8:13 AM
BANGALORE | Wed Sep 22, 2010 8:08am EDT
BANGALORE (Reuters) - Shares of Adobe Systems Inc (ADBE.O) fell 21 percent in pre-market trade Wednesday, a day after the software maker forecast soft demand for its flagship software package, stirring analyst concerns about the lack of near-term catalysts to buoy the company's stock.
The company said while demand for Creative Suite 5 (CS5) continued to be positive, sales in Japan and to its U.S. education customers could be weaker-than-expected.
At least three brokerages cut their ratings on Adobe's stock to "neutral."
BofA Merrill Lynch said while it remained bullish about Adobe's Flash product to penetrate mobile markets, growth in core CS5 business appears to be slowing.
BofA previously had a "buy" on Adobe's stock.
Apple recently eased restrictions on third-party tools such as Adobe's Flash software, edging the software maker's shares up in the last two weeks.
Adobe expects current-quarter revenue in its creative solutions business, which includes CS5, to be flat to slightly down sequentially.
UBS, which also had a "buy" rating previously, said it now expects the company to trade at a lower price-to-earnings multiple than it had expected earlier.
The brokerage said it expects investors to reallocate funds and recommended rotation into Oracle (ORCL.O), which has improving trends.
Baird said Adobe's fourth-quarter outlook assumes sequential business declines, which is not the normal seasonal pattern.
Baird, which previously had a "outperform" rating on Adobe's stock, said it expects the CS5 suite to see a normal product cycle unlike CS4, which has been muted by the challenging economic environment.
Shares of the San Jose, California-based company were trading down $6.99 at $25.95 in trading before the bell. They closed at $32.94 Tuesday on Nasdaq.
They have gained more than 8 percent since announcing second-quarter results late June.
The S&P Software & Services Industry Group Index .GSPIS, which includes Adobe's rivals like Autodesk Inc (ADSK.O), Microsoft (MSFT.O) and Oracle, has gained 6 percent in the same period.
(Reporting by Sayantani Ghosh in Bangalore; Editing by Roshni Menon)
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