Adobe's Profit Jumps 69%, but Forecast Disappoints

By JEANETTE BORZO

Adobe Systems Inc.'s fiscal third-quarter profit jumped 69% amid strong sales of its popular design-software products, but the company's shares tumbled in after-hours trading as investors responded to a disappointing forecast.

Adobe—whose Photoshop, Illustrator and Dreamweaver products are mainstay tools for media and advertising companies—posted a profit of $230.1 million, or 44 cents a share, for the quarter ended Sept. 3. That compares with earnings of $136 million, or 26 cents a share, in the year-earlier period.

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.Revenue climbed 42% to $990.3 million. In June, Adobe had forecast revenue of $950 million to $1 billion.

Operating margin rose to 30.5% from 24%.

Product sales, the bulk of the San Jose, Calif., company's revenue, increased 30%, while subscription revenue soared sevenfold and revenue from service and support rose 31%.

Adobe's shares were down 15% to $27.99 in after-hours trading. Adobe forecast fiscal fourth-quarter earnings of 48 cents to 54 cents a share on revenue of $950 million to $1 billion. Analysts on average projected earnings of 53 cents a share and revenue of $1.03 billion, according to a poll by Thomson Reuters.

"The third quarter was all good," said Steven Ashley, an analyst with Robert W. Baird & Co. "The disappointment is in the fourth quarter."

For the latest quarter, Chief Executive Shantanu Narayen pointed to strong performance in each of Adobe's major businesses. The company saw its profit increase in the previous quarter for the first time in more than a year.

The earnings announcement comes as the public conflict between Adobe and Apple Inc. over Flash begins to calm.

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Start-Up Aims to Stream Flash Games to iPads. Access thousands of business sources not available on the free web. Learn More .In April, Apple CEO Steve Jobs posted a strongly worded criticism of Flash, an Adobe technology used to format and view online videos. Apple then introduced restrictions that effectively blocked the use of Flash on iPhones and iPads.

Adobe responded with newspaper ads and a media blitz.

Mr. Narayen said in June the public squabble with Apple had not hurt sales of the company's software packages.

Earlier this month, Apple relaxed restrictions on developers of applications for its iPhones and iPads, opening up its popular App Store to products written with Adobe's Flash.

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