Citrix Systems (CTXS)

• Article
• Discussion
• Edit
• History
• Bookmark

See all 4 Bulls Reasons Bulls: Reasons To Buy Great New Technology 0% agree Great New Technology The new Citrix orchestration technology, known as Workflow Studio, is designed to tie together the company's application delivery solutions and integrate them with users' existing technology components. Workflow Studio is built on Microsoft .NET, PowerShell and Windows... read more View or Edit Reason 0 votes 0% agree Real time collaboration drives phenomenal growth in Citrix Online 0% agree Real time collaboration drives phenomenal growth in Citrix Online Growth in the real time collaboration market has driven phenomenal growth in the Citrix Online segment, and the market appears to still be growing. View or Edit Reason 0 votes 0% agree Citrix's acquisitions move company closer to fully virtualized desktops 0% agree Citrix's acquisitions move company closer to fully virtualized desktops Citrix's acquisition of XenSource and Ardence allow it to integrate operating system virtualization and streaming; combined with application networking software, the new application set moves the company closer to being able to offer a fully virualized streaming desktop... read more View or Edit Reason 0 votes 0% agree See all Bears Reasons Bears: Reasons To Sell Microsoft Vista functionality custs into Citrix revenues 0% agree Microsoft Vista functionality custs into Citrix revenues The Windows Vista effect, incarnated through the inclusion of certain centralization functions that are offered by Citrix with Windows Enterprise Server, could remove enterprise user incentive to shop to centralization software, thus cutting much of Citrix's revenues. View or Edit Reason 0 votes 0% agree Citrix's lack of user-friendliness has negative impact on revenues 0% agree Citrix's lack of user-friendliness has negative impact on revenues Citrix's application networking software is not as user-friendly as competing software sets, making it more likely that customers will go to F5 or Cisco for their app networking needs; in the high growth market, this as powerful negative implications for Citrix's revenues. View or Edit Reason 0 votes 0% agree Cisco's entry into the RTC market increases pressure on Citrix 0% agree Cisco's entry into the RTC market increases pressure on Citrix Cisco's entry into the RTC market marks a large increase in competitive pressure for Citrix, which could lead to price competition and lower profits. View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

Top Contributors Avinash Gandhi Dana Gardner Related Articles VMware Inc. (VMW) Riverbed Technology (RVBD) F5 Networks (FFIV) Cisco Systems (CSCO) Microsoft (MSFT)

Citrix Systems is an enterprise infrastructure company specializing in centralization architecture and real time collaboration. The company provides a number of applications that allow companies to install single copies of software on a server and have employee computers access them through a network. Though it derives over 70% of its revenue from the slowly dying thin client market, where enterprise users stream applications from a central server to employee's PCs, the recent acquisitions of Ardence and XenSource have put the company in prime position to offer cutting-edge streaming virtualization technology, which allows enterprise customers to greatly cut IT costs by streaming multiple operating systems from a single machine or server simultaneously. Market growth in this area is phenomenal, but the company lacks solid application networking software, putting it at a severe disadvantage when compared to competitors like F5 and Cisco.

Citrix also faces the prospect of intense competition with Microsoft. The latter has begun packaging competing technology into its new Windows Enterprise Server. Although though recent changes in the Vista license could benefit the Citrix by allowing its software to be the platform on which users can stream Vista, there is every possibility that users of Vista will take advantage of Vista's free centralization features to avoid purchasing Citrix's services.

[edit] Company Overview

Citrix is an enterprise infrastructure company that, with 99% of the Fortune 500 as customers, dominates its niche market of centralized access servers and software. Financially, the company has a solid set of numbers; revenue has increased 14% on average for the past five years, and operating margins have exceeded 20% for nine out of the last ten years. It should be noted, however, that the company recently announced a voluntary internal investigation and restatement of financial data due to its stock options granting practices.

[edit] Software Licenses and License Updates

The products provided by Citrix allow companies to create and access a single, secure software database on a centralized server; companies save money because they only have to maintain a single software set. Employees access the applications and operating systems through the network, using "thin client" applications to enable streaming remote application use. The company also deals in application networking software, which allows improved performance for applications being used over a network. While over 70% of the company's revenue stems from thin client networking, the market for application networking software has more growth potential, as seen by Citrix's 12% increase in application networking sales for 2006 (low for the industry); faced with a market share of only 10% and competition that offers a superior software platform, Citrix's growth prospects in this segment remain unclear.

