Adobe Systems Inc, the maker of Photoshop and Acrobat software, posted the narrowest profit margin in more than 3 years, disappointing investors even though its revenue fell less than analysts had feared.
The company's profit margin, excluding special items, dropped to 33.7 percent from 39.4 percent a year earlier.
Adobe's stock fell 2.4 percent in extended trading.
People were a little disappointed. Usually when they surprise on the top line, you see that trickle down the bottom line, said Janney Montgomery Scott analyst Sasa Zorovic, who has a neutral recommendation on Adobe's stock.
Like many technology companies, Adobe's business fluctuates with the economy. Its revenue has been declining as creative professionals who use its design programs cut back on software purchases.
Sales of those programs, which so far this year have accounted for 59 percent of Adobe's revenue, are also suffering because customers have not embraced the latest version, which Adobe put out late last year.
It didn't have the must-have features that would compel an upgrade in a challenging economic climate, said Edward Jones analyst Andy Miedler.
Analysts are betting that customers will skip buying the current set of programs for creative professionals, dubbed CS4, and wait for the next version, which they expect to come out in the middle of next year.
Adobe reported second-quarter profit, excluding items, for the period ended May 29 of 35 cents, in line with analysts' average forecast, according to Reuters Estimates.
Revenue at the company, whose chief rivals are Microsoft Corp and Apple Inc, fell 21 percent to $705 million, beating the average forecast of $695 million.
Net income fell to $126 million, or 24 cents, from $215 million, or 40 cents, a year earlier.
It forecast third-quarter profit, excluding items, of 30 cents to 37 cents, on revenue of $665 million to $715 million. Analysts expect a profit, excluding items, of 33 cents on revenue of $677 million.
Adobe's stock fell to $27.50 in extended trading after closing 2.3 percent lower at $28.17 on Nasdaq.
(Reporting by Jim Finkle; Editing by Richard Chang)