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New Era Of Personal Computing Pits Apple Against Adobe

Posted on Friday, Jun 25th 2010

After a long wait, Adobe (NASDAQ:ADBE) has managed to release its Flash Player for smartphones running on the latest version of Android, Froyo. Adobe has shipped Flash Player 10.1 for Mobile to all the major smartphone vendors save Apple. Let’s take a closer look.

Flash Player 10.1 is expected to be available on mobile devices Dell Streak, Google Nexus One, HTC Evo, HTC Desire, HTC Incredible, DROID by Motorola, Motorola Milestone, Samsung Galaxy S, and others. Flash Player 10.1 was also released to Adobe’s other mobile platform partners, and devices based on Android, BlackBerry, webOS, LiMo, MeeGo, Symbian OS, and future versions of the Windows phone will also get Flash Player in the coming months.

Apple is the only smartphone maker that is not providing Flash on its mobile devices. It instead prefers HTML5 for video and animation support. Steve Jobs has posted his thoughts on Flash on the Apple blog. He says that Flash could reduce the battery life, reliability, and security of Apple’s iPhones, iPads, and iPods. In response to the argument that Apple users are missing out on video, Jobs says that instead of Flash Apple mobile devices use H.264, which consumes half the power of the decoder often used to play Flash videos. Jobs argues that Flash is the main reason Macs crash. Further, Flash is not made for touch screens and is closed and proprietary.

Apple has just 16.6% of the smartphone market, but it is the rate at which it is growing that should be unsettling for Adobe. Last year, Apple’s market share was 10.9% – so that is a growth rate of more than 50%. On the other hand, Nokia and RIM are trying to maintain their market shares. They are surely hoping that getting Flash will be a huge plus for them. Tom McNichol of Businessweek reports that Flash Player software is installed on 98% of PCs. According to Adobe, it is used by about 85% of the top 100 websites, delivering 70% of Web games and 75% of Web video.

As Jobs puts it, Flash was created during the PC era. Apple’s touch screen mobile devices have redefined what it means to use a computer, which means that Flash will need to reinvent itself and prove itself in the mobile space in order to stay relevant to those who create and develop content. Kevin C. Tofel of GigaOM says that not having Flash has not hampered the sales of iPhones and iPads, and that “promises and expectations are all that most smartphone device owners have seen thus far.”

That being said, Flash is just one of Adobe’s products, and the company reported a strong quarter driven by strong sales of its flagship software Creative Suite 5, which was released in April. Q2 revenue was up 34% to $943 million. Net income was $148.6 million, up 18% from $126.1 million last year. It also announced plans to repurchase up to $1.6 billion in common stock through 2012. The company ended the quarter with $1.13 billion in cash. Q1 coverage is available here.

For the third quarter, Adobe expects revenue of $950 million to $1 billion, GAAP EPS of $0.32 to $0.37 and non-GAAP EPS of $0.46 to $0.50. Analysts forecast EPS of $0.49. Chief Executive Officer Shantanu Narayen said that he expects to hit revenue of $5 billion by 2012, partly via acquisitions. Analysts expect Adobe to report revenue of $3.73 billion this fiscal year. Its annual revenue in 2009 was $2.95 billion. Adobe is currently trading around $30 with market cap of about $16 billion; the stock hit a 52-week high of $38.20 on December 16.

Chart forAdobe Systems Inc. (ADBE)

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