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Tickers in this Article: ADBE, GOOG, AAPL, YHOO, SAP
Despite solid first quarter results, investors were spooked over the hit that Japan will inflict on creative software firm Adobe's (Nasdaq:ADBE) near-term operating results. Those with a longer-term view will find the lower valuation a potentially appealing entry point in a firm that continues to grow briskly and fend off larger rivals. TUTORIAL: The Industry Handbook: Overview

First Quarter Recap
First quarter sales jumped 19.7% to $1 billion as product, service, and service and support all witnessed robust trends. Product sales of Adobe's popular creative, interactive and digital software improved 19.7% to account for 82% of sales. Its products help creative professionals design and run websites, video games, mobile applications, animation, and publishing features. Software can be purchased outright or through a subscription, the second of which grew 11.2% to make up 10.3% of sales. Related services and support on its products jumped 33.1% to account for the rest of total sales at 7.7%.

Scaling Up
Software is highly lucrative and scalable once developed. Adobe's first quarter gross profit came in at $920.1 million as total sales costs were only $107.6 million, or just over 10% of sales. Operating expenses were also held in check, rising only 4.2% to help push operating income up 71% to $302.3 million, or an impressive 29.4% of sales.

Interest expense rose but interest expense growth was moderate and pushed net income up by 84.4% to $234.6 million, or 47 cents per diluted share.

Outlook
For the full year, analysts currently project sales growth in excess of 9% and total sales of $4.2 billion. Earnings projections call for profits of $2.28 per share.

Bottom Line
Japan is Adobe's second largest market and the recent hurricane and tsunami caused management to lower its previous second quarter revenue guidance by $50 million. It will also dent near-term earnings and caused the stock to drop as more myopic investors sold the shares.

Given the share price decline, Adobe trades at a modest forward P/E of just under 14. This is a very reasonable earnings multiple given the company has grown sales and earnings at just over 10% annually over the past decade. Tech giants including Google (Nasdaq:GOOG), Apple (Nasdaq:AAPL), SAP (NYSE:SAP) and even Yahoo (Nasdaq:YHOO) remain fierce rivals with competing web and multi-media design software. But so far, none has been able to offer as sophisticated products to steal significant market share from Adobe's loyal base of professional developers across the globe. (To learn how to invest in the technology sector, see Technology Sector Funds.)

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