UPDATE 3-Adobe revenue forecast misses analysts' estimates

Tue Sep 21, 2010 6:36pm EDT

* Q3 EPS, revenue beat Street view

* Q4 revenue outlook below Street view

* Japan, U.S. education markets weak

* Shares fall 15 percent (Adds executive comments, details from call, updates shares)

By Gabriel Madway

SAN FRANCISCO, Sept 21 (Reuters) - Adobe Systems Inc (ADBE.O) gave a lower-than-expect revenue forecast, citing weakness in Japan and the U.S. education markets, and the company's shares fell 15 percent after-hours.

Adobe forecast current-quarter revenue in its creative solutions business, which includes its flagship software package Creative Suite 5, to be flat to down slightly from the previous quarter.

CS5 is a collection of more than a dozen programs for editing photos, videos and sound, creating interactive websites and designing print publications. The package, which was released last spring, includes Photoshop, Illustrator and Dreamweaver.

Adobe Chief Executive Shantanu Narayen said on a conference call with analysts on Tuesday that feedback on CS5 continues to be positive, but noted weaker-than-expected demand in Japan -- it's second-largest geography -- and among U.S. education customers, a key market segment.

"We continue to be bullish about CS5, customer reception has been good. We have to drive revenue by marketing the new features, focusing on the licensing customers," he said.

The company said CS5 revenue is up 15 percent when compared with CS4, but is slightly behind the pace of CS3.

Adobe charges from $1,899 to $2,599 for CS5, or $599 to $899 to upgrade from an earlier version.

"The adoption of CS5 might be slowing down a lot faster than people were expecting," said Morningstar analyst Toan Tran.

"CS5 is their core product, it drives a lot of sales of their other products," he said.

For the fourth quarter, Adobe forecast earnings excluding items of 48 cents to 54 cents a share on revenue of $950 million to $1 billion.

Analysts are expecting a profit of 53 cents a share on revenue of $1.03 billion.

Adobe said net income rose to $230.1 million, or 44 cents a share, for the fiscal third quarter ended Sept. 3, from $136 million, or 26 cents a share, in the year-ago period.

Excluding items, Adobe earned 54 cents a share, better than the average Wall Street estimate of 49 cents a share, according to Thomson Reuters I/B/E/S.

Revenue rose 42 percent to $990.3 million, just ahead of Wall Street's target of $985 million.

The stock has climbed since Apple Inc (AAPL.O) said on Sept. 9 that it would ease restrictions on developing iPad and iPhone applications, a move that should allow for the use of third-party tools such as Adobe' popular Flash software. [ID:nN09180204]

Shares of Adobe closed at $32.94 on the Nasdaq and fell to $27.96 in extended trading. (Reporting by Gabriel Madway; editing by Carol Bishopric)

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