Adobe Focuses On Web Tools

Adobe yesterday announced several major initiatives targeted at tablets including a cloud service and web design tools. It also announced the acquisition of web typography innovator Typekit and its agreement to acquire Nitobi, creator of PhoneGap. The shift in focus toward Web technologies is a welcome development especially in the wake of Microsoft joining Apple in not supporting Flash on tablets. Let’s take a closer look.

Yesterday in its MAX 2011 conference, Adobe announced the Adobe Creative Cloud by which users can access desktop and tablet applications, creative services and share their work. It also announced a family of six touchscreen applications for the iPad and Android tablets. Adobe also introduced its new Digital Publishing Suite, Single Edition that can be used by designers to publish interactive content on iPad without writing any code.

The cloud service is expected in early 2012, while the Touch Apps will be available for Android tablets in November, 2011 and are expected to be available for the iPad in early 2012. The individual touch apps are priced at $9.99 each and the Digital Publishing Suite is priced at $395.

Recent Acquisitions
In July, Adobe acquired Echosign, a leading Web-based provider of electronic signatures and signature automation. Adobe says it enhances its document exchange capabilities and will be a key part of its goal to increase the value of Acrobat in the document access, review and approval processes.

Yesterday, Adobe also announced its plans to acquire Nitobi, the creator of PhoneGap for an undisclosed sum. PhoneGap is an open-source programming tool for creating web apps that run on mobile phones. TypeKit on the other hand offers subscriptions for using advanced fonts on the Web with new abilities in Cascading Style Sheets (CSS).

Relevance of Flash

Adobe had initially stuck to Flash as the technology for tablets and mobile devices. However, after Apple allowed third-party developers to use Flash technology for applications, Adobe came up with a Flash-to-HTML5 converter tool called Wallaby. Even Microsoft has followed Apple’s anti-Flash lead. Last month, Microsoft announced that it will not be supporting Flash and other plug-ins from its tablet-oriented Metro version of IE10. However, the Windows 7 version of IE10 will be supporting Flash.

Adobe continues to invest in its Flash-based strategy. It recently came up with Flash 11 and AIR3. Adobe believes Flash will remain vital on desktops. It also expects Flash to come to Metro via AIR, much the way they are on Android, iOS, and BlackBerry Tablet OS today.

Paul Krill on Computerworld reports that the future of Flash will no doubt be tied to usage. However, there are mixed reactions from analysts on the relevance of Flash:

“I do agree with Adobe’s critics that Flash in the browser on phones and tablets doesn’t always provide the best experience, even on the mobile platforms that do support it, such as Android and QNX [used in BlackBerry tablets and planned for use in future BlackBerry smartphones],” says Avi Greengart, an analyst at Current Analysis. “But Adobe doesn’t make money selling Flash; it makes money selling tools. On the PC browser, Flash is still the most common runtime environment for casual gaming, video, and graphical websites, and Adobe’s tools can be used to create, manage, and help monetize those efforts.”

“Flash is still well-supported on the desktop, and as other Web technologies have evolved, so too has Flash,” says Michael Gartenberg, an analyst at Gartner. “For many use cases, Flash remains the technology of choice. Adobe’s challenge is to continue to drive that effort forward.”

Adobe seems to be doing the right thing by sticking to its Flash-based strategy but at the same time committing itself to supporting other technologies on the web.

Adobe Financials
Adobe last month reported third-quarter revenue of $1.013 billion, up 2%. Adobe had forecast third quarter revenue of $1.0 billion to $1.05 billion and analysts estimated revenue of $1.02 billion. Net income declined 15% to $1954 million or $0.39 per share. Non-GAAP EPS was $0.55, beating analyst estimates of $0.54 per share.

Creative and Interactive Solutions segment revenue was $417.9 million compared to $416.9 million in Q3 fiscal 2010 and $433.1 million last quarter. Digital Media Solutions revenue was $151.1 million compared to $157.7 million last year. Digital Enterprise Solutions revenue was $270.4 million compared to $256.1 million last year. Within Digital Enterprise Solutions, Knowledge Worker revenue was $174.6 million, compared to $162.6 million last year.

Comparing the performance of recent Creative Suite releases, the company reported that CS5 and CS5.5 combined revenue has now achieved approximately the same amount of revenue that it achieved with CS3 for the comparable time period and has exceeded revenue achieved with CS4 by approximately 25%. It added that the subscription offering with CS5.5 was responsible for attracting new users.

Enterprise segment revenue was $95.8 million compared to $93.5 million last year and $101.5 million last quarter. In the Omniture segment, revenue was $118.2 million compared to $99.8 million reported last year and $115.9 million last quarter. Mobile and tablet device traffic remains the fastest-growing part of the Omniture business, with the number of transactions from mobile devices growing to 11% of total transactions in Q3, up from 7% last quarter.

Print and Publishing revenue was $55.6 million compared to $59.8 million last year and $54 million last quarter. In terms of regions, Adobe experienced stable demand in Americas and Asia and EMEA continued to be weak.

Adobe expects fourth-quarter revenue in the range of $1.075 billion to $1.125 billion. Non-GAAP EPS is expected to be $0.57 to $0.64. Analysts estimate non GAAP EPS of $0.58 on revenue of $1.07 billion. Adobe repurchased 3.6 million shares during the quarter for 100 million and ended the quarter with $2.7 billion in cash and short-term investments. Annual revenue in 2010 was $3.8 billion. The stock is trading around $24 with market cap of about $11.85 billion. It hit a 52-week high of $35.99 on May 11.