Adobe Systems Tempers Forecast as Quake Threatens Japan Sales

By Aaron Ricadela - Mar 23, 2011 1:01 AM GMT-0300

Adobe Systems Inc. (ADBE), the largest maker of graphic-design software, forecast second-quarter profit that missed analysts’ estimates as the earthquake and tsunami in Japan curb sales.

Profit excluding some costs will be 47 cents to 54 cents a share in the current quarter, Adobe said yesterday 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 had estimated sales of $1.04 billion.

Adobe lowered its revenue forecast by $50 million because of the disaster in Japan, where the company gets 10 percent to 15 percent of its revenue each quarter, making it Adobe’s second-largest market after the U.S. Some analysts had expected a bigger sales impact after the March 11 quake and tsunami shut down some power and transportation systems and disrupted business.

“The other portions of the business are doing well, and the big issue is the tragedy in Japan,” Adobe Chief Financial Officer Mark Garrett said in an interview. “We saw a noticeable drop in our revenue.”

Adobe rose 54 cents to $32.88 on the Nasdaq Stock Market yesterday before earnings were released. The shares have declined 5.7 percent since March 10, the day before the earthquake struck in Japan.

‘Budget Flush’

The San Jose, California-based 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.”

Shareholders may have been bracing for a bigger change in forecast, said Yun Kim, an analyst at Gleacher & Co. in New York. Thirteen percent of Adobe’s sales came from Japan last year, the company has said.

“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.

Creative Suite

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.

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 yesterday.

The HTML5 standard, which is supported by Apple Inc. (AAPL) and Google Inc. (GOOG), 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.

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

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