Microsoft Sees Adobe Trouble Brewing

In addition to including the XPS technology in Office, Microsoft plans to build it into Windows Vista, its upcoming update to its flagship operating system. But to further address Adobe's complaints, Microsoft plans to allow computer makers to remove the ability to read or write XPS files from Windows Vista itself, the Microsoft representative said.

Beyond its attempts to address Adobe's concerns about the PDF and XPS technologies, Microsoft also offered to ship Adobe's Flash and Shockwave software with every copy of Windows Vista. Flash and Shockwave are used for multimedia presentations and, like the PDF format, are widely used on the Web.

Microsoft's decision to remove the PDF creation feature from Office is a slight positive for Adobe, Piper Jaffray analyst Gene Munster said in a research note on Friday. Although the Acrobat family of software accounts for about 20% of Adobe's revenue, it's only the entry-level Acrobat PDF creation software that is likely to be affected by Office's "save as PDF" feature, Munster said.

That entry-level product accounts for just 1% to 2% of Adobe's revenue, said Munster, whose firm has done non-investment banking business for Adobe in the last year.

Investors in both companies appeared to take the potential complaint in stride on Friday. Shares of Adobe closed regular trading on Friday up 28 cents, or about 1%, to $29. Microsoft's stock closed off 6 cents, or less than 1%, to $22.76.

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