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Adobe moves Chizen to CEO, sticks to 2001 growth targets

Updated 7:48 p.m ET

Adobe Systems (Nasdaq: ADBE) easily topped analyst estimates in the fourth quarter, promoted its president to CEO and reiterated a goal of 25 percent revenue growth in the current fiscal year.

After market close Thursday, the maker of graphics and publishing software reported a fiscal fourth quarter operating profit of $127.5 million, or 34 cents per share, excluding amortization and special charges. First Call's survey of 13 analysts predicted a profit of 29 cents per share, for the quarter ended Dec. 1.

Shares of Adobe rose to 60.25 in afterhours activity on the Island electronic communications network, immediately following the release of quarterly results. Adobe dropped 8.875 to 57.3125 in Thursday's regular trading ahead of the fourth quarter report.

Also Thursday, Adobe said Bruce Chizen would replace company co-founder John Warnock as CEO. Chizen will keep his current title of president, and Warnock will remain co-chairman of Adobe as he becomes chief technology officer. Warnock will also continue to oversee Adobe Ventures.

The company's strong position makes it a good time to turn over the reins, Warnock said, in an interview with ZDII.

"I turn 60 in October, and that was during the fourth quarter," Warnock said. "I had said to myself, 'Gee, I'll stick with this until I'm 60, and then then hard about it.' And having eight quarters of sequential growth seems like a nice round number."

Including all items, Adobe earned $79.2 million, or 31 cents per share.

Fourth quarter revenue increased 26 percent year-over-year and 8 percent sequentially to $355.2 million. About 50 percent of Adobe's revenue came from the Americas, followed by 28 percent from Europe and 22 percent from Asia.

Cross media publishing -- formerly classified as print publishing -- generated $96.7 million in the fourth quarter, down year-over-year and sequentially. Adobe blamed the decrease on a tough comparison with earlier quarters, particularly the fourth quarter of fiscal 1999, when the InDesign publishing software was launched.

Web publishing revenue rose 47 percent year-over-year to $167.8 million. Adobe credited the launch of Photoshop 6 for driving the increase.

Adobe's ePaper division saw more than $59 million in fourth quarter revenue, for year-over-year growth of 60 percent. The company's Acrobat software for displaying documents on the Web saw strong growth, Adobe executives said.

About 65 percent of Adobe's revenue came from Windows software, compared to 63 percent in the third quarter and 58 percent in the fourth quarter of fiscal 1999. The ongoing shift in the revenue mix toward Windows is mostly fueled by growth in Acrobat, Warnock said in an interview with ZDII.

Software for the MacOS of Apple Computer (Nasdaq: AAPL) produced 35 percent of Adobe's revenue in the fourth quarter.

For the full fiscal 2000, Adobe earned $287.8 million, or $1.13 per share, on revenue approaching $1.3 billion.

Analysts were expecting Adobe to top the consensus forecast. However, prior to Adobe's earnings report, Morgan Stanley Dean Witter's Rebecca Runkle lowered Adobe to "neutral" from an "outperform" rating because of macroeconomic worries.

"The slowing economy and spate of pre-releases, on the margin, make us more nervous about recommending such a high-multiple stock," Runkle said in a research note.

Growth in Adobe's graphics business could slow, Runkle wrote, because about a third of Adobe's revenues come from print publishing, which is undergoing a slowdown in ad spending. But Adobe executives said they believe the company's cross media publishing unit can boost growth by 10 percent year-over-year in the first quarter, because of the upcoming introduction of the Japanese version of InDesign.

Company executives on Thursday said they still expect to hit their original target of at least 25 percent revenue growth in the first quarter and full fiscal 2001. "When we look at those macroeconomic drivers and see what's happening, we don't yet see an effect on our business," Chizen said, during a conference call with analysts.

Several PC makers have recently warned about weak results for the December quarter, but Adobe's software sales are not directly tied to hardware sales, CFO Murray Demo told analysts. Adobe doesn't rely heavily on software bundled with PCs.

Recent hard times for pure Internet companies haven't affected Adobe very much, Warnock said.

"The dot-coms melting down is a teeny aspect of the Internet economy," he said. "Traditionally companies are looking for productivity, and that's what our products give them. ... The productivity is there and the overall economy is there."

Adobe sees an operating profit of 32 percent in 2001, along with $5 million in other income, with total shares outstanding rising by 3 million to 4 million shares per quarter. Adobe generated an operating margin of 35.9 percent in the fourth quarter, compared to 32 percent in the year-ago period.

Despite Runkle's concerns about stock valuationn, Adobe's share price isn't a worry, Warnock said.

"We attribute that to just flat-out predictability," he said. "When you deliver on what you say you're going to deliver, Wall Street starts looking at you as a safer and safer investment. ... Predictability has become part of the culture here at Adobe. We're just not going to miss if we can possibly avoid it."

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