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Where is Adobe Going vis-à-vis Apple?

Posted on Thursday, Jun 19th 2008

Adobe has been around for more than 25 years now and a significant part of that period is marked by its successful symbiotic relationship with Apple. However, over the past few years, this relationship has turned sour with their products competing with each other (e.g. Final Cut and Aperture from Apple).

Adobe on its part has released products in Windows-only versions to add fuel to the fire. Its upgraded products like Lightroom improve on Aperture’s innovative features. Apple has increasingly sought to create software that fill gaps in existing software and its competition with Adobe seems to be a big treat for the consumers. An interesting post looking at the comprehensive creative software that Apple has been developing is available here.

However, the sore point is not having Flash on the iPhone and missing out on an amazing web browsing experience. In Adobe’s Q2 earnings conference this week, CEO Shantanu Narayen said that Adobe is working on Flash for the iPhone and have a working version on the iPhone emulator that is part of the iPhone SDK. But apparently, Steve Jobs wants an exclusive version for the iPhone.

As for the financials, Adobe had a strong second quarter that beat estimates. Revenue grew 19% y-o-y to $886.9 million and profit grew 41% to $214.9 million driven by strong international sales and product mix. Non GAAP EPS was $0.50 compared to $0.37 in Q2 2007. Analysts expected EPS of $0.46 on revenue of $880 million.

Segment-wise, Creative Solutions segment grew 21% to $527.2 million. Business productivity solutions segment grew 10% to $252.8 million in revenue. Mobile and device segment revenue was $22.2 million, up 80%. It is focusing strongly on dynamic media and in March launched a Adobe Flash Media rights management server for broadcast and media companies. It also launched Adobe Media Player based on Adobe Air.

Region-wise, Americas revenue was flat y-o-y while it did well in Europe and Japan. Americas accounted for 43%, Europe 33%, and Asia 24% of total revenue.

For Q3, Adobe expects EPS of $0.45 to $0.47 cents on revenue of $855 to $885 million, versus analyst estimates of $0.45 on revenue of $878 million. In Q2, it repurchased shares for $543 million. It is currently trading around $41 with a market cap of about $22 billion.

I have always like Adobe as a company. However, as the market landscape changes, Apple gains momentum, Adobe’s creative professionals market is one that I believe will be under maximum threat. And the iPhone turf war is one that Adobe better not lose either.

Chart for Adobe Systems Inc. (ADBE)

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Even if Flash could be optimized to run faster on OS X with less of an impact on the CPU and battery life, there’d still remain a huge issue of clashing UIs and interaction frameworks on the iPhone between Adobe and Apple. The iPhone is establishing the first multi-touch driven mass-market platform, Flash doesn’t even have a multi-touch framework. I explore the implications of this for both Adobe and Apple in:

The new UI wars: Why there’s no Flash on iPhone 2.0

Kontra Thursday, June 19, 2008 at 11:34 AM PT

I agree. Apple will never give away control over UI to Adobe or anybody else.

Sramana Mitra Thursday, June 19, 2008 at 5:44 PM PT

One, Lightroom began development under Macromedia, so it was not an intentional confrontation between Apple and Adobe. The timing of the releases of Lightroom and Aperture were coincidental, and of course, Macromedia was bought by Adobe.

Second, having Flash run on the emulator, is NOTHING like getting it to run on the iPhone. The emulator uses the full resources of the computer it is running on. The iPhone is limited by its 600Mhz ARM processor. There is no way Flash is going to run in any reasonable way on an iPhone.

Third, Google and Apple, are both not likely to support Flash on either Android or the iPhone. This pretty much kills Flash as ubiquitous for mobile computing.

Fourth, Google and Apple, with Android and the iPhone will ultimately prove that open standards are the way to go, and not proprietary ones like Flash and Silverlight.

KenC Thursday, June 19, 2008 at 8:07 PM PT

Fact : Lightroom did not begin development under Macromedia but was an Adobe research project before either the Macromedia acquisition or the start of Aperture’s development. Aperture’s release proved there was a market for combined photo adjustment and management tools, and it was enough of a threat to Adobe’s Photoshop market that they dusted off Lightroom and released it – ie the timing of the releases was anything but coincidental.

John Friday, June 20, 2008 at 2:04 AM PT

Interesting. Thanks for the details.

Sramana Mitra Friday, June 20, 2008 at 8:20 AM PT

[…] continue to be concerned about the company vis-a-vis Apple. The stock rose 4.6% in the after-hours session to […]

Why Is Adobe’s Creative Solutions Business Slowing? - Sramana Mitra on Strategy Wednesday, September 17, 2008 at 8:41 AM PT

While Apple and Adobe have products that compete with each other, I would not say Adobe’s profits are smaller due to Apple’s software counterpart. In my perspective, I am not upgrading to CS4 because Adobe did not create a product that makes me want to buy it. Couple that with features that changed (the Curves dialoge box), frustrates me to no end. Photoshop CS4 requires everyone to relearn its interface. It is interesting to see how Lightroom fares against Aperature in terms of what they offer (and not just by price) and see whose is better in quality.

Ted Moon Wednesday, March 18, 2009 at 2:54 PM PT