The company generates software revenues in two ways: through licensing and subscriptions.

• When Licensing its software, Citrix sells the right to use its products for a certain period of time to its customers. In this business model, customers must pay extra in order to receive software updates and user support.
• In its subscription model, Citrix customers pay a monthly fee to license the software; they also receive software upgrades and support for as long as they stay subscribed.

.

[edit] Services

Citrix provides a number of web services, from IP telephony to web seminar ("webinar") technology. The most significant part of the services segment, however, is Citrix Online.

[edit] Citrix Online

In 2003, Citrix purchased Expertcity for $225 million, immediately giving them a division with two successful remote desktop web services: GoToAssist, which allows "hands on" remote tech support via desktop sharing, and GoToMyPC, which allows secure, remote access to personal and corporate desktop PCs. Subsequently, Expertcity became its own business division of Citrix, known as Citrix Online, and has debuted two more well-received remote desktop web services: GoToMeeting and GoToWebinar, which provide online meeting and webinar services, respectively.

Citrix Online has seen significant revenue growth, because the company has combined the idea of offering software as service with the increasing trend of real time collaboration. By focusing on offering simple, secure software to facilitate communication, Citrix achieved 50% year-to-year growth in 2006.

[edit] Appliances

The company deals in a number of hardware appliances, like access gateways and switching boxes, in order to facilitate and improve the efficiency of applications sold by the company. This is the smallest part of Citrix's business, and though it had the greatest year-to-year growth of any segment, this can be attributed to the fact that Citrix entered the hardware market in early 2005; the sale of more software designed to work on Citrix machines has led to large revenue growth, and could lead to potential increases in the future.

[edit] Strategy

With the majority of its current sales occurring in the thin client market, where growth has slowed considerably, Citrix has begun to pursue an acquisition strategy to facilitate entry into new, high-growth markets. Examples of recent acquisitions include

• Ardence, whose software allows Citrix to offer operating system streaming technology, enabling OS centralization,
• NetScaler, whose software allows Citrix to offer faster and more secure web applications,
• XenSource, whose acquisition puts Citrix solidly in the desktop virtualization market.

These acquisitions provided the company with an entry points into the application networking and desktop virtualization markets, and though viewed as an underdog, Citrix plans on using its considerable sales resources to drive growth in these markets.

[edit] Trends and Forces

As a major enterprise infrastructure developer, Citrix is affected by a number of diverse market forces.

[edit] New Developments

Citrix Systems, Inc. (CTXS) has announced a restructuring and rebranding of its key virtualization products, as well as the introduction of a new orchestration technology

The Citrix Delivery Center will serve as an umbrella for a new family of products that includes XenApp, formerly the Citrix Presentation Server, as well as XenDesktop, NetScaler, and XenServer.

The Fort Lauderdale, Fla.-based company said that it is renaming the presentation server to capitalize on the connection of Xen with virtualization and to make it fit in with the rest of the product line.

Citrix has also announced the release of XenServer Platinum Edition. This will give users the functionality they need to provision both virtual and physical machines. It includes the ability to stream a workload to any server or server farm and will provision servers simultaneously from a single standard workload image. It will also include capacity on demand and the ability to dynamically manage provisioning for disaster recovery and business continuity.

[edit] Centralized Computing Growth Could Drive Citrix's Growth

Centralized computing, where a central server accessible to all networked computers holds data, applications, and even virtualized operating systems, has seen significant growth over the past few years. With an estimated 80% of a firm's IT budget spent maintaining operating system, application, and data infrastructure, the potential cost-cutting benefits of centralized computing are tremendous and are beginning to be recognized by major enterprise users. If the trend continues, Citrix will be well positioned to take advantage of the market's growth. With a dominant position in the stagnating thin client market and recent entry into application networking and virtualization markets, Citrix is known as a niche provider of powerful centralization software, though competitive pressure from Cisco and F5 will probably reduce the company's potential customer base.

[edit] Citrix Moves Closer to the Ideal Virtual Desktop Utility

The Virtual Desktop Utility is the name for an idealized centralized virtualization suite allowing operating systems, applications, and data to be streamed to many computers from a single central server. Citrix's previous products all had some significant limitations to them: Streaming Server, the most important server necessary to achieve the VDU goal, requires a PC to have the Windows OS installed, while Desktop Server allows OS but not application virtualization. The Ardence software that allows operating systems to be streamed can be combined with Streaming Server and Desktop Server to move closer to achieving a VDU: with Desktop Server holding the operating systems for Streaming Server to move and Ardence facilitating the exchange and virtualizing the desktop applications, Citrix has taken its centralization capabilities to the next level, and has the potential to benefit from increased sales to efficiency-driven enterprise customers.

