Adobe to abandon Flash – stock price slides

Aaron Ricadela, Bloomberg News
Thursday, November 10, 2011

Shares of Adobe Systems fell the most in three months after the company said it plans to stop making Flash technology for mobile devices, raising concern that new programs for digital publishing will be slow to boost revenue.

The company said Tuesday it would cut 750 jobs as it shifts investment to software for Web publishing and advertising. Instead of Flash, Adobe is focusing on tools that can generate code in the newer HTML5 language, supported by rivals Apple, Google and Microsoft.

Adobe, the largest maker of graphic-design software, pared its sales forecast for the next fiscal year as it shifts to new products. Apple’s dominance in mobile computing, the faster evolution of Web standards like HTML5, and the popularity of smart phones and tablets required Adobe to embrace newer technology, said Al Hilwa, an analyst at market researcher IDC.

“Adobe had to transition, but it’s taking some lumps,” Hilwa said. “Adobe grew when the Internet needed certain kinds of proprietary software to move forward, because the standards weren’t moving fast enough. The market has changed.”

Shares fell 7.7 percent to $28.08 at the close in New York, their biggest drop since Aug. 10. The stock has declined 8.8 percent this year.

San Jose’s Adobe is channeling research, sales and marketing investments into digital media and marketing in the next fiscal year, and expects less licensing revenue from software for corporate servers. As a result, sales will increase 4 to 6 percent next year, the company said Tuesday. Analysts surveyed by Bloomberg had expected sales to increase 9 percent to $4.53 billion.

The company will stop developing the Flash Player for mobile devices and instead emphasize the Air software, which will work with online application stores, Danny Winokur, an Adobe vice president, said in a company blog post Wednesday.

“It really is time for a new generation of creative tools,” Chief Executive Officer Shantanu Narayen told analysts at a Wednesday meeting in New York. The company will step up efforts to build HTML5 technology into its flagship Creative Suite products and emphasize sales to digital publishers and advertisers, he said. “This is a big, massive opportunity and we think we’re uniquely positioned to win.”

The job cuts, mostly in North America and Europe, will cost $87 million to $94 million before taxes. That includes as much as $78 million of charges in the fiscal fourth quarter ending Dec. 2, Adobe said. After the costs, net income will be 30 to 38 cents per share, compared with a previous forecast of 41 to 50 cents.

This article appeared on page D – 2 of the San Francisco Chronicle

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