Year

Citrix Systems laid out a broad, bold tactical product roadmap and showcased a solid, long term strategic vision at its Analyst Summit held in Denver on September 16-17.
Desktop virtualization, cloud computing, on-demand computing, self-service IT and expanding the company’s strategic vendor alliances and channel partnerships represent the key thrusts over the next six-to-12 months, according to Citrix president and chief executive, Mark Templeton.
All of the aforementioned initiatives will also be the focus of several, separate Citrix’ fall and winter product introductions. The first announcement is slated for later today.
Templeton delivered the keynote to the approximately 70 assembled analysts, stating that as Citrix celebrates its 20th anniversary this year, the company’s goal is “to stand out from the [virtualization] crowd and avoid the status quo.” Templeton, a 14-year Citrix veteran served up some encouraging company statistics noting that while revenue has been essentially flat over the past year – which he considers a positive in the ongoing economic downturn – Citrix’ business is growing in almost every other area (see chart below). “Flat [revenue] is the new growth,” Templeton joked, referring to the company’s 2009 first half revenue of $762 million.

Citrix Expands Product Portfolio

Templeton said that Citrix is moving to aggressively solidify its place as one of the top tier virtualization vendors – along with VMware and Microsoft – by growing the business both organically as well as by acquisitions. ITIC survey data indicates that the top three virtualization vendors: Citrix, Microsoft and VMware account for 90% market share – particularly in the server virtualization arena, where VMware is the clear market leader with over 50% share. In recent months, the more mature server virtualization market has seen a spate of mergers and acquisitions, most notably Oracle’s purchase of Sun Microsystems, Inc. and niche market player Virtual Iron.

Citrix’ own purchase of XenSource in October 2007 and its subsequent partnership with Microsoft to support the Redmond, Washington software firm’s Hyper-V product have given the company a strong foothold in the server arena. Additionally, the Citrix Xen virtualization technology is embedded in a variety of operating system platforms including the open source Debian Etch; Novell’s SUSE Linux Enterprise 10 and 11; Red Hat’s Enterprise 5 and Oracle’s Sun Solaris. Dell also includes the Citrix XenServer OEM Edition as an embedded hypervisor as an option in its Power Edge Servers.

Most recently Citrix has notably bolstered its desktop and application virtualization product portfolio with the addition and enhancement of a number of key offerings including the NetScaler (Application Optimization, Application Delivery Networking, Load Balancing, Web Application Acceleration and Application Firewall).
Citrix is also exerting and extending its influence via the open source Xen.org community project, which Templeton said, now boasts more than 3,700 individual members; 250 contributing companies. Unique code contributions, he added increased 110% from 2008 to 2009. Central to the Xen.org strategy is the Xen Cloud project, which is an open source, open platform for cloud providers. It features broad interoperability among various competing hypervisors; broad industry support and serves as a platform for an overarching open source ecosystem, Templeton said.
Cloud computing is central to Citrix’ long term strategy and the company is building a wide array of desktop management and security add-ons to facilitate corporations’ migration to both private and public cloud infrastructures.
“Consumption based costs is becoming an imperative for users,” Templeton said. “If you’re not a leader in this area, it will kill you,” he added.
Citrix Ramps Up

Templeton noted that Citrix had spent $1.8 billion in acquisitions over the past 18-to-24 months, to bolster the company’s three business divisions: the Online Division; the Desktop Division and the Datacenter and Cloud Division.

In particular, Citrix intends to cement its position in the fast emerging desktop and application virtualization markets by highlighting the increasing trend towards self-service IT. According to Templeton, Citrix’ Software as a Service (SaaS) group is among the “fastest growing part of the company with over 100M online virtualization sessions” to its credit.

Templeton and Wes Wasson, the company’s Senior Vice President and Chief Marketing Officer (CMO) said Citrix’ Xen Desktop is the centerpiece of the company’s short term tactical and long term strategic plans and goals. “Desktop virtualization, Templeton and Wasson said, “can help take big chunks [reduce] the time spent on daily systems management chores” like patching and rolling out updates which consume an enormous amount of IT managers’ time.

“Our agenda is to offer the broadest set of virtualization technologies in the industry – separating desktops and applications from the physical server, to address the growing numbers of mobile, remote and telecommuting workers,” Templeton said. This is crucial he noted, because industry wide, IT spending remains flat in the low single digits. In contrast, “the velocity and amplitude of change” facing customers continues to accelerate.

“For many businesses the current infrastructure design is not suitable for the emerging dynamic business environment. Citrix is responding to market dynamics and market realities where the only constant is change,” Wasson said.

The Citrix executives said they recognize that in the current depressed economic climate, the balance of power has moved from vendors to customers. “No vendor will be successful with a lock-in strategy,” Wasson said. Hence, Citrix will continue to pursue a platform agnostic approach to ensure that its products will work in all operating system environments; the company also provides interoperability and integration with offerings from rival vendors like VMware. The company is also shoring up its partnerships with software vendors like Microsoft and Novell as well as hardware OEMs like Dell and Hewlett-Packard.

This strategy has helped Citrix garner new customer wins among large enterprises accounts. During the summit Citrix showcased corporate accounts such as Emory Healthcare in Atlanta, Ga., which uses Citrix Delivery Center to cut costs by 60% for an anticipated operational savings of $1.5 million in 2009, according to Michael Thomason, Lead IT manager. Tesco, a British based international grocery chain and retailer said it replaced 1,500 traditional servers and consolidated using virtual blade servers and Citrix XenServer technology, according to Chris Brockelsby, the company’s lead IT Director.

The high technology earnings reports from the major vendors over the last several weeks have been decidedly mixed. Some companies notably beat expectations while other bellwether firms’ financials exhibited significant weaknesses.

