Investor Conference Call Gives Bright Picture for Adobe and ColdFusion

Dec 22, 2005

by Judith Dinowitz

On Thursday, December 15th, I sat in on a conference call for investors and press about Adobe's announcement of record revenues for the fourth quarter of Fiscal Year 2005. This call gave me a very positive picture of Adobe as a company, and of ColdFusion's position in the Adobe family, and I thought it would be helpful to report on my impressions for our readers.

The Financial Picture

First, here's a quick recap of the most important figures from last week's announcements: Adobe earned $510.4 million for the fourth quarter of Fiscal Year 2005, as compared to $429.5 million reported for the fourth quarter of fiscal year 2004 and $487.0 million reported in the third quarter of fiscal year 2005. The $510.4 million figure represents a 19 percent year over year growth in revenue. Bruce Chizen, CEO of Adobe, noted that this was the first half billion dollar quarter in the history of the company.

Chizen also announced that in Fiscal Year 2005, Adobe earned revenue of $1.966 billion compared to revenue of $1.667 billion in Fiscal year 2004 -- another record for the company. This represents an 18 percent increase in revenue!

There were many more figures noted, and you can read about them in the Adobe press release on the subject.

Adobe as a Company: Overview of their Products

Adobe has divided the company into five business segments:

Creative Solutions: This category includes three groups: the Creative Focus products such as Creative Suite, Photoshop, Studio, Flash, Illustrator, Indesign; Adobe's video products; and hobbyist customer-focused products such as Photoshop Elements
Knowledge Worker Solutions: The Acrobat and Breeze product families
Enterprise and Developer Solutions: The Flex, LiveCycle and ColdFusion product family
Mobile and Device Solutions: Flash Lite and FLashcast, as well as other mobile products and technologies
Other: This group includes Adobe's OEM postscript business, their type business, and publishing products such as Framemaker and Pagemaker, as well as Reader and Player distribution and Macromedia E-learning tools

You can find out more about what products are listed in each of these business segments in the Adobe Business Segments Chart.

Integration of the Two Companies

Chizen reported on the rapid integration of the two companies. He said that on day 1 after the close of the acquisition, Adobe had already integrated both company's networks, video conferencing, firewalls and five digit phones, and were processing orders on both websites through SAP. "We were processing orders on day 1, with full supplies of products that we needed to have within two days. We're operating as one company... Every six hours, we're watching revenue from around the world, with any level of detail we want for the combined products of the company. Obviously there's still work to do, but we feel very good with where we stand on day 9."

Adobe also announced some management changes. Murray Demo, Chief Financial Officer, has made a personal decision to leave the company to spend more time with his family; a search for his successor is currently underway. He's staying through the end of March 2006, but has agreed to stay longer if the company cannot find a replacement by then.

Adobe also announced the addition of two new executives. Peg Wynn will be Senior Vice President of Human Resources and Garrett J. Ilg will be President of Adobe Japan.

Chizen described the new management team as "a solid balance of leadership from Adobe and Macromedia." In reality, only five of the 19 people on Adobe's senior management team are from Macromedia. (That may, however, be a high ratio for an acquisition.) The five executives are: Alan S. Ramadan, Senior Vice President of Adobe's Mobile and Device Solutions Business Unit; David Mendels, Senior Vice President of Adobe's Enterprise and Developer Solutions Business Unit; Kevin Lynch, Senior Vice President and Chief Software Architect of Adobe's Platform Business Unit; Thomas Hale, Senior Vice President of the Knowledge Worker Solutions Business Unit at Adobe; and, last but not least, Stephen Elop, formerly President and CEO of Macromedia, who is now President of Worldwide Field Operations at Adobe.

