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Adobe Grows Revenues, Subscriptions to Debut

Adobe(NASDAQ:ADBE) is starting 2011 with record revenues as new products and services are set to debut over the course of the year.

Adobe's CEO also hinted at a future subscription based offering that could shift the company away from the current shrink-wrapped model of boxed software sales. Adobe's leadership however tempered expectations for the company's second quarter, over concerns related to the current situation in Japan.

Adobe reported first quarter fiscal 2011 revenue of $1.028 billion, a 20 percent year-over-year increase from the first quarter of 2010. Net Income was reported at $234.6 million, an increase over the $127.2 million reported in Q1 of fiscal 2010. Moving forward Mark Garrett, executive vice president and CFO of Adobe provided second quarter fiscal 2011 guidance for a revenue range of $970 million to $1.02 billion. The second quarter guidance is being impacted by the current situation in Japan, which is Adobe's second largest country from a revenue perspective.

"If you look at our first quarter for Japan, it was seasonally strong, just as we had expected," Garrett said during Adobe's analyst call. "If you look at it, March, which falls in our Q2, is the largest month of the year for us in Japan. And the first week of Q2, prior to the earthquake, was really strong, so we got off to a great start in the second quarter, as we expected. But there is no doubt that the pace of the revenue has changed since the earthquake."

Adobe's President and CEO, Shantanu Narayen noted during the call that during the first quarter of 2011, his company announced the general availability of the Adobe Digital Publishing Suite. He explained that the new product offering is a solution to create, distribute, monetize and analyze digital content including magazines, newspapers and corporate publications. A key part of the Digital Publishing Suite is its ability to publish to mobile devices including Android tablets. Narayen said that the plan is to enable the platform to publish to Apple iOS and RIM PlayBook devices in the future.

Also during the first quarter, Adobe debuted its Wallaby Flash to HTML5 conversion technology. Wallaby is an important technology for Adobe as Apple continues to ban Flash from iOS devices.

"One of the pillars of our content authoring strategy is to continue to invest in HTML as a key part of our tools portfolio, and we made a Flash-to-HTML converter available last month," Narayen said. "We anticipate this tool can be used by Flash designers and developers to extend their work in Flash to platforms that do not yet support the Flash Player."

Looking forward, Narayen said that Adobe is planning a mid-cycle update to its flagship Creative Suite 5 (CS5) content authoring platform..

"The mid-cycle release will start to focus on both integration of the Creative Suite with the Digital Publishing Suite," Narayen said. "There will be a fair amount of video production features that are going into that release as well as more capability, both for Flash and for HTML."

The CS5 product suite is currently available as a boxed product. Adobe is now also looking at offering a subscription model at some point in the future to help grow its market share.

"The subscription would really be a new offering from Adobe on a worldwide basis and the goal there is to allow new customers to use the Creative products sort of on a pay-as-you-go basis," Narayen said. "What we found in the early reports is that it's really valued by customers who seek flexibility and affordability of the monthly payments, and it attracts new customers who otherwise would not buy."

"We do think it's an opportunity to, frankly, target customers who haven't stayed current with CS4 or CS5," Narayen added.

Sean Michael Kerner is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.