Analyst Conference Summary

conference date: December 16 , 2008 @ 2:00 PM Pacific Time
for quarter ending: November 28, 2008 (4th quarter fiscal 2008)

But I use Adobe products
Forward-looking statements

Overview: Managed record Q4 income despite economic downturn. Exceeded their profit targets. But compared to the past, revenue growth was anemic.

Basic data (GAAP) :

Revenue was $915.3 million, up 3% sequentially from $887.3 million, and up 0.5% from $911.2 million year-earlier.

Net income was $245.9 million, up 28% sequentially from $191.6 million, and up 11% from $222.2 million year-earlier.

Earnings per share (EPS) were $0.46, up 31% sequentially from $0.35 and up 21% from $0.38 year-earlier.

Guidance:

Financial targets for Q1 2009 are: revenue of $800 to $850 million; 26% to 28% GAAP operating margin, or 37% to 38% non-GAAP. Share count 530 million to 534 million. 24% tax rate. GAAP EPS target $0.30 to $0.35, non-GAAP $0.43 to $0.47.

Conference Highlights:

Profit margins were achieved through disciplined expense management. Expects 2009 to be a challenging year, but believes long-term trends will drive growth.

Creative Suite 4 (CS4) $508.7 million revenue. 11% decline y/y. But response to CS4 has been excellent; short term adoption has been muted by economy. 20% worse than equivalent CS3 launch period.

Business Productivity (Knowledge Worker and Enterprise) revenue $278.0 million, up 13%. Knowledge Worker $199.0, up 4%; Enterprise $79.0 million, up 45% y/y. LiveCycle achieved 45% y/y growth.

Mobile & Device Solutions $48.2 million, up y/y. Will become part of Platform segment in 2009.

Platform $28.4 million. Flash Player 10 released. Will include Print in 2009.

Non-GAAP numbers: operating income $374.9 million; net income $320.9 million; EPS $0.60. Operating margin 41.0%

GAAP operating margin was 29.8%.

Products revenue was $864.5 million, services revenue $50.8 million.

Cost of revenue was $86.4 million, leaving gross profit of $828.9 million. Operating expenses of $555.7 million include $153.1 for R&D, $275.9 for sales and marketing, $80.1 for general and administrative, $29.4 million in restructuring charges, and $17.0 million for amortization. Leaving (GAAP) operating income of $273.2 million. Net non-operating income was $3.1 million. Income tax provision $30.4 million.

The balance sheet held $2.02 billion in cash and short-term investments. Receivables climbed to $467 million. Long term debt is $350 million. Cash flow from operations was $338 million. Repurchased 6.2 million shares in quarter. Inventory ended within policy.

7534 employees at end of quarter.

Q&A:

Mobile Segment guidance? $10 to $12 million for first quarter, drop due to move to OpenScreen project, so royalty revenue will go away.

Normal seasonality in 2009? Limited visibility, but revenue should be relatively similar in Q1 and Q2, a dip in Q3, and then back up in Q4.

Could CS4 just not be that interesting compared to CS3? No. Productivity features for workflow are very attractive. We need to drive demand generation. Impact is primarily on shrink-wrapped side. We have done better with licensing.

Will all 2009 be as bad as your Q1 guidance? We tried to be prudent about Q1 guidance, other than that it depends on the economy because we are doing great at execution.

Can you preserve your margins if demand tracks down? We took quick action on restructuring. Now we have to focus on driving revenue. We will continue to monitor the business and keep expenses low.

Buy backs going forward? We are pleased with our share repurchase program, and believe it is the best way to return excess cash to shareholders. We will continue to buy back to offset dilution.

Mobile business? A lot of the OEMs burned through prepaids faster than we thought, so we did some renewals earlier than we thought. Revenue in this segment will tail off during year.

Advertising expense effect on margins? Our customer database is great, our marketing will be targeted. We have been cutting back on events expense.

Price increases still planned? Yes, feedback is suites deliver good value.

Acrobat business? Pleased that we are driving revenue and adoption. Licensing is driving a big part of the revenue, it is the shrink business that is impacted.

Time of impact of restructuring? Some is in our Q1 guidance, some will come later in the year. Most headcount reductions began at the beginning of December.

Publishing industry issues? CS4 is at top of their purchasing lists, but economy is weighing on them. As they migrate from print to Web or video, we are ready to help them.

Lack of access to iPhone? We are on many other smart phones and will expand that in 2009.

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