Bad Omens About Citrix Come True
By ANNA SNIDER
NEW YORK -- Analysts and investors started picking up on bad omens about Citrix Systems (CTXS) last week. First, the chief financial officer of the software company, John P. Cunningham, was a no-show on Thursday as a featured speaker at PaineWebber's Growth and Technology Conference.
Pretty inconclusive, it's true. But then some real evidence of trouble came on Friday, when Sarah Mattson, an analyst with Dain Rauscher Wessels, reported that Citrix had been forced to give discounts and rebates to close deals. And hovering in the background were worries that a broken-up Microsoft (MSFT) might pose intensified competition for Citrix.
The ill portents came unpleasantly true on Monday, when the company issued a warning about its second-quarter earnings. Citrix, which writes software that allows virtually any type of desktop or mobile computer to run Microsoft Windows and Unix applications from a central server, said it would indeed miss revenue and earnings estimates - by a lot. The stock fell 46% to $22.25 - this after falling 14% on Thursday and another 20% on Friday.
So what went wrong? Well, Microsoft may be everyone's favorite bete noire these days - but this is one problem you can't blame on Bill Gates & Co. Citrix appears to have stumbled all by itself, thank you very much.
As President and CEO Mark Templeton explained it in a conference call, demand for Citrix products is still strong, but some of its sales are taking three to six months longer than expected to complete.
Part of the problem stems from the fact that Citrix has been trying to reach deals with larger corporations, which take longer to decide on new contracts, he said. Smaller customers are also now more interested in negotiating broad licenses for software than in buying packaged software off the shelves, a process that takes time, he said.
Several analysts said they thought that Citrix would iron out the problems, but that the revenue miscalculations were alarming. "They aren't executing well," Mattson says. "The problems are more extensive than even I had supposed." Mattson's firm and three others downgraded the stock Monday.
The gory details: Citrix said earnings per share will come in at nine cents to 11 cents a share, down from 16 cents a share in the same quarter a year earlier and well below the consensus analyst forecast of 21 cents a share, according to First Call/Thomson Financial.
The company said it expects to report total revenue in a range between $105 million and $110 million, compared to $94.4 million in the second quarter of 1999. Analysts had been expecting $137 million in revenues.
As for those Mr. Softee worries, Mattson said Citrix and Microsoft would probably continue to be collaborators, not competitors. (Microsoft paid Citrix $175 million as part of a deal to co-develop Windows Terminal server software.) "Microsoft has made no moves to enter into the server-based market," Mattson says. "I don't think in the short term they will."
Templeton said he expects to continue to face delays in closing sales in the third quarter, but that the problem was short-term in nature. He said Citrix would give additional guidance for the rest of the year on July 19, when it reports second-quarter earnings.
And Mattson agrees that Citrix still has bright prospects. "Long term the demand for Citrix is still there," she says. "Server-based computing is a wonderful technology."
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