Apple, IBM and Intel earnings were all in positive territory, beating Wall Street forecasts. On the opposite end of the spectrum, Advanced Micro Devices, Microsoft, Sun Microsystems (recently acquired by Oracle) and Yahoo all posted disappointing – albeit not totally unexpected – declining numbers.

Overall, the latest financial reports provide an interesting perspective on trends in the high technology sector for the remainder of 2009 and into 2010. The consumer sector led by Apple appears robust, while PC sales and the business software sector as evidenced by the contraction and sluggishness in Microsoft’s Windows and Office are weak. That softness will likely persist for the remainder of calendar 2009.

Apple was the biggest winner by far and the brightest star in the high technology firmament.

Apple financials beat all analysts’ expectations. For the 2009 third fiscal quarter ended June 30, Apple posted quarterly revenue of $8.34 billion and net profit of $1.23 billion; that’s a 12% year-over-year earnings increase and the strongest of any June quarter in Apple’s history, the company said. Apple’s strength was evident across the majority of its product segments. iPod sales remained brisk with 10.2 million sold in the just ended quarter, although that is an approximately eight percent decline from 11 million sold during the June 2008 third quarter. Apple and Wall Street analysts attributed the decrease to cannibalization by iPhone sales. However, iPod touch unit sales grew 130% from last year.

Apple sold 2.6 million Macs – a 4% unit increase from the year-ago quarter. Apple’s gross margin was 36.3%, up from 24.8% in the year-ago quarter. Apple also exhibited extremely good diversification, with international sales contributing to 44% of third quarter revenue.

IBM also posted earnings that surpassed Wall Street forecasts and that in turn, lifted Big Blue’s 2009 full-year profit forecast. IBM net earnings increased 12% to $3.1 billion, or $2.32 per share; that easily bested financial analysts’ per-share prediction of $2.02. IBM also got a boost from its ongoing cost cutting measures which helped to lift profits. However, IBM sales declined by 13% to $23.25 billion. In a published statement IBM said it expects to save $3.5 billion in cost cutting measures for 2009; that’s $500 million more this year than it had anticipated.

Intel’s third quarter financials offered a mixed picture. The world’s number one chipmaker had sales of $8.4 billion for the quarter even as it recorded a second-quarter net loss of $398 million, or 7 cents a share, compared to the $1.6 billion and 28 cents a share that Intel earned during the same period in 2008. This was Intel’s first quarterly loss since 1986. The red ink was attributable to charges associated with the $1.45 billion fine levied by the European Commission. In May the EC ruled that Intel abused its market position to cut its chief rival, AMD out of the European market. Intel said it will appeal, but meanwhile, the fines stand.

Intel’s better than expected sales figures buoyed analysts and industry observers because it occurred in spite of sluggish PC sales. One very encouraging note for Intel’s immediate and intermediate term is that its entry level Atom chip, which is used in the burgeoning Netbook minis, is not siphoning off Celeron processor revenues. The Celeron processors are used in the more inexpensive notebooks and there was some fear that the Atom chips would cannibalize a significant amount of Celeron revenue. Meanwhile, revenue from Atom processors and chipsets rose 65 percent from the 2009 first quarter to $362 million.

At the same time, the high tech sector suffered a blow when Microsoft announced the first annual sales loss in the company’s 34-year history. The news was not unexpected, still it cast a pall since Microsoft, the world’s number one software maker is an industry barometer.

For its fiscal fourth quarter ended June 30, Microsoft profits plunged 29 percent to $3.05 billion from the same quarter in 2008. Sales similarly declined by 17 percent during the fourth quarter to $13.10 billion. Microsoft said its poor fourth quarter numbers were attributable to the continuing weakness in the PC and server markets as well as the smaller software licensing fees it collects from the Netbooks.

Most worrisome was the fact that Microsoft experienced quarterly revenue declines in all five of its major business segments. Windows client revenue waned by 29 percent during the fourth quarter; that was $1 billion less than the client software group 2008 fourth quarter sales. And it provided yet another indicator that corporations stayed put on Windows XP, instead of migrating to Vista. quarter, representing a shortfall of more than $1 billion from the year-ago quarter. For the year, Client revenue was down 13 percent. In an earnings call, Microsoft chief financial officer Christopher Liddell attributed this to the overall malaise in the PC hardware market and the “substantial weakness” in the business PC market resulting from budget cuts and delayed hardware refresh cycles. And although Microsoft had indicated it would miss its numbers, the results were weaker than Wall Street estimates of $14.37 billion in sales. For fiscal year 2009 Microsoft had revenue of $58.44 billion, a three percent decline from 2008. One bright spot: Windows unit sales on Netbook minis increased for the first time since the September 2008 quarter.

Yahoo’s financial report was mixed. On a positive note, the struggling online search and advertising firm, beat Wall Street forecasts with its net earnings of $141 million and 10 cents per share. However, most of that was due to substantial cost cutting efforts and handing out over one thousand pink slips. On the downside, Yahoo revenue was $1.57 billion a decrease of 13 percent. And with Yahoo forecasting even greater losses for the current quarter, the industry continue to clamor for Yahoo to ink that long rumored search engine deal with Microsoft. Yahoo chief executive Carol Bartz remained mum on any impending deal.

AMD’s financial woes continued. The company was in the red for the 11th straight quarter; although the company said the rate of loss was slowing. For the second fiscal quarter, AMD posted a net loss of $330 million or 49 cents per share. Revenue for the quarter was $1.18 billion.

In the wake of the bruising financials, AMD’s stock is currently trading at $3.77; its profit margin is off by over 43 percent; operating margin is down nearly 17 percent and its return on equity to shareholders is down by a whopping 415 percent.