[edit] L4-L7 Switching Market Growth Could Drive Increasing Revenues

L4-L7 switching technology is a high-end infrastructure enabler that allows networks to do routing and switching based on the content of an application being streamed, rather than on the network addresses that are being used; this allows for more efficient load balancing. In layman's terms, the technology makes applications being streamed run with less network interference, thus allowing them to run faster and more efficiently. The L4-L7 switching market saw tremendous growth between the third quarters of '06 and '07, a possible indication that there will be increased demand for Citrix's NetScaler product line. Increasing market competition could lower prices and damper profit growth.

[edit] Growth in the Real Time Collaboration (RTC) Market Could Help Drive Future Growth of Citrix Online

Face to face collaboration, while necessary in some cases, is extremely expensive for corporations. Travel and lodging costs paired with time constraints and limited productivity can make face to face meetings prohibitively expensive. Real time online collaboration, in which video and voice conferencing occurs over the internet, is a much more cost-effective option; the growth that Citrix has seen because of the increasing demand in this segment is a testament to this. Citrix is well positioned to over the next few years from a hot RTC market. Its triple-play technology enables faster connectivity and more and more managers realize the benefits of fully digital communication.

[edit] Competition

Citrix is not alone in the centralization market; companies like F5 Networks, Riverbed Technology, Cisco, and, of course, Microsoft. As a newly formed virtualization enabler (through the XenSource acquisition), Citrix also faces heavy competition from industry leader VMware Inc. and, again, big bad Microsoft.

Breakdown of the ~$900 million virtualization market in 2006

[edit] The Virtualization Market is Dominated by VMware

With over 50% of the virtualization market already in the palm of its hands, VMware's dominance of the market threatens to make Citrix's entrance costly. Microsoft's recent market entry and its planned release of total virtualization solutions could further limit Citrix's growth potential. Microsoft's ubiquity makes it very likely that enterprise users will use its solutions in the assumption that Microsoft servers and operating systems will work better with Microsoft virtualization software.

[edit] Cisco's Entry into the RTC Market Could Take Some of Citrix's Market Share

Cisco's recent announcement that it plans to acquire WEBX, a major competitor with Citrix Online, will bring major competition to the Real Time Collaboration market. Citrix offers a number of application-layer features that Cisco lacks, which could leave it with the advantage, but increased competition will probably lead to depressed pricing and lower profits. In the end, however, the fact that Cisco has decided to enter the market highlights its overall growth potential, even for Citrix.

[edit] The Windows Vista Effect Could Hurt Demand for Citrix Applications

The release of the enterprise server version of Microsoft's operating system, Windows Vista, poses a major threat to Citrix's current dominance of the centralized access market. With a number of new features preinstalled on the OS that offer the same functions as many of Citrix's products, competitive pressure on the company has increased, and will probably force the company to lower prices and, in doing so, depress profit margins. Furthermore, as the competing features are included with the most popular server OS on the market, fewer and fewer customers will have the incentive to go shopping for centralization software.

[edit] Changes in the Vista License Could Increase Centralized Infrastructure Revenues

Microsoft recently amended its Vista Enterprise user agreement to

1. allow Vista to be used on diskless computers, essentially allowing the operating system to be streamed from a central server, and
2. create a subscription service whereby Vista users can use the enterprise version of Windows on virtual machines that are loaded on a central server.

This amendment creates new opportunities for Citrix, as the previous acquisition of Ardence allowed the company to absorb technologies that let users stream entire operating systems from central servers running virtualization software. With the cost cutting capabilities of installing only a few Vistas on a central server system, corporations will have more incentive to purchase centralization technologies from Citrix.

[edit] Application Networking Growth May Leave Citrix Behind

With thin client technology being Citrix's current primary revenue earner, the company could have issues pulling in new customers. F5 and Cisco are both known for providing application networking technologies that are easier to install and more reliable overall than Citrix's; a number of networking resellers surveyed by Morningstar Analysts stated that they would probably not push Citrix's application networking technologies over F5's and Cisco's. With only 10% of the market compared to the competitor's combined 50%, it is unlikely that growth in this area will be as high as competitors.

[edit] References