Adobe down on worry over Microsoft case

Deutsche Bank analyst Peter Ausnit lowered the bank's rating on Adobe from "hold" to "sell." The downgrade was based partly on concerns that Friday's settlement of the Microsoft case on terms largely favorable to Microsoft will embolden the software giant to compete more directly with Adobe in key markets, including the one addressed by Adobe's Acrobat software for creating electronic documents.

"Many observers expect to see a more aggressive Microsoft now that the settlement has been accepted," Ausnit wrote in a report. "We do...Investors are right to focus on the risk, since Adobe all but positioned Acrobat as an add-in for (Microsoft) Office."

Adobe shares closed regular trading Tuesday down $1.56, or 5.7 percent, at $25.82.

One of the biggest concerns for Adobe is XDocs, electronic forms software that Microsoft plans to introduce next year as part of its Office productivity package. XDocs, announced last month, would give workers tools for harvesting and sharing data submitted through electronic forms.

The Microsoft effort comes as Adobe is pushing electronic forms as a key part of it business, through existing products such as Acrobat document creation software and server products it obtained through the acquisition of Accelio.

"Adding features enabling reliable display and printing seems within Microsoft's reach, and given the XDocs announcement, we believe Microsoft is beginning to target Adobe's market," Ausnit wrote. "We look for continuing announcements throughout 2003 describing better collaboration and document distribution tools from Microsoft."

Ausnit noted that with 500 million copies of the Acrobat reader in circulation, however, Acrobat and its PDF format have become the de facto standard for electronic documents, giving Adobe a strong position to fend off competitive threats.

Adobe representatives did not immediately respond to requests for comment.