Yesterday Adobe announced it would be laying off 600 employees worldwide, which represents, according to published accounts, 8 percent of the workforce. Reports suggested that Adobe was a victim of the overall economic slow down and the lower than expected earnings were due to selling fewer copies of the new Creative Suite 4 (CS4).
Could Adobe, a large company with a loyal customer base and full control of the creative and web development software market, be technology's version of a canary in coal mine? It's hard to say with any certainty, but it doesn't bode well for the first half of next year.
First, a Look at the Numbers
Although everyone is focusing on the layoffs, it seems all the numbers were actually not that bad. According to a San Jose Mercury News article on the announcement, the layoffs were only part of the picture. The company made money, lots of money, just not as much as they thought they would. According to the article the numbers work out like this:
[Adobe] said it expects to report sales between $912 million and $915 million for its fourth quarter, which ended Nov. 28. That is slightly higher than the $911 million in sales reported for the same period last year, but less than the company's target range of $925 million to $955 million.
Adobe said it expects earnings per share to be 45 to 46 cents, which is better than its target range of 39 to 41 cents, thanks in part to a favorable settlement in a tax-court dispute and an accounting "catch-up" related to reinstatement of the U.S. research and development tax credit.
So Adobe is actually increasing the earnings per share. It seems the key point here is that because of lower than expected CS4 sales, the company failed to meet its revenue projections, but benefited from some one-time accounting tricks, all of which suggests a softening market, but does it warrant a reaction like laying off 600 people? Chances are, Adobe sees it as a bad sign and felt a work force reduction might help ease the economic crunch for the short term.
What Happened to CS4?
Although I've yet to load CS4, I have been briefed on it and by all accounts it looks like a decent upgrade increasing the inter-departmental collaboration features and more tightly integrating the programs in the suite to simplify and streamline the creative process. But everyone has been affected by the economic meltdown that has happened over the last several months. Just as consumers in general are holding back on larger purchases, so it seems are enterprises which just like everyone else are frightened of the great unknown future and want to undertake some belt tightening as a hedge against what could happen.
For many companies, that means looking for ways to reduce budgets and cut back on expenses. At some companies, just as at Adobe, that means reducing the workforce, while for others it might mean holding back on all software upgrades until management feels a bit better about the state of the economy.
Like every aspect of the economy, Adobe appears to be a victim of our economic crisis of confidence. We have become tentative. Even if the upgrade is worthwhile, companies sense it may be better to hold off for a bit, see how things go. It's natural and understandable, but until we come out of this downward spiral and start doing some buying, I'm afraid we are going to be seeing lots of announcements just like this one.