Staving off the HTML tsunami

The tough-minded, New York native is navigating the maker of design software, used by print and online publishers, through the still economic waters of recession by relying on core products. Last week, San Jose, Calif.-based Adobe missed, by a penny, analysts' earnings estimates of 21 cents per share, excluding one-time charges, on fiscal fourth-quarter sales of $264.5 million.

Adobe's Acrobat business was the quarter's bright spot, growing 41 percent year over year. Businesses use the product to produce electronic versions of print documents in Adobe's portable document format, or PDF. About 155 government agencies around the world, for example, including the Internal Revenue Service, distribute electronic forms and other documents using PDF.

Chizen, who emphasized the importance of Adobe's PDF business to the company's long-term financial health, also reiterated its commitment to the Macintosh; Adobe plans to release new product versions for Apple Computer's Mac OS X, which was upgraded in September. Chizen spoke with CNET News.com shortly after the release of the company's quarterly financials.

Q: What do you think were the key factors in your navigating the downturn and preparing for the other side of this downturn?
A: About August 1998--three-and-a-half years ago--it was a time we had no choice but to put in a series of processes and disciplines that forced us to stay close to our business, things like having peak systems or back-end systems, doing sales pretty much on a virtual basis and reviewing them on a weekly basis, getting channel inventory on a weekly basis and sell-through information. So we put practices in place that would help our business. So as we go through a quarter, we are able to adjust...We're making the assumption the economic conditions we saw in Q4 will be consistent throughout fiscal year '02.

You're working on a lot of new products right now, plus preparing for an industry shift to software services. How are you managing all of that?
I manage the business two ways. The first is to deliver on the revenue and profitability line in '02. But as important is making sure we're making the necessary investments for the long-term growth of the company...One place we will be delivering heavily will be around Acrobat, or our e-paper business. We are helping to transform the way e-businesses and companies do business around the world and how they do their paper-based transactions. Our Acrobat in the last year grew 41 percent year over year. That business could grow at that level for three, four or even more years.

Are you facing any competition in that space, say, from Microsoft?
We're always paying close attention to the competition, and certainly Microsoft is a formidable competitor potentially. I think they view the world through HTML and the Internet Explorer browser and .Net. We believe people want to view information and print information in a way in which the information can be viewed or printed reliably. I think we're uniquely positioned with Acrobat and Adobe PDF to take advantage of that. I think they're (Microsoft) trying, the same way they tried to compete with us in the digital imaging space years ago. Once again, I think by staying close to our core competency, we will win.

Have you seen any sign of HTML encroaching on your PDF business?
No. I think we all experience the frustration of viewing and HTML, and it doesn't looking right on the screen...(or) the frustration of printing out an HTML page and it doesn't print right. Thousands of corporations and government agencies want reliability, and they're not going to get that with HTML.

Could you discuss your strategy with Acrobat in e-books and how that might be a little different from your competitors?
The whole e-book market, as we've been saying all along, is still an emerging market. I think it's still a number of years before the average consumer buys a dedicated device in which to read electronic books. The value proposition of the printed book, hardcover or paperback, is just better...But we do see, in the short term, two opportunities around e-books. There is the opportunity around electronic distribution.

There are times where people want the immediacy of downloading a book. They order a hard copy of the book, but they still want a PC to have a copy of the book right away. The second is that, if you think about it, most books get thrown out. So if you have the ability to print books on demand, it's a much more efficient means of distribution.

Looking at your design products, what milestones are you trying to reach for the coming quarter or year?
From a revenue perspective, there are two important things we're going to be doing next year. One, the adoption of OS X is going to happen. All of our key design products, like Illustrator, InDesign, LiveMotion and, of course, Photoshop are going OS X.

Do you still get more mileage out of the design apps on Macs than you do from Windows?
Our Windows business has been growing. But from a creative, professional perspective, the true creative professional or designer is still predominately Macintosh.

And it's even more likely to be that way with OS X?
That's correct. Many of them are waiting for Photoshop, which we intend to release in the second quarter of next year. We think many customers will buy not only Photoshop, but OS X, new Macs and a lot of other Adobe OS X apps.

Your new AlterCast product comes out in January and brings you more into the server-based product area. How important do you see this and products like it?
What AlterCast does is it generates images or graphics dynamically. It's really taking variable data and generating the image or graphic on the fly...Those organizations that do a lot of images and a lot of graphics and a lot of variation of the same image or graphic will enjoy this product...retailers that do catalogs for electronic or paper (or) photo studios. In the future, you will see us leverage off the AlterCast platform and provide server-based products that also address needs of the enterprise, businesses and governments alike. That would allow them to work easily with XML (extensible markup language) data in a PDF container.

How significant is the recent strategic relationship you made with DVD authoring software maker Sonic Solutions?
We said back on Oct. 30 in our analysts' meeting that there are a couple broad areas around digital imaging and video that could leverage our very strong franchise. We talked about DVD authoring as being an opportunity. When somebody creates a lot of rich media and video, they want to be able to communicate it. Up until now the Holy Grail was to communicate the bulk of video on the Web through broadband. Well, I think it's clear to all of us, broadband adoption is not happening at a pace any of us would like.

At the same time, DVD adoption is happening quicker than anyone ever imagined. More DVD players will be sold next year than VHS. When you factor in DVD players in other devices, like Xbox and PlayStation, there will be DVD players everywhere. The people we do business with, the creative professionals, want to make sure the kinds of things they do can be appropriately designed.

Will you be developing products for both Mac and Windows?
We haven't decided yet. It's something we're still evaluating. The challenge on the Mac is that it would be competing against Apple with their DVD Pro solution. If we believe they will have an unfair advantage, then we will probably choose not to compete against them.