Shares of Adobe Systems ( ADBE) hit their lowest levels in more than three years Thursday after three analysts downgraded the stock in response to reduced third-quarter guidance a day earlier.

Shares of Adobe fell $6.22, or 26%, to $17.74 in recent trading. That was the lowest intraday for the maker of publishing software since May 1999. On Thursday, San Jose-based Adobe was the top loser among U.S. software stocks with trading at almost three times average volumes.

Analysts from Goldman Sachs, Merrill Lynch and UBS Warburg cut their ratings on Adobe Thursday morning in response to the company's lower guidance Wednesday for the third quarter, which ends Aug. 30.

With four weeks left in the fiscal third quarter, Adobe said in its intra-quarter business update that it is lowering its revenue target range to between $270 million and $290 million from its previous range of $300 million to $320 million. The Silicon Valley-based software maker, whose top products are Adobe Acrobat and PhotoShop, said third-quarter pro forma earnings are targeted at 18 cents to 23 cents a share, down from the original target of 24 cents to 27 cents.

Both targets fell below Wall Street estimates. Analysts polled by Thomson Financial/First Call were expecting Adobe to earn 25 cents a share on $309.8 million in revenue in the third quarter.

Adobe blamed the shortfall on lower-than-expected revenue in July across all of its business segments and geographic markets, with particular weakness in Europe and Japan.

Goldman Sachs analyst Steven Kahl said he was downgrading to a market performer from market outperformer because he does not believe the company's core business will have enough stability to expand its ePaper division. His firm expects to receive, or intends to seek, compensation for investment banking services in the next three months from Adobe.

Kahl said a drop in the stock price is likely to mean an attractive valuation on a historic basis, but said he expects growth to be limited. In fact, according to his new forecast of 94 cents in earnings per share in fiscal year 2002, the stock was trading Thursday at a P/E ratio of just under $19. That compares to a historical low P/E of 12 in 1998 and a high of 89 in 2000.

Kahl and other analysts said the weakness reported by the company was surprising because the latest version of PhotoShop rolled out internationally at the end of the second quarter. PhotoShop 7's earlier launch in the U.S. proved to be one of the few bright spots in the second quarter, but analysts said Adobe has now indicated that PhotoShop performed at the low end of expectations for the third quarter.

UBS Warburg analyst Benjamin Reitzes said he was lowering his rating on Adobe to buy from strong buy and lowered his estimates because of weakness in both international and ad markets.

Reitzes said he believes Adobe's issues are more cyclical than company specific but added that the creative professional customer, which he estimates accounts for 50% to 60% of sales, seems to be under more pressure than anticipated. His firm hasn't done any banking business with Adobe.

Analysts also suggested Adobe has been hurt by other factors outside its control. That includes slower-than-anticipated adoption of OS X by Mac users and Microsoft's new licensing model, which may have taken reseller attention away from Adobe.

Reitzes, however, said his buy rating reflects his view that shares could rally into the launch of a new version of Acrobat in spring 2003. U.S. Bancorp Piper Jaffray analyst Gene Munster suggested excitement for the next version of Acrobat could start building in October or November. Munster's firm hasn't done any banking with Adobe.

Merrill Lynch analyst Jay Vleeschhouwer lowered his intermediate rating to neutral from strong buy but maintained his strong buy long-term rating. "We are disappointed about the poorer intermediate outlook, though we retain our regard for the multiple attributes of its product leadership, profitability and long term strategy, especially for Acrobat and other newer products," he wrote in a note.