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Adobe falls on warning, downgrade

Adobe dropped almost 11 percent on Wednesday after the company cut its revenue outlook. Analysts lowered estimates, but were split on the company's long-term strength.

Shares of the desktop publishing software developer (Nasdaq: ADBE) lost $5.70 to $47.05, at the opening bell.

Late Tuesday, the company warned that its first quarter revenues could be impacted by a weakening U.S. economy. In a release, Adobe officials said that slowing sales in some geographic market areas could impact 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 reacted with a predictable lowering of revenue growth estimates but varied in their assessment's of Adobe longer term outlook.

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 that the short-term outlook for the company and duration of the slowdown remains uncertain, according to channel checks. Over the longer term, the analyst said that 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.

While cutting revenue growth number, Reitzes wrote that the company was not immune from the slowdown, but was "stronger than most" due to a solid product pipeline.

"Despite the near-term uncertainty, we believe Adobe is a 20 percent plus EPS grower long-term," the analyst noted.

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 guidance but reiterated a "neutral" rating on Adobe shares. The stock's rating was cut last month on valuation and visibility concerns.