Future Strategy and Anticipated Revenue

Chizen talked about Adobe's future strategy. While the catch-phrase for Macromedia was "Experience Matters," the catch-phrase for Adobe seems to be "Engage with Information." In Chizen's words:

"Adobe will advance a powerful engagement platform with PDF and Flash at its core. This engagement platform will redefine the way people and businesses engage with information across a variety of operating systems, devices and communication channels. We plan on leveraging this industry-defining platform to deliver a series of compelling solutions for customers around the world, who are using digital content to engage people in businesses with ideas and information. We're excited about 2006, and we look forward to sharing more details about our strategy and opportunity at our upcoming analysts' meeting."

That analysts' meeting will take place on January 31st in New York City, and I will try to get press access so I can give you a full report. Adobe will also provide their regular intraquarter business update for the first quarter of Fiscal Year 2006 on January 31st.

According to Murray Demo, CFO of Adobe, the company is targeting revenue for 2006 at approximately $2.7 billion. They arrived at this figure after adjusting for the expenses associated with the acquisition. Demo also noted that there are certain expenses associated with the acquisition that will be recorded in the first quarter of 2006. He mentioned severance and vacated facilities as some of these expenses, but didn't go into any detail, and said that about 650 - 700 employees from Adobe and Macromedia will be affected by the merger. (Again, other than Demo himself leaving, no names were mentioned, but this was an earnings call and the question was slightly off-topic.)

Despite the expenses and adjustments noted above, Adobe is targeting a Q1 2006 revenue range of approximately $630 - 660 million. For the remainder of the year, they expect typical seasonal weakness from both Europe and Japan in their third quarter, but then they expect the fourth quarter of fiscal 2006 to be their highest revenue quarter of the year.

Adobe's Product Lines: Future Innovations

Shantanu Narayen, President and Chief Operating Officer of Adobe, spoke of Adobe's intention to integrate and sell the combined Adobe and Macromedia product line. On December 5th, their first day operating as a combined company, they announced three new product bundles:

A Design bundle combining Creative Suite 2 and Flash Professional 8
A web bundle combining Creative Suite 2 and Studio 8
A third bundle, called the Video Bundle, will be available in early 2006.

At the end of the call, during the question and answer session, Narayen spoke of the company's intention to deliver innovation throughout their product cycles. "The reality is that we have many, many cycles of great innovation and integration ideas that we've already developed," he said. He refused to be pinned down to a specific product cycle period, however. (Adobe's product cycles have traditionally been about 12 to 18 months.)

Among the ideas he mentioned were:

Creating file format compatibility between Studio and Creative Suites
Looking at what Breeze has with respect to real time collaboration and Acrobat with Asynchronous, and trying to merge that.
Looking at the technologies associated with LiveCycle, Flex, as well as ColdFusion, and delivering more of an end to end solution to CIOs.

In fact, ColdFusion was mentioned several times by Narayan. He said, "We believe that the combination of Flex and Coldfusion and LiveCycle enables us to deliver a more comprehensive offering to the CIOs, as they think about how they want to have an experience, either on web or on paper."

Narayan brought up the idea of doing a data capture and using Flex as a front end to the PDF process. He also mentioned the possibility of integrating Flex and LiveCycle. He said, "The new Flex Builder application gives more tools to developers who wish to build on this engagement platform that we're talking about. We've been talking to some customers who've been using Flex and LiveCycle independently, and they clearly see the benefits of us being able to put them together."

Narayan said that Adobe did a comprehensive customer segmentation as part of their research into product integration. They interviewed customers of Macromedia and Adobe products, and found that there were opportunities to get people to standardize on the kind of bundles that Adobe is providing.

The call as a whole gave me a positive feeling about Adobe's position as a company. Below you'll find links with further information:

Adobe Systems Reports Record Quarterly and Annual Revenue and Net Income (December 15, 2005)

Q4 and FY2005 Earnings Press Release (December 15, 2005)

Q4 FY2005 Investor Datasheet (December 15, 2005)

Adobe Business Segments Chart

Adobe Announces Management Changes (December 15, 2005)

Adobe Investor Relations Page

New Adobe Design, Web and Video Bundles Combine Latest Creative Software From Adobe and Macromedia (December 5, 2005)

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