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Apple's Play Isn't All Sunshine for Adobe

Apple still hasn't budged on the issue that would justify big Adobe stock gains from an Apple announcement.

NEW YORK (

TheStreet

) --

Adobe

(ADBE) - Get Adobe Inc. Report

is suddenly exciting to investors.

In the wake of

Apple's

(AAPL) - Get Apple Inc. (AAPL) Report

announcement Thursday that it has relaxed its restrictions on app development for its mobile operating system, Flash maker Adobe has seen its shares soar. At one point, the stock was trading at over $33 per share, representing a gain of nearly 15% in intraday trading. Adobe shares settled to $32.86 on Thursday, tallying a 12% gain on the day.

Investors seem to believe that Apple's reversal worked in Adobe's favor. After all, under the previous development rules, Adobe's Flash couldn't be used to create applications, which would then be ported to iOS. Now it can.

But those that were bullish on Adobe on Thursday missed the mark. Apple is making it easier for developers to use Adobe's development platform, but Apple still hasn't budged on the single issue that might actually justify Adobe's stock seeing such gains from an Apple announcement: Allowing Flash 10.1 to run on iOS.

Even with new development rules in place, iPhone owners hoping to watch Flash-based videos or play Flash-based games from Apple's browser are still out of luck.

Ross MacMillan, an analyst at Jefferies & Co., is suspect of the impact the reversal will really have on Adobe's shares. He wrote in a note that the impact on Adobe products will be "very small." He went on to say that "the reaction on Adobe may be a little over optimistic," and acknowledged that he believes investors "have a sense that the power dynamic is shifting."

But that power dynamic hasn't shifted. Adobe might have won the battle, but the real key to winning the war -- getting Flash to run on mobile Safari -- still seems unattainable.

Thursday's Adobe buyers should also consider other factors that might not make the company the best investment target right now.

During its 2008 fiscal year, Adobe generated $871 million in profit on nearly $3.6 billion of revenue. Those figures dropped sharply in its 2009 fiscal year. During that period, it generated just over $2.9 billion in revenue and a $386 million profit.

Adobe is facing off with HTML5, a standard that has real, and for Adobe, worrisome potential. Not only does Apple support it in its iOS devices, but it also has the backing of

Google

(GOOG) - Get Alphabet Inc. Class C Report

, which is testing the standard on

YouTube

. If Google believes it's viable, it could potentially make HTML5 standard on the world's largest online video destination.

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Also,

Microsoft

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will finally support HTML5 in Internet Explorer 9. That doesn't mean that Flash is out, but now that the world's top browser will soon boast the new technology, Adobe is facing competition on a key platform that it never needed to deal with before. And all that fails to mention that HTML5 is already supported on Mozilla's Firefox browser, as well as Google Chrome.

It's not all bad news for Adobe's Flash platform, though. The company's Flash 10.1 is available on Android 2.2-based devices. The only problem is that Android 2.2 has been slow to get out to consumers. And arguably the most popular Android-based device right now, the

Motorola

(MOT)

Droid X, still doesn't have Android 2.2 running.

But it will. And when it does, it's possible that consumers will find value in Flash and eventually force Apple to invest in it on its own platform.

For now, that seems rather unlikely. Back in April, Apple CEO Steve Jobs made it clear in a statement on his company's site that he doesn't believe Flash is the future. "Flash was created during the PC era -- for PCs and mice," he wrote. "But the mobile era is about low-power devices, touch interfaces and open Web standards -- all areas where Flash falls short."

So while he may have given Adobe a pass with new development regulations, Steve Jobs seems highly unlikely to allow Flash 10.1 to run on the iPhone's browser. And if Apple's support for HTML5 is enough to carry the standard forward, Thursday's victory for Adobe could be a small battle won in a painful war the company will eventually lose.

Adobe was trading down 70 cents at $32.17 in late-morning trading Friday.

--Written by Don Reisinger in New York.

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Don Reisinger has been writing columns and blogs about the technology and video game industries for years. His work appears in some of the tech industry?s biggest publications, as well as in the

Los Angeles Times

, where he blogs about social networking. Follow Reisinger on Twitter @donreisinger.