Adobe Q4 & FY2005 Report Is Merry And Bright

Record revenue, growth and Macromedia acquisition shine brightly in Adobe’s latest report

Adobe Systems Incorporated (Nasdaq:ADBE) released their fourth-quarter and fiscal year 2005 financial statement yesterday, boasting record revenue, growth in double-digits across the board and possibly hinting at new trends and products that we users will see on the shelves in 2006 and 2007.

THE DRY STATISTICS

In the fourth quarter, Adobe’s revenue was a record $510.4 million, an increase of 19 percent over $429.5 million from the same time last year. Adobe had been targeting a revenue amount of $490 million to $510 million, so they actually overshot their projected revenue by a small amount.

In fiscal year 2005, Adobe’s revenue was another record of $1.966 billion, an 18 percent growth over the $1.667 billion brought in over fiscal year 2004.

“2005 was another remarkable year for Adobe,” said Adobe CEO Bruce R. Chizen. “We grew our business 18 percent, generated record profits, and for the third consecutive year, achieved record revenue for the fourth quarter and year.”

Perhaps more interesting to actual users of the products is a breakdown of revenue for the quarter and fiscal year according to market segment and products. Note that Adobe’s market segments include Digital Imaging & Video (Photoshop and video applications), Creative Professional (Illustrator, page layout and web applications), Intelligent Documents (Acrobat and related applications) and OEM, PostScript and Other (PostScript and type).

The Creative Professional segment brought in 38% of Adobe’s revenue, followed by Intelligent Documents at 36%, Digital Imaging & Video at 22% and OEM, PostScript and Other at a paltry 4%.

In the market segment data for fiscal year 2005 the percentage are exactly the same: Creative Professional at 38%, Intelligent Documents at 36%, Digital Imaging & Video at 22% and OEM, PostScript and Other at 4%.

Note that the only major upgrades to Adobe software in Q4 were Photoshop Elements 4.0 and Premiere Elements 2.0, both applications designed for hobbyists. Professionals haven’t seen a major upgrade since Creative Suite 2 (including Photoshop, Illustrator, InDesign and GoLive) in the second quarter.

Revenue by geography in the fourth quarter of 2005:

North and South America were the largest geographical segment at 49%, followed by Europe/Middle East/Africa at 32% and Asia at 19%. As with the market segment breakdown, the fiscal year 2005 results closely matched the fourth quarter in terms of percentages:

The Americas brought in 48% of Adobe’s revenue for fiscal year 2005, followed by EMEA at 31% and Asia at 21%.

TRENDS: DIGITAL IMAGING & VIDEO IS STAGNANT, MACINTOSH DECLINING

The data I have from Adobe goes back to Q1 2001, so I took a look at the market segment and platform trends over the last four years:

It’s pretty clear the Digital Imaging & Video segment of Adobe’s market has languished while Creative Professional and Intelligent Documents skyrocketed starting in the fourth quarter of 2003, which is when the first Creative Suite was debuted. It’s also clear that the Intelligent Documents segment was growing well before Creative Suite was released, but that suite’s growth took Intelligent Documents along for the ride to the top.

Adobe keeps track of the computer platforms being used by their customers, and data over the past four years shows a slight but steady decline of the Macintosh platform and increase in Windows platform users. Starting in 2001, the split was 66% to 34%, but at the end of 2005 it is 76% to 24%, effectively placing one more user in front of a Windows box.

NEW FAMILIES FOR ADOBE’S PRODUCTS

A juicy bit of news for users is the announcement of Adobe’s new business segment classifications of its software products, including acquired Macromedia products like Flash and Dreamweaver. This classification structure may give consumers a clue as to what Adobe has planned for the future.

The PDF document that lays it all out is here. A quick outline of the classifications with partial listings of products:

• Creative Solutions (includes Adobe CS2 and video products, and Macromedia Studio 8 products)
• Knowledge Worker Solutions (Adobe Acrobat, Macromedia Breeze and FlashCom Server)
• Enterprise and Developer Solutions (Acrobat Capture and Server, Macromedia Flex and Coldfusion)
• Mobile and Device Solutions (all Macromedia products: FlashCast, Flash Lite and Flash SDK)
• Other (Authorware, Captivate, Contribute, Director, FrameMaker, Freehand, Jrun, PageMaker, Reader, Flash Player & Shockwave Player, PostScript and type products)

The listing of products for the “Other” category is a complete listing, because I think it is the most intriguing part of this arrangement. Many of the down-and-out applications, like Freehand and PageMaker, have been relegated to this category after once serving as flagship products. Macromedia Contribute and Director are also in this misfit pile, which raises the question of why aren’t they included with the Creative Solutions segment. I suspect Freehand and PageMaker will soon go the way of the dodo, and the other products in this category may or may not literally be in limbo.

One aside: being a type fanatic, I actually drool when I think what might have happened if Adobe had acquired Fontographer along with Macromedia’s stable of applications. Perhaps we would have finally had a low-cost, high-quality type creation tool from the folks who brought us computer type to begin with! But of course, Fontlab licensed the software in May and has taken it to version 4.7.1 since then. We’ll never know what an Adobe Fontographer might have been like….

NEW PRODUCT HINTS WERE SCARCE

Most of the questions fielded to Chizen, CFO Murray Demo and COO Shantanu Narayan were from the likes of Citigroup, Prudential, UBS and Piper Jaffray so the numbers were probably more important than the actual products (and I don’t remember anyone asking how to create a drop shadow in InDesign!). But several questions were asked about the new Adobe/Macromedia product bundles, revised product cycles and the future of integrating Macromedia products, and the answers were interesting though clouded by the executives who did not want to reveal too much:

“Expect to see regular product cycles.” Adobe assured everyone that despite the Macromedia acquisition and the deluge of old software to integrate, product cycles will be held to the usual schedule of around 18 months per dot-zero upgrade. This may be a good thing or bad thing, given the feeling among some CS2 users that the suite was released before some components (such as Bridge) were ready.

Expect Macromedia integration to be completed by March 2006. This seems like too large a task to complete so quickly, but Adobe is confident they will achieve it. According to Narayan, the integration process has been going on for some time and the quick conversion of the old Macromedia site was cited as an example of Adobe’s blazing-fast response to the switch.

I have my doubts about this assessment. Strictly speaking, the new Adobe Design Bundle and Adobe Web Bundle are examples of two products glommed together in the same box, rather than an example of true integration—such as editing Flash movies in Illustrator, or exporting Photoshop docs to Flash like PSD2FLA does. Prima facie, true integration has not yet happened. No comment was made as to whether an integrated suite would take place in Creative Suite 3.

Adobe will support Apple/Intel machines and Windows Vista, but will not roll out new products at the same time in order to support them. There were some questions as to whether Adobe would release new versions of their products at the same time as when the Apple/Intel machines and/or Windows Vista would hit the market. That is not how it usually works, and the Adobe execs noted that; Narayan said, “When Vista comes, we’ll support it,” but wouldn’t rework existing applications in order to do so. Developers are working on both sides to ensure applications work with new chips and operating systems, and will continue to adapt on into the next scheduled upgrade.