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Tickers in this Article: ADBE, OMTR, GOOG, AAPLE, IBM
Software provider Adobe Systems (Nasdaq:ADBE) reported third-quarter earnings earlier this week that saw sales and earnings growth suffer in sympathy with a global slowdown in business and advertising activity. This clearly affected Adobe's customer base of creative professionals, but not its overall profit levels. The key question is whether these current tepid trends are fully built into Adobe's share price. IN PICTURES: 8 Tips For Starting Your Own Business

Recent Results
Reported revenue fell 21.4% to $697.5 million as sales fell in each segment. Creative solutions, which helps creative professionals with graphic design and similar tasks, posted an 18.9% decline to account for just over 57% of total revenue. Business productivity constitutes the other major segment and includes the flagship Adobe Acrobat franchise. Sales in this segment fell nearly 26% to account for just over 30% of the total. Management cited stable yet tepid top-line trends in its Americas geographic segment (51% of sales) with continued weakness in Europe (28%) and better-than-expected in Asia (21%). (Learn more about how analyzing segment data can be more useful to the investor in The Importance of Segment Data.)

Cost-cutting moves helped reduce product, service and support costs by 41.3%, while other operating expenses fell 16.5%. This held the 23.6% fall in operating income to $167.6 million. Share buybacks also helped the reduction in the bottom line, but reported earnings still fell 25.7% to 26 cents per diluted share.

Acquisition Announced
Adobe also announced it will be acquiring Omniture (Nasdaq:OMTR) for $1.8 billion. Omniture is involved in web analytics that help clients monitor web usage and use the stats to drive traffic and advertising trends. Adobe doesn't expect much for synergies, but likes the ability to diversify revenue and add a fast-growing - though low-profit - business with plenty of potential.

Adobe's Advantages
The Omniture purchase isn't a game changer but it is significant as it accounts for about 10% of Adobe's total market capitalization. And while total revenue trends are coming in negative and analysts project an 18.9% fall in full-year sales, Adobe remains a profit machine and posted third-quarter net margins of about 20%, which is impressive as many of its services are also offered by rivals including IBM (NYSE:IBM), Google (Nasdaq:GOOG), and even Apple (Nasdaq:AAPL). A number of these competing services are even free but many fail to offer the multitude of services that Adobe's installed user base has come to count on.

Bottom Line
The stock is a bit too rich for my tastes at a 21 times forward P/E multiple. But debt levels remain minimal and the firm continues to throw off prodigious amounts of free cash flow. I would be much more interested in the shares in the low $20s, though current bullish market sentiment suggest that a move back to 52-week lows is unlikely.

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