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On Adobe's (ADBE) Fiscal 3Q conference call, executives discuss the impact of Microsoft's (MSFT) Vista and PDF.

Joseph [Bory] - Deutsche Bank

The first question we have here is just trying to understand... how the Microsoft Vista launch is going to affect yourself. What is going to be more important, the fact that some PC OEMs will be packaging Adobe applications together with Vista, or maybe there’s going to be more traction in the quarter following the Vista launch? Can you help us there a little bit?

Bruce Chizen: CEO

Unlike the migration from the Macintosh G5 and G4 chips to Mactel, the migration from Windows XP to Microsoft Vista for our customers will be a much more seamless migration. Fortunately, based on everything we know today, based on the betas that we received from Microsoft, the current version of the Adobe products will work just fine in a Vista environment, so that is less of an issue for us.

What we suspect is the early adopters of Vista will be consumers, people who are buying new CPUs. The bulk of our revenue is dependent much more on business people than on consumers, per se.

Joseph [Bory] - Deutsche Bank

Okay, that makes sense. If I’m allowed, I’ll ask a follow-up question on Microsoft. We saw recently in the press that Microsoft is going to make available an add-on to enable Office 2007 to save as PDF. Can you update us on what is the status of your discussions with Microsoft on that topic?

Bruce Chizen

Yes, first of all, the news that you recently read is not new news. That is something that Microsoft talked about a few months ago. Fortunately for Adobe, we have for many years been anticipating the creation of PDF to becoming much more of a commodity. Over the last number of years, we have been adding capabilities into Acrobat, like digital signature, like highlighting, like annotations, like forms and other collaboration features that makes the value creation of Acrobat, or the value of Acrobat, much more than just PDF creation.

In fact, when you look at our product line today, we have three products in the family -- actually, four. We have Acrobat 3D, which is the high-end product. We have Acrobat Professional. We have Acrobat Standard, which is a base level product, and then we have something called Acrobat Elements, which is PDF creation only. When you look at the revenue of those four products, Acrobat Elements is a very, very tiny portion of the overall revenue percentage -- certainly significantly less than 5% of our overall business, probably closer to 1% or 2%.

So we think that the impact of Microsoft doing PDF creation in their applications or in their operating system is not a major risk to Adobe. There is one caveat to that, which is Microsoft is a monopoly and obviously, if they unfairly take advantage of their monopoly, that could be a risk for Adobe...

Michael Mankowski - Tier 1 Research

Thank you for taking my call. Have you seen any change in the competitive environment, whether it is Microsoft or maybe even Corel? Any commentary there, please?

Shantanu Narayen: President, Chief Operating Officer

We continue to make sure that we look at all competitors that we have in our space. Certainly as it relates to our creative products, as we continue to provide creative features and better integration, that is what we continue to believe will be our differentiation. I think it is our breadth of our products in that particular space which turn people to Adobe for solutions.

Microsoft is always going to be a competitor in many areas, but I think we have also demonstrated that we know how to compete effectively with them as we continue to innovate in our products, and I think Bruce talked earlier about the fact that depending on what Microsoft does, they are a competitor that we have to continue to pay attention to.

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    Source: Adobe: Microsoft's Vista, PDF not a Threat