Adobe Systems Issues Q4 Intra-Quarter Update; Company Updates Q4 Guidance and Issues Fiscal 2002 Growth Targets.

Business Editors/High-Tech Writers

SAN JOSE, Calif.--(BUSINESS WIRE)--Oct. 30, 2001

Adobe Systems Incorporated (Nasdaq:ADBE) today announced that based on lower than anticipated revenue achieved thus far in its fourth quarter of fiscal 2001, it is lowering its revenue and earnings per share targets for the quarter.

The Company now expects Q4 revenue to be between $275 and $285 million, with pro forma earnings per share between $0.20 and $0.22. Prior targets, which did not factor in the potential economic impact of the events on September 11, were revenue of $310 to $320 million, and pro forma earnings per share of $0.27 to $0.28.

"At this point in the quarter, it is clear that the economic impact from events of the past two months is having an adverse effect on Adobe's business," said Bruce R. Chizen, president and chief executive officer of Adobe. "In particular, we have seen greater weakening in our business in October, especially in the U.S. and Japan."

Adobe also announced that, based on current economic trends and in preparation for fiscal 2002, it will realign its workforce this quarter. This will result in a staff reduction of approximately 150 people, or 5 percent of its worldwide employees. The restructuring will include a charge of approximately $8 to $10 million in the fourth quarter.

"We will continue to balance the need for short-term profitability with the necessary investment for long-term growth," added Chizen. "Although we will reduce our total headcount, we will continue to selectively hire in critical areas such as research and development to fuel future growth opportunities."

Company Provides FY2002 Targets

Adobe also announced its targets for fiscal 2002, which begins December 1, 2001. The Company is targeting revenue of $1.3 billion in fiscal 2002, or approximately 4 to 5 percent year-over-year growth.

The Company said that it would modify its business reporting segments beginning in fiscal 2002 to reflect the way it will manage its business. A newly named Graphics segment replaces the former Web Publishing segment and includes Adobe Illustrator. Adobe GoLive and the Web Collection will be reported in the Cross-media Publishing segment. Based on its new segment definitions, the Company stated it is targeting the following for revenue in fiscal 2002:

ePaper Solutions segment: 15 percent year-over-year growth

Graphics segment: 5 percent year-over-year growth

Cross-media Publishing segment: 5 percent year-over-year decline

OEM PostScript and Other segment: 15 percent year-over-year

decline

As a percent of revenue, the Company is targeting FY2002 expenses as follows:

Research and development: 20 to 21 percent

Sales and marketing: 34 to 35 percent

General and administrative: 9 to 10 percent

In addition, the Company is targeting gross margin of 93 percent, other income of $4 million per quarter, a tax rate of 32 percent, and a share count increase of 2 million shares per quarter in fiscal 2002 based on the final share count at the end of fiscal 2001. These targets yield a pre-tax operating profit margin of 28 percent and a pro forma earnings per share target of approximately $1.03 in fiscal 2002.

The Company plans to discuss details about this update at its Fall Financial Analyst Meeting, which will be held today in San Jose, California. The analyst meeting will be broadcast live from Adobe's Website (http://www.adobe.com/analystmeeting) beginning at 2:00pm Pacific Time. The Company plans to report its fourth quarter fiscal 2001 results on December 13, 2001 after the market closes.

This press release contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: adverse changes in general economic conditions in any of the countries in which we do business, including the recent slow-down affecting the U.S., Europe, Japan, and potentially other geographic areas; continuing adverse economic impact of the recent national tragedy on September 11, 2001; delays in shipment of our new products and major new versions of existing products; weakness in the professional web layout and web animation markets; lack of market acceptance of new products and upgrades; the ability to complete workforce reductions in a timely manner; introduction of new products by major competitors; weakness in demand for application software and printers; lack of growth in worldwide personal computer and printer sales and downward sales price adjustments; renegotiation of royalty arrangements; consolidation in the OEM printer business; ongoing weakness in our printing business due to product transitions; industry transitions to new business and information delivery models; and market risks associated with our equity investments. For further discussion of the risks and uncertainties, readers should refer to the Company's SEC filings including the 2000 annual report on Form 10-K and quarterly reports on Form 10-Q filed by the Company in 2001.

About Adobe Systems Incorporated

Adobe Systems Incorporated (www.adobe.com) builds award winning software solutions for Network Publishing, including Web, print, video, wireless and broadband applications. Its graphic design, imaging, dynamic media and authoring tools enable customers to create, manage and deliver visually-rich, reliable content. Headquartered in San Jose, Calif., Adobe is the second largest PC software company in the U.S., with annual revenues exceeding $1.2 billion.

Adobe, ePaper, and the Adobe logo are trademarks of Adobe Systems Incorporated.