Adobe Revenue Drops In 4QAdobe Revenue Drops In 4Q

Adobe Systems fell short of its own revenue outlook, and of Wall Street earnings expectations for its fourth quarter ended Nov. 30, as a declining ad market caused creative agencies to defer purchases of Adobe's design software.

Revenue for the quarter was $264.5 million, Adobe reported Thursday, down 25.5% from $355.2 million in the fourth quarter of 2000. On Oct. 30, Adobe said it expected fourth-quarter revenue of $275 million to $285 million. U.S. sales in November, especially during the last two weeks of the month, were even weaker than expected, says Adobe executive VP Shantanu Narayen. Sales of Photoshop and other design products have been hurt as agencies received less work and deferred IT purchases.

Fourth-quarter net income sank to $34.3 million, down 56.7% from a year ago, when Adobe earned $79.2 million. Including a $12.1 million restructuring charge related to the layoff of 247 employees during the quarter, per-share earnings of 20 cents fell below analysts' consensus estimate of 21 cents. Adobe employed 3,043 people as of Nov. 30, but 48 of those staffers have been notified that they'll lose their jobs during the first quarter, Narayen says.

There were some bright spots in the quarter. Adobe says it signed a 160,000-seat licensing deal for its Acrobat software with a European telecom, and closed a 30,000-seat deal with a U.S. government agency. The company shipped a new version of its Illustrator product, boosting sales, and achieved an operating margin of 33% during the 2001 fiscal year. Adobe warned that first-quarter revenue will be $265 million to $280 million--below Wall Street expectations--but will hold research and development spending steady at 20% to 21% of revenue. "We will not mortgage our future," Narayen says.

For the 2001 fiscal year, Adobe barely increased revenue to $1.23 billion, and net income fell to $205.6 million, compared with $287.8 million in 2000.