Tech Malaise Hits Adobe

The funk in technology spending that’s hit hardware bellwethers including Intel and Cisco Systems is starting to reach the software sector too. Adobe Systems is cutting 600 jobs, or about 8% of its staff, and lowering its sales outlook for the next two quarters.

Adobe, which makes the popular Photoshop, Flash, and Acrobat software, said on Dec. 3 it would take pre-tax charges of $44 million to $50 million for the layoffs, including $28 million to $30 million in the fourth quarter that ended Nov. 28.

Shantanu Narayen, who’s been CEO for a year, said in a statement that weak demand for Adobe’s Creative Suite 4 software that started shipping in October is behind the sales shortfall. A company spokeswoman wouldn’t elaborate on who’s stopped buying—more details will come on the company’ conference call with analysts Dec. 16, she says. But the new Creative Suite, which includes Adobe’s Photoshop and Illustrator software, is aimed at graphics pros who work at magazines, ad agencies, and other media houses—not exactly the types of businesses that are flourishing these days. Trip Chowdhry, an analyst at Global Equities Research, has another theory. He wrote in a Dec. 3 research note that 2007’s Creative Suite 3 was Adobe’s first version of that product written expressly for Intel-based Macs, which means Apple-happy designers already got the technology they wanted last time around.

Adobe now expects fourth-quarter sales of $912 million to $915 million, chopping $40 million off the high end of its guidance. The forecast also fell about $15 million below Wall Street’s expectation of $930 million in fourth-quarter sales. Earnings may come in at 45 cents or 46 cents per share, vs. analysts’ expectation of 51 cents. Yet two favorable tax items will actually left Adobe’s diluted earnings per share, the company said. The software maker also took an axe to its first-quarter forecast, targeting $800 million to $850 million in sales, vs. Wall Street expectations of $931 million.

The announcement comes amid a spate of new layoffs in American business. AT&T on Dec. 4 said it would cut 12,000 jobs, or 4% of its workforce. DuPont, Credit Suisse, and Viacom also announced job cuts. And the bad news in the tech sector keeps coming: Chipmaker Advanced Micro Devices on Dec. 4 sliced its sales forecast, saying fourth-quarter revenues would be about $300 million below Wall Street’s expectations.

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