft re Vista and Office: concerns that monopoly power is being used to leverage MS solutions over competitors. No decision as to whether or not to file a complaint. Confident about ability to compete on a level playing field.
Q&A:
Guidance appears to take a hit for Q3, be strong for Q4. Overall did factor in some slowing of Creative business in Q4 because of customers switching to Mac-Intel. Acrobat 8 is on track for Q4. Q3 is seasonally typically down.
Exposure to economic cycle have anything to do with lower guidance? Overall environment continues to be extremely positive because of explosion of content demand. New Apple platform - our current products don't work well on it yet. Macroeconomic backdrop is still very good. Japanese economy is strong.
CS3 release? Spring 2007. Must support both Vista and Mac-tel.
Stock buyback has $345 million left, which will be executed over the forseeable future.
Where did weakness surprise come from, aside from usual seasonality? Did well through April, but weakness in last half of April probably due to Mac-Tel change and questions about integrating Adobe and Macromedia products.
Sales organization? Wants to sell more complete solutions to customers. Sales org has biggest impact at enterprise level. Will hire new senior vice-president of worldwide sales.
No native Mac-Tel support until CS3 release? Products work, but don't run as efficiently because must run on Rosetta. No interim releases planned. Mac business is 20% of overall business, higher for Creative segment. Web bundle was improved by Macromedia acquisition. Will help CS3 too.
PDF in Office? Would be speculating about Microsoft's plans.
Exchange rate effects: by one measure, lost $15 million in revenue compared to year-earlier.
Macromedia product sales falling off? Premium Suite and Studio had shortfalls, but individual products did well.
Q1 2007, will there be a falloff of CS2 in anticipation of CS3 release? Historically, no falloff.
New CPU and graphics and dual processor capabilities will be taken advantage of by new releases.
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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. Before making or terminating an investment you should always verify any factual basis of your decision from multiple independent sources.
Copyright 2006 William P. Meyers