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Adobe's Format for Success

While I was waiting for the batteries in my digital camera to recharge, I read about Adobe Systems' (Nasdaq: ADBE  ) fourth-quarter guidance and the news that fiscal 2005 sales will exceed previous estimates. This good news was on top of the announcement of its deal with Yahoo! (Nasdaq: YHOO  ) to co-brand a new search toolbar.

Adobe raised its fourth-quarter revenue target to about $425 million, up 6% from the company's previous estimate. The software maker also expects earnings up a nickel to $0.43 per share. This would be a 26% jump in earnings from a year ago. Strong sales of the Acrobat suite of products both in the U.S. and European markets are attributed to the upside guidance.

This is good news for stockholders, but it shouldn't be a huge surprise. After all, exceeding expectations has been a pattern with Adobe. For the past several quarters, the software maker has delivered results beyond what the market was expecting. With a forward P/E of 31, Adobe isn't dirt-cheap, but the current price is reasonable for a quality company with dominance in both digital imaging and document programs, plus expanding growth in key software markets.

Adobe has had a string of good news lately. The company unveiled a new digital photo format called DNG, or Digital Negative Specification, which will standardize the current RAW digital formats. Digital camera makers such as Canon (NYSE: CAJ  ) , Sony (NYSE: SNE  ) , and Eastman Kodak (NYSE: EK  ) all use different image processing software to handle RAW formats. Without a universal format standard, Adobe is forced to continually update its No. 1 imaging program, PhotoShop, with new plug-ins from each camera maker to support all of the RAW formats. Over time these software updates get to be expensive and a frustration to shutterbugs like me. This is another step in the company's dominance in editing programs where it competes with products from Microsoft (Nasdaq: MSFT  ) , AppleComputer (Nasdaq: AAPL  ) , and a host of smaller startup companies.

But digital file formats and toolbars are not the only projects under way at Adobe. The software giant continues to set the agenda in both the professional and consumer markets with corporate partnerships. A new consumer deal with Kodak's online photo sharing and printing site gives users of photo editing software the ability to order prints directly from Ofoto within these programs. This type of seamless integration is music to my ears.

Adobe's imaging and document software programs are considered by many (including me) to be the very best on the market. The company's attention to detail and continued improvements in software design are making the world of digital imaging easier and more exciting. I can't wait to see what comes next with this company.

For Foolish talk on digital photography, check outCashing In on Digital Video,Still Building at Adobe, and the ever-Foolishdiscussion boards.

Fool contributor Kelvin Taylor does not own shares of any of the companies mentioned.

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