Adobe Earnings Up, ADBE Stock Down

Adobe Systems Inc. (NASDAQ: ADBE) announced earnings last night after the markets closed and reported EPS of $0.44, excluding items, on revenues of $943 million. Analysts had been looking for EPS of $0.43 and $906 million in revenues.

The company is participating today in an announcement of a new smartphone using the Android operating system from Google Inc. (NASDAQ: GOOG). The phone, called the Droid X, is manufactured by Motorola Inc. (NYSE: MOT) and will be available from Verizon Wireless, a joint venture between Verizon Communications Inc. (NYSE: VZ) and Vodafone Group. Since Adobe’s Flash player was shunned by Apple Inc. (NASDAQ: AAPL) for use on the iPad and the iPhone, support from Google and Android is critical to the continued life of Flash.

Related article: iPad owners disagree with Steve Jobs’ criticism of Flash

For Adobe’s third fiscal quarter, Adobe is forecasting revenues of $950 million to $1 billion and diluted GAAP EPS of $0.32-$0.37. Non-GAAP EPS is forecast to reach $0.46-$0.50. The company also has authorization to re-purchase up to $1.6 billion of its common stock through the end of 2012.

EPS is up, revenues are up, and the forecast is up. So why is the share price off more than 5% today? It’s the Apple Effect. The new Apple Inc. iPhone 4 sold out its first manufacturing run and won’t be available in AT&T (NYSE: T) stores until June 29th. A new Droid phone, even running the new release 2.2 operating system, has a huge hill to climb against the iPhone.

And Adobe is only along for the ride. True the company’s Creative Suite 5 was a big seller after it’s second quarter launch, but if a designer can’t use the product to convert a Flash program to an HTML 5 program that will run on the iPhone, then Creative Suite 5 will soon be on life support.

Even though Android-based phones are selling well and the OS is being adopted by more manufacturers and software developers, nobody is going to bet against Apple. What some see as Apple’s arrogance in denying Flash a place on the iPhone is, in fact, arrogance.

Apple doesn’t believe it needs Flash to succeed with iPad and iPhone and the iOS. This is not a new tack for the company when Steve Jobs is at the helm. Jobs wants to wall off every possible use of the company’s devices with a toll gate that Apple controls.

Market share only became a positive thing at Apple with the iPod. The iPod’s success led to the iPhone and the iPad and may eventually lead to the demise of the Mac. But if Apple can gain share at the same time as it controls the platform, there really is no stopping the company, unless it screws up its iAd advertising platform and hands the mobile ad space to Google.

Adobe, for all the good things about the company’s products, just doesn’t control it’s own fate any more.

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