No doubt about it, Adobe Systems (NASDAQ:ADBE) is an impressively profitable software firm.  Better yet, it is in the early innings of releasing new versions of its key product offerings. Too bad an 800-pound industry gorilla and other industry titans are constantly breathing down its neck.

Last evening, Adobe released second-quarter results that exceeded its own previous guidance. The stock is down slightly as management tempered current enthusiasm regarding April releases of new Adobe and Macromedia creative solutions software. In other words, third-quarter guidance wasn't as optimistic as Wall Street was hoping for, given the strong second-quarter results that saw sales jump 17% and adjusted earnings advance nearly 20%.

Certain analysts suggest Adobe is merely being conservative, as it's unsure how new versions of Adobe Photoshop and Macromedia applications such as Flash, Fireworks, and Dreamweaver will be received by core creative professional customers. But, judging by past company growth, users will openly embrace the increased functionality as they build websites, add graphic effects to photographs, enhance the broadcast quality of videos and film, and "produce professional-quality printed publications."

The 2005 acquisition of Macromedia has allowed Adobe to keep growing sales in the double digits, and judging by second-quarter results, cash flow generation remains impressive -- it came in more than double reported net income. This also means the high P/E ratio shouldn't be as scary to investors, since cash flow multiples are more reasonable.

Investing in Adobe would be a no-brainer if it weren't for the fact that Microsoft (NASDAQ:MSFT) is trying to muscle its way into creative software platforms. Fellow Fool Anders Bylund recently highlighted that Microsoft released Silverlight in April to directly compete with Macromedia Flash. As you might imagine, it also is increasingly offering alternatives to opening and editing files to compete with Photoshop and other Adobe applications.

Adobe must also compete with the likes of Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), and Corel (NASDAQ:CREL), demonstrating how competitive the multimedia and graphics software industry is these days. Fortunately, Adobe can ride the wave of a new product cycle for a while. However, its long-term potential isn't as certain, meaning the share price valuation may not be fully discounting the fact that growth might not be as rosy as investors are currently projecting.             

For related Foolishness:

Microsoft is a Motley Fool Inside Value pick.

Fool contributor Ryan Fuhrmann is long shares of Microsoft, but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.