Adobe to shut China R&D as sour business climate bites

BEIJING (Reuters) - Computer software maker Adobe Systems Inc will shut its Chinese research and development arm, as U.S. technology firms face an increasingly hostile government in the world’s second-biggest economy.

Adobe company logos are seen in this picture illustration taken in Vienna July 9, 2013. Picture taken July 9, 2013. REUTERS/Leonhard Foeger

The California-based company will maintain its China sales offices, Adobe said in an e-mail to Reuters on Wednesday, but research and development (R&D) operations will cease by the end of December.

Lay-offs have already begun and will affect more around 300 people, a person familiar with the matter told Reuters.

Foreign companies, particularly U.S. technology firms, have come under increasing scrutiny in China as Beijing pushes hard on information security in the wake of last year’s cyber espionage revelations by former U.S. National Security Agency contractor Edward Snowden.

The government has also ramped up investigations into foreign companies operating in China, wielding a 2008 anti-monopoly law to probe numerous firms’ local practices. Western business lobbies have labeled the tactic as protectionism.

“The overall climate in China against Western enterprises has been quite negative and that’s one of the major reasons,” said the person, who declined to be identified because of the sensitivity of the issue.

The closure of Adobe’s China R&D arm is also affected by rampant software piracy in the country, as well as the company’s shift toward a cloud-based software-as-a-service business model and away from one-off boxed sales of software and licenses, the person familiar with the situation said.

“Adobe’s presence in China will be focused on market development activities moving forward, and it will be dissolving and closing its research and development (R&D) branch there,” the company said. “Adobe will maintain its sales presence in Shanghai, Beijing, Guangzhou, Shenzhen, Hong Kong and Taiwan.”

Other U.S. technology firms which have drawn the ire of China’s government include software giant Microsoft Corp and chipset maker Qualcomm Inc.

Microsoft is the target of an anti-trust investigation for suspected issues concerning its Windows operating system and Microsoft Office. The probe has been described as “Kafka-esque” by experts because of Microsoft’s negligible revenues in China due to piracy.

Last week, Adobe reported its worst quarterly revenue for Asia in the last five years. For the three months ended August 29, sales in Asia fell 25 percent to $148.2 million.

Editing by Ryan Woo