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Adobe warning drags shares lower

As the stock drops 17 percent, analysts lower their revenue-growth estimates but show some optimism about the company's long-term outlook.

    Adobe Systems dropped 17 percent Wednesday after the software maker company cut its revenue outlook.

    Analysts reacted to the revenue warning with a predictable lowering of revenue-growth estimates but were varied in their assessments of the company's long-term outlook.

    Shares in the developer of desktop publishing software lost $9.06 to $43.69 by the 1 p.m. PST close of regular trading.

    Late Tuesday, the San Jose, Calif.-based company warned that its first-quarter revenue could be hurt by a weakening U.S. economy. In a news release, Adobe said slowing sales in some geographic markets could pinch the company's expected 25 percent revenue growth for the first quarter and the full fiscal year.

    The company said it is spending cautiously to achieve its stated operating profit goals for the first quarter. First Call analysts' consensus estimates are for earnings of 30 cents a share for the quarter.

    Analyst Gene Munster at U.S. Bancorp Piper Jaffray cut the company's rating to "buy" from "aggressive buy," lowered revenue and earnings estimates for fiscal 2001, and slashed the 12-month price target from $95 to $50.

    In a research note, Munster said the short-term outlook for the company and the duration of the slowdown remains uncertain. Over the long term, the analyst said, the company remains fundamentally strong.

    The solid position of Adobe was echoed by UBS Warburg analyst Benjamin A. Reitzes, who maintained a "buy" rating on the stock. In cutting revenue-growth numbers, Reitzes wrote that the company is not immune from the slowdown. But he added that it is "stronger than most" because of a solid product pipeline.

    "Despite the near-term uncertainty, we believe Adobe is a 20 percent plus (earnings per share) grower long-term," he said.

    Credit Suisse First Boston analyst Gibboney Huske cut targets for fiscal 2001 and maintained a "hold" on the stock, citing that risk to earnings was a greater concern than valuation.

    Rebecca F. Runkle at Morgan Stanley Dean Witter did not alter earnings projections but reiterated a "neutral" rating on Adobe shares. The stock's rating was cut last month on valuation and visibility concerns.