THE TIMES 100 : THE BEST PERFORMING COMPANIES IN CALIFORNIA : THE BOTTOM LINE : Adobe: Redesigning the Future : Software Outfit That Virtually Invented Desktop Publishing Enjoys Explosive Growth

Frustrated by the slow pace at which Xerox brought out new products, John E. Warnock and Charles M. Geschke six years ago left Xerox’s Palo Alto Research Center and struck out on their own.

Backed by Hambrecht & Quist, a high-tech venture capital firm, the two technical wizards borrowed the name of the creek that ran in back of their homes in Los Altos, Calif., and created a software company that has become one of the wonders of Silicon Valley.

Adobe Systems, based in Mountain View, has nearly doubled its sales every year. From $2.5 million in 1984, the company has grown to $83.5 million in revenue in 1988. On The Times 100 list, the company scored third with a two-year average return on equity of 55.2%.

Like other high-tech counterparts at the top of the list, Adobe made its debut on The Times 100. (The company, which went public in 1986, did not meet the criterion for public ownership for inclusion on last year’s list.) And like Chips & Technologies, which emerged as No. 1, Adobe’s success has come primarily from one product that dovetailed with a pressing need that had not previously been met.

Simply put, Adobe’s PostScript software made desktop publishing possible by enabling laser printers, typesetting equipment and other such devices to produce pages integrating text and graphics. The product has become indispensable for advertising agencies, packaging designers, newspaper art departments and businesses that publish their own brochures and reports.

Today, 80% of the company’s sales come from royalties on the product.

“The printing solutions that we’ve brought to the market give you enormous productivity over traditional typesetting,” said Warnock, 48, Adobe’s chairman and chief executive. “It’s a cost-benefit thing.”

Customers include most big computer and printer makers, such as IBM, Hewlett-Packard and Digital Equipment Corp., Ricoh, Canon and Fujitsu. An important partner is Apple Computer, which uses the product extensively for its Macintosh and Apple LaserWriter and accounts for 25% of Adobe’s sales. It also holds 17% of the company. Apple founder Steven Jobs has also licensed the product for his Next line of computers.

Adobe is also finding markets for other software programs. With Display PostScript, graphic elements can be rotated, scaled, skewed or otherwise adjusted on the screen. The company also has put together collections of more than 300 Roman typefaces, as well as two Japanese Kanji fonts that could prove a boon to the company if Japanese demand explodes.

Earlier this year, Q. T. Wiles, a 69-year-old general partner at Hambrecht & Quist, resigned as chairman of Adobe. But, analysts point out, he had little hand in the day-to-day operations and, with Warnock and Geschke in place, the management team is intact.

“Thus far, they’ve done an outstanding job,” said Bruce M. Lupatkin, senior technology analyst with Hambrecht & Quist in San Francisco.

Given their near-monopoly, however, they should be prepared for “assaults from all sides” as other companies might try to seize some of their lucrative business, Lupatkin said. “Copyright and patent law are never strong enough” to protect intellectual property, Warnock acknowledged. The company is lobbying with the U.S. Copyright Office to get some protection for typeface designs, which have no protection under current laws.

Meanwhile, Warnock noted, the annual doubling of revenue is undoubtedly a thing of the past. Analysts project 1989 sales at $120 million or so, still a sizable increase. But Adobe could be vulnerable as growth in the computer business slows from the heated pace of 1988.

Warnock is mindful that high-tech success stories can sour in a hurry. “In the computer business,” he said, “if you ever think you have a formula for success, you’d better figure out how to change it from year to year.”