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Adobe Dented as Microsoft Mentions Competition

Updated from 5:01 p.m. EDT

Shares of Adobe Systems (ADBE - Get Report) sank Wednesday after Microsoft (MSFT - Get Report) unveiled a potential rival to Adobe's Acrobat product line. The jury is still out, however, on the magnitude and timing of the competitive threat.

On Wednesday, Microsoft CEO Steve Ballmer announced plans to deliver the newest addition to the Office family, called XDocs. But taking advantage of Extensible Markup Language, or XML, XDocs will enable office workers to create forms tapping different types of data from multiple sources and also send data from forms to different parts of a business.

The first version of XDocs is slated for release in mid-2003, about the same time the next version of Office will be launched.

The possibility of XDocs competing against Adobe's Acrobat products, including its portable document format (PDF) and ePaper initiatives, weighed on the Adobe stock. Shares of Adobe declined $1.27, or 6.4%, to $18.70 in heavy trading.

"If you think of PDF the way Adobe would like it to be thought of -- as a final form and also as an intermediate container -- XDocs could rip the lid off PDF as an intermediate container," said David Yockelson, executive vice president and director, electronic business strategies at Meta Group. "XDocs looks like a much more pliable and potentially more powerful way to aggregate pieces of data from places that happen to be spitting out pieces of XML."

However, Yockelson noted that PDF is "pretty XML-friendly," and Adobe is working at adding business integration features through an agreement with German software giant SAP (SAP).

And Adobe is expected to launch a new version of Acrobat in the first half of next year. The company also has been getting more involved in forms management as part of a broader effort to infiltrate the enterprise, Goldman Sachs analyst Steven Kahl wrote in a note Wednesday. The eventual winner, Kahl said, will be whoever can best integrate forms and content creation with broader businesses processes.

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