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Xen sends Citrix Q4 into the clouds

Skywrites Amazon interop deal

The next step in data security

Citrix Systems shelled out $500m in 2007 to acquire XenSource, the company behind the open source Xen hypervisor, and in 2010, that bet paid off bigtime.

The big bet that Citrix made that summer more than three years ago was that server virtualization would trump the application virtualization that made Citrix a name in the data center with its MetaFrame and Presentation Server products. As the financial results for Citrix showed during the fourth quarter of 2010, Citrix was absolutely right about needing XenSource and its products, engineers, and goodwill in the open source community.

But, as it turns out, the Swiss army knife called XenDesktop, which includes the XenServer hypervisor and a bunch of other tools to virtualize and stream desktop applications, is what is filling in the gap as Presentation Server (called XenApp for naming consistency) is in decline as a legacy platform suitable for a smaller number of customers each year.

In terms of revenues, Citrix turned in a decent final quarter for its 2010 year. Overall sales rose by 17.4 per cent, to $529.7m. Profits were under pressure, with net income up only 7.1 per cent to $94.4m. For the full year, Citrix posted $1.87bn in sales, up 16.1 per cent over 2009's levels, with net income of $277.1m, up 45 per cent.

In the fourth quarter, Citrix had $196.3m in product license sales, up 16.6 per cent, while license update sales hit $176.6m, rising 12.9 per cent compared to the year-ago period. Online services revenues kept pace with product license sales, increasing 15.6 per cent to $94.8m, and technical services sales pulled up the class average at Citrix during the quarter, spiking 39.7 per cent to $62.1m.

In a conference call with Wall Street analysts, David Henshall, chief financial officer at Citrix, drilled down into the number based on product groups. In the Desktop Solutions group, which includes XenDesktop and XenApp as its main engines, sales were up 14 per cent to $325m. License revenues in Desktop Solutions were up 16 per cent, and Henshall said that XenDesktop drove $62m of license revenue and $95m of overall revenues.

That bigger XenDesktop revenue figure is up 230 per cent from Q4 2009, when XenDesktop 4 was just coming into the market as the first universal desktop/application virtualizer from Citrix. About 70 per cent of the license revenue for XenDesktop, Henshall said, was for customers that are new to Citrix, with the remaining 30 per cent coming from customers who are trading up from XenApp under special discount deals the company has been offering since XenDesktop 4 came to market. In terms of customer count, Henshall said that it now had over 10,000 customers using XenDesktop, with about half of them being new and half coming from trade-ups. That's about triple the XenDesktop customer base from a year ago.

In Q4, Citrix' customers added a little under than 1 million XenDesktop seats, and for all of 2010 the company did about 5 million seats; about 6 million seats have shipped since XenDesktop 4 was launched. All told, the combined XenDesktop/XenApp base has about 20 million seats, with about 12 million of them on software assurance support contracts. That is a big base that Citrix is keen on upgrading, and it has done a pretty good job. (A whole lot better than Novell did "upgrading" legacy NetWare customers to SUSE Linux or the hybrid Open Enterprise Server, to make a fair comparison.)

Better still, the support renewal rates on XenDesktop are over 95 per cent, according to Henshall - a lot higher than XenApp and giving Citrix an upside that perhaps it was not counting on. Henshall estimated that XenApp licensing was dropping at a rate of about 20 per cent per year, and that by the middle of next year, XenDesktop would account for more revenues than XenApp.

In the fourth quarter, of the 29 deals that Citrix did that were worth over $1m, 15 of them had XenDesktop licenses. Citrix did 230 deals with over 1,000 XenDesktop seats, and had 30 deals with over 5,000 seats.

For the full year, XenDesktop revenues are up more than 400 per cent, to $425m. The overall Desktop Solutions unit had sales of $1,1bn, up 12 per cent.

In the Citrix Data Center and Cloud group, which includes the raw XenServer hypervisor and its affiliate management tools, the NetScaler application accelerators, and the Branch Repeater WAN accelerators, revenues hit $85m in the fourth quarter, up 27 percent from a year ago. Mark Templeton, president and chief executive officer at Citrix, said in the call that he reckoned the XenServer hypervisor ended 2010 with about 15 per cent unit share of hypervisors installed on servers, up from 11 per cent in 2009 and from 3 per cent in 2008.

XenServer is not explicitly driving a lot of revenues at Citrix, but is rather an integral part of XenDeskop, XenClient, and the OpenCloud tools that Citrix is selling. Citrix didn't say much about NetScaler revenues, but said that the VPX virtual appliance versions of the NetScaler accelerators did well, with revenues up 50 per cent and shipments up 100 per cent in the quarter sequentially. Branch Repeater saw a nearly 70 per cent boost in sales in Q4 as well.

For the full year, the Data Center and Cloud biz had nearly $300m in revenues, up nearly 30 per cent. NetScaler sales were up 35 per cent for the year.

The remaining Citrix unit is the Online Services group, which peddles the GoTo series of services as well as other products. This group had $95m in revenues in Q4, up 16 per cent. The specific GoTo products saw revenues rise by 29 per cent in the quarter.

For all of 2010, Online Services had sales of $360m, up 17 per cent. Citrix is focusing on rolling out GoTo products in France and Germany, and late last year bought Netviewer, a SaaS Web conferencing provider with 18,000 customers, to help its German rollout. Citrix expects the Netviewer deal will close in mid-February.

Looking ahead, Henshall said that Citrix is expecting sales of between $470m to $475m in the first quarter of 2011, and that sales will hit somewhere between $2.1bn and $2.14bn for the full year. Non-GAAP earnings per share will be somewhere between $2.29 and $2.33, compared to the $2.08 in Non-GAAP EPS the company delivered in 2010. That's 13.4 per cent revenue growth and 11.1 per cent EPS growth at the midpoints over 2010. We'll see tomorrow if that is enough growth to satisfy Wall Street.

Citrix has $1.7bn in cash and will no doubt be making some acquisitions. The company, with a market cap of $11.9bn, is too big to be acquired by anyone other than Microsoft or Cisco Systems. Neither seems likely to do such a big deal.

In a separate development, after the financials were announced, Templeton announced that Citrix has inked an interoperability deal with Amazon to make its EC2 cloud, which is based on a homegrown variant of the Xen hypervisor, play more nicely with the commercial version of the XenServer hypervisor. This includes not just hypervisor compatibility enhancements, but also tweaks so the XenServer management tools can reach out into the Amazon cloud. Citrix will also work with Amazon to help tune Microsoft's Windows operating system to run better on the EC2 cloud, and the two will collaborate on disaster recovery, security, and compliance tools that span EC2 and XenServer clouds. ®

Security for virtualized datacentres

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