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Mixed quarterly results for Adobe

The publishing software giant reports annual profit growth but a quarterly decline.

Publishing software giant Adobe Systems reported an expected sequential drop Thursday in quarterly profit and revenue, fueling fears that the company--currently between major product releases--may be entering a lull.

The software maker reported net income of $109.4 million, or 44 cents a share, for its second fiscal quarter, which ended June 4. That's up from $64.2 million, or 27 cents a share, in the same period a year ago, but down from $123 million and 50 cents a share in the previous quarter.

Revenue for the quarter was $410.1 million, compared with $320.1 million a year ago and $423.3 in the previous quarter.

Several high-profile analysts lowered their ratings on Adobe this week, based on expectations that the software maker will go at least another quarter without a major product release. Credit Suisse First Boston's Gibboney Huske lowered Adobe to "neutral" from "outperform." Husk said sales of Adobe's last major release, the CS line of graphics products, are tapering off, and the company won't have another major launch until an expected update of its Acrobat publishing line late this year.

Shantanu Narayen, executive vice president of worldwide products, downplayed the significance of quarter-to-quarter comparisons, saying the real story is told by strong annual growth across most product categories.

"Our focus is on driving our long-term growth opportunity," Narayen said. "We're not going to change our corporate strategy" based on quarterly fluctuations.

That long-term strategy includes a broad effort to expand Adobe's PDF (Portable Document Format), already widely used for electronic distribution of documents, into a broad foundation for exchanging business data. The drive has led to a growing array of PDF-based server products and other enterprise efforts.

Besides straight growth potential, Narayen said, the enterprise push creates opportunities to smooth out typical seasonal fluctuations in revenue and open new sales channels, particularly indirect sales through systems integrators and makers of complementary software products. "Partner-influenced sales are going to be increasingly important," he said.

Besides enterprise opportunities, Adobe also expects to profit from the ongoing consumer shift to digital photography and video, Narayen said. The company has seen solid acceptance of Photoshop Album, a hobbyist version of the image-editing application, and expects similar results from a planned hobbyist version of its Premiere video editing package. "We think there's a tremendous opportunity to expose people to our brand as they move into digital imaging," he said.

According to the earnings statement, Adobe expects another sequential decline for its third quarter, with revenue targeted between $360 million to $380 million and earnings per share between 31 cents and 36 cents.