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That $500m investment in XenSource from three summers ago is starting to pay off for Citrix Systems. The virtual desktop wave that helped lift Citrix in the first quarter continued to swell in the second quarter as the company booked $458.4m in revenue, up 16.7 per cent, and net income rose to $47.6m, up 11.8 per cent.

In the quarter, new product license sales were up 14.7 per cent, to $148.7m, while software license update sales increased by 12.9 per cent, to $169.6m. Online services and SaaS software revenues in the quarter came to $89.2m, up 18.4 per cent, and technical services hit $51.9m, up 34.9 per cent.

By product segment, the Desktop Group at Citrix generated $290, in revenues in Q2, up 15 percent. XenDesktop accounted for $60m in revenues, thanks to a trade-up program to allow XenApp customers to move up to XenDesktop at discounted prices. The trade up also pushed another $30m in deferred revenues. The trade-up deal ran out at the end of June, and Citrix jacked up upgrade prices by 25 per cent, as expected.

Henshall said that Citrix booked 18 deals with more than $1m in revenues in the quarter, and 13 of them had a XenDesktop component and 5 have XenApp. Citrix sold XenDesktop software to 2,500 customers in the quarter, and 1,300 of them were totally new customers to Citrix. The good news for Citrix is that the average selling price for XenDesktop is three times higher than XenApp seats. In the quarter, 20 per cent of the customers that were due to renew their XenApp licenses traded up to XenDesktop instead, up from 10 per cent in the first quarter.

"Some have characterized this as XenApp cannibalization," said Mark Templeton, president and chief executive officer at Citrix, said in the call. "But we think of it as XenDesktop migration." Templeton added that Citrix pushed 1.5 million seats in the first quarter, and another 2 million in the second quarter, but that as far as Citrix can tell, thus far it has only converted about 10 per cent of the potential base of XenApp application virtualization user base.

About two thirds of the XenApp customers are virtualizing the back-end servers using XenServer or Hyper-V, with only 10 per cent choosing VMware's ESX Server, which is a big shift compared to last year, when the majority of XenDesktop customers were choosing VMware for their VDI virtualization. Perhaps most significantly for Citrix, about two-thirds of XenDesktop customers in Q2 were opting for the top-of-the-line Platinum Edition license, with all the bells and whistles.

Templeton said that the last remaining bit of the XenDesktop suite - the XenClient bare-metal hypervisor for Intel-based PCs - was "right around the corner." Citrix previewed XenClient back in May when it launched the XenServer 5.6 bare metal hypervisor for servers and has a wide-open market now that VMware has pushed out its own bare-metal PC hypervisor.

Neither Templeton nor Henshall said much about how XenServer sales were doing, but did say that the Data Center and Cloud Group, where XenServer lives, accounted for $74m in revenues in Q2, up 20 per cent. NetScaler physical appliances showed a 50 per cent increase in customer base compared to this time last year and added 385 new customers in the quarter, and VPX virtual appliances posted 70 per cent sequential growth.

Over 460 cloud providers signed up for Citrix cloud products, which includes XenServer-derived products, and Templeton added that Citrix was putting its weight behind the OpenStack cloud fluffer being created by NASA and Rackspace Hosting. The latter, which Templeton said is the second largest cloud provider in the world, has standardized on XenServer as its hypervisor layer going forward. Amazon, which has the largest cloud in EC2, has tweaked its own version of the open source Xen hypervisor for that cloud.

Despite its caution about the European economy and uneven spending by the US federal government, Citrix said it was happy enough about its prospects for the second half of the year to raise its guidance. For the third quarter, Citrix now says it can rake in $450m to $460m in revenues (which is flat to slightly down compared to Q2), with non-GAPP earnings per share coming in at 48 to 49 cents. For the full year, guidance is raised to $1.81bn to $1.83bn, with non-GAAP EPS expected to be $1.87 to $1.89. Citrix has a little more than $1.4bn in the bank and is expecting to hire several hundred more employees for enterprise accounts and development in the second half. ®

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