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Citrix is set to buy virtualization software maker XenSource, according to industry chatter.

Analysts at Credit Suisse last week issued a research note saying that Citrix is - or at least should be - in the market for hypervisor software key to virtualizing both PCs and servers. Either XenSource or Virtual Iron - developers of the open source Xen hypervisor - would stand as attractive buys for Citrix, according to the analysts. They reckon such software could help Citrix as it looks to expand a software empire based on the flexible use of server-side code.

"While these companies’ [XenSource and Virtual Iron] virtual infrastructure management tools are more immature versus more-established vendors, if Citrix can develop robust management software through increased R&D while leveraging the open source Xen hypervisor, Citrix could establish itself as a strong competitor in both desktop and server virtualization within two to three years," the analysts wrote. "Acquiring XenSource could also strengthen Citrix’s relationship with Microsoft."

The rumors we're hearing, however, have Citrix focused on XenSource and XenSource only and in acquisition talks. Sources have said a deal could be announced as early as this week.

XenSource cited a strong relationship with Citrix in a press release issued today, discussing the release of XenEnterprise 4.0.

"The new scalability and feature enhancements in XenEnterprise v4, together with Citrix Desktop Server enable a powerful solution for our joint customers," said Mick Hollison, vice president of Desktop Delivery at Citrix Systems, in the statement. "In particular the new fast-cloning and thin-provisioning capabilities in XenEnterprise v4 will help Desktop Server respond to the performance and scalability demands of delivering desktops from the datacenter as a secure, on-demand service."

XenSource has spent recent weeks stressing that it will no longer try and compete with VMware head-to-head. Instead, it hopes to become a type of neutral virtualization player with an open API that other software makers can tap. It's unclear how being folded into Citrix would alter this strategy.

XenSource could sure use a big brother boost though as VMware gears up for an IPO this week. VMware enjoys a major market share lead over rivals and with EMC and an IPO on its side will have plenty of cash to spend on product development.

Citrix has yet to respond to a call seeking comment, XenSource declined to comment. ®

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