Michael Vellucci , McIntire Investment Institute, 28 February 2006

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• Michael Vellucci , McIntire Investment Institute,
  28 February 2006

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Agenda for Today

• Adobes Profile
• Investment Theses
• Risks
• Value Added Research
• Discussion, Questions/Comments

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Adobes Key Statistics

• Share price
• As of 11/17/05 33.33
• As of 2/28/06 38.44
• Market Cap 23.06B
• Enterprise Value 21.81B
• 52 Week Range 25.80 - 40.85
• Float 595.49M
• Short Interest 14.29M
• Avg. Daily Vol. (3 mo.) 6,562,090

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Adobe Profile

• Adobe Systems Incorporated (Nasdaq-NM ADBE)
• Incorporated in 1983 in Silicon Valley
• Four segments
• Creative Professional
• Digital Imaging and Video
• Intelligent Documents
• OEM PostScript
• International and Multiplatform

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Creative Professional (CP)

• Audience graphic professionals, web designers,
  production artists, videographers, photographers
• Purpose organize digital and printed information
  
• Line CS, Font Folio, FrameMaker, GoLive,
  Graphics Server, Illustrator, InCopy, InDesign,
  PageMaker

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Digital Imaging Video (DVI)

• Audience graphic designers, photographers,
  webmasters, and audio/video producers.
• Purpose enhance digital video and imagery
• Line After Effects, Audition, Encore DVD,
  Photoshop, Photoshop Album, Photoshop Elements,
  Premiere Elements, Premiere Pro, and Video
  Collection.

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Intelligent Documents

• Develops applications such as Adobe Acrobat
  Professional
• Intelligent Document platform contains three
  components
• Adobe PDF documents
• Adobe Reader
• Document services

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OEM PostScript

• Simple product line
• PostScript and Extreme
• What is PostScript?
• A printing and imaging page description language
  that is universal and cross compatible

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Share Performance
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Share Performance
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Competitors

• Significant Competitors
• Microsoft, Apple, Google, Roxio, Canon, Dell, HP,
  Nikon, Sony, Pinnacle Systems
• Smaller Competitors
• Corel, Mediascape, Quark, TriVista Technologies,
  Ulead Systems, Sonic, Cyberlink, Active PDF,
  Ansyr Technology, eHelp, Global Graphics,
  Scansoft, TeamPDF

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Investment Thesis

• Adobe Thesis Points
• Significant Barriers to Entry for PDF Files
• Tech Globalization (Adoption of Standards)
• Macromedia Acquisition Positive Synergies
• Photoshop CS

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Barriers to Entry for PDF Files

• PDF Portable Document Format
• Has become a universal standard
• Compression algorithms are best in the industry
• Universal free client reader
• Secure and reliable distribution and exchange of
  electronic documents and forms around the world

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Tech Globalization

• Friedmans The World is Flat trend of
  globalization
• Adobe is well positioned to capitalize on the
  flattening of the world with its universal reader
  client and PDF extension.
• PDF documents are intelligent and able to
  communicate with mail servers Further
• Standards set in developed world will migrate
  over to developing world

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Macromedia Acquisition

• Macromedia (MACR) developed competing software
  programs
• Macromedia Studio MX Flash MX and Dreamweaver MX
• Considerable threat to Adobe in web design
• Combination of personnel product line will
  benefit from the sharing of knowledge

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Photoshop CS

• Standard in the graphic industry
• Enterprise play
• Not much individual licensing except for
  universities
• Sustained monopolization
• Learning curve of Photoshop

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Risks

• Decline in Sales / Slower than Expected Growth
• Driven by suite of imaging and intelligence
  documents solutions that are licensed to
  businesses
• Common for businesses to purchase Acrobat,
  Illustrator, or Photoshop licenses
• Adobes success is tied to Acrobat, Illustrator,
  Photoshop and Premiere growth in sales for these
  software titles is particularly crucial for Adobe

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Risks

• Piracy in developing markets China, India, and
  Brazil
• Asian countries are notorious for their blatant
  disregard for intellectual property
• Governments need to adequately adopt just laws
  that strictly prohibit businesses from using
  pirated and unlicensed software.
• Adobe must make sure software in use is licensed
  includes spending more time on activation
  procedures

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TIAA-CREF on Piracy

• Larry Tankel
• Interesting argument
• Adobe is not like MS in that it is an enterprise
  play piracy not as rampant in corporations
• Downside is already built into the market only
  upside and boosted revenue in sales

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Risks

• Prone to loss of market share to smaller
  companies that are able to develop mimicking
  software platforms for fractions of the cost
• Closed sourced software model
• Active PDF, PDFcamp 2.0
• Microsoft Office 12 built in PDF function

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Value Added Research (VAR)

• Rock Creek Creative
• Margaret Johnson, President
• Discussed uses of Adobe applications in her
  enterprise,
• Use Flash MX, Photoshop, DreamWeaver MX and some
  PageMaker
• Good impression of Adobe as a company
• liked the products
• Concern over cost of upgrades and licensing
• Small business constraints
• Overall very positive on the products and
  company.

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Value Added Research (VAR)

• Mark Weisz Designs
• Mark Weisz, Principal
• Uses Flash MX and Freehand MX. Freehand (similar
  to Photoshop)
• Distaste for Adobe products
• few real alternatives in the market
• Prices practically forced to buy and use Adobe
  just
• Overall mixed feelings

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Value Added Research (VAR)

• Eclipse Graphics Company
• Alex, Principal Designer
• Life revolves around Photoshop
• Taken courses and read books
• Comments Loves Photoshop
• Always something more and something new to learn
• Best in the market placethe standard.

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Value Added Research (VAR)

• Rock Creek Creative
• Margaret Johnson, President
• Discussed uses of Adobe applications in her
  enterprise,
• Use Flash MX, Photoshop, DreamWeaver MX and some
  PageMaker
• Good impression of Adobe as a company
• liked the products
• Concern over cost of upgrades and licensing
• Small business constraints
• Overall very positive on the products and
  company.

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Value Added Research (VAR)

• ActivePDF
• Ryan Galvin, Sales Representative,
• Adobe fails to recognize the growing discomfort
  with the expensive products and the gap in the
  market
• Need for those who would like to create PDFs but
  do not necessarily require bells and whistles of
  Acrobat Pro
• This is where ActivePDF capitalizes and is slowly
  taking market share from Adobe.

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Summary

• Well positioned to harness future growth
• Adobe will continue sustained growth and stock
  appreciation over the next 3-5 years.
• Macromedia acquisition will benefit both
  companies
• Drive innovation for both
• Already visible

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Discussion

• Questions / Comments?