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Adobe still struggling against economy

The publishing-software giant reports third-quarter earnings in line with lowered expectations. The firm has been battling the bleak economy and a depressed advertising sector.

Publishing software giant Adobe Systems reported third-quarter earnings Thursday in line with lowered expectations.

The software maker reported earnings of $47.2 million, or 19 cents a share, for the quarter ended Aug. 30, in line with the consensus estimate among analysts polled by First Call. Profit was up from the $40.3 million reported in the same period a year ago, but down sequentially from the second quarter's $54.3 million.

Sales for the third quarter totaled $284.9 million, down from $292.1 million a year ago and $317.4 million in the previous quarter.

Adobe has struggled against the bleak overall economy and a particularly depressed advertising sector this year as it looks to reap financial benefits from a number of major product upgrades. Company executives said earlier that although the new version of Photoshop released this year had strong initial sales, it hasn't done as much as expected to boost sales of related Adobe products.

Adobe shares hit a three-year low last month, after the company announced that third-quarter earnings and sales would fall significantly below earlier forecasts. The company said it expected sales of $270 million to $290 million, down from the previous estimate of $300 million to $320 million, and per-share earnings of 18 cents to 23 cents, down from 24 cents to 27 cents.

In Thursday's earnings announcement, the company predicted an upswing for the current quarter, with fourth-quarter revenue estimated at $285 million to $300 million and pro forma earnings per share at 21 cents to 25 cents.

Adobe executives said in a conference call with financial analysts that an August upswing in sales to the education market, plus strong response to the new Photoshop Elements package, helped lift sales at the end of the quarter.

CEO Bruce Chizen said that Elements, a stripped-down version of Photoshop for consumers, has brought in new business without cannibalizing sales of the full Photoshop.

"Photoshop Elements for the most part has been expanding our business," he said. "The casual user who buys Photoshop is the same as the causal driver who buys a Mercedes...It's a status thing. They aren't going to be happy with the junior product."

Chizen added that Adobe is already starting to see a financial payoff from its acquisition of server software maker Accelio, one of the first steps in Adobe's campaign to infiltrate business systems.

"I am more convinced today than ever before that this was the right thing," he said. "This is giving us access to customers we wouldn't have had access to before."

Shantanu Narayen, executive vice president of worldwide products for Adobe, said in an interview that Photoshop continues to have healthy long-range prospects, thanks in part to Adobe selling "collections" that bundle the program with other graphics tools. "Our collections business is growing, which really tells us the creative professional is standardizing on a suite of products," he said.

Narayen added that despite the sluggish economy, Adobe is continuing to sell its vision of network publishing, which links various Adobe products in a system in which content can easily be re-purposed for different formats.

"Certainly some of the customers are holding off on any big spending decisions," he said. "But I think we've demonstrated...the productivity gains people are seeing, so that some of them are starting to make the investment now in having an asset-management architecture."