How's this for positive spin...
Morningstar.com
Citrix Shareholders Should Hibernate This Summer
By George E. Nichols
As expected, Citrix Systems (Nasdaq: CTXS - news) turned in a horrid quarter. Understandably, shareholders are glad to see a rough quarter come to a close. But investors may have to wait until fourth-quarter financial results are released to learn how effectively Citrix is getting business back on track.
The developer of application-server software has lost nearly 45% of its market value since its June 12 announcement that it would fall short of expectations. After the market close on Wednesday, the company announced net income in line with expectations of $0.10 per share. Sales of $106.1 million landed toward the bottom of the $105 to $110 million range forecasted earlier by management. These numbers represent a sharp drop-off from first-quarter figures: Sales decreased 16.8%, while income was pared down 61.2%.
Management admitted it was the ``most challenging'' quarter for the company since its 1995 initial public offering. There were several weak spots, including a slowdown in international growth during the latter part of the quarter. The main culprit, however, was a shift in the firm's product mix, which totally blindsided management. Citrix traditionally sells the bulk of its packaged software through resellers. But electronic licensing jumped sharply in the quarter, to 16% of sales from 9% in the first quarter. Because of this shift, too much of the packaged software was shipped to resellers, causing a write-off for the extra inventory.
This product shift greatly lengthens the sales cycle because license revenue is gradually recognized over two or three quarters versus one quarter for boxed software. The company thus contends that demand isn't faltering; rather, sales are being pushed back by several months. Because of this time lag, a clearer picture of the company's true revenue growth will emerge later in the year.
Even so, investors are justifiably reluctant to buy Citrix's shares after management's loss of credibility. During the quarter, executives were evasive about communicating the firm's problems to shareholders, and unusually high insider selling before the bad news raised eyebrows. A major reshuffling of management may help restore faith but ensures short-term turbulence, as the search for a new CEO continues. Institutions have fled the company just as fast as individual investors have. Prominent fund family Fidelity cut its stake in the company to 1.9% in July from 7.9% in February.
Further adding to the firm's uncertainty, it's still not clear how quickly customers are adopting Citrix's new MetaFrame product for the Windows 2000 and Sun Solaris platforms. The company noted it may take a couple of quarters to train its resellers in selling the new Solaris software.
After shedding 85% from its March high, Citrix's stock looks pretty cheap at about 30 times expected earnings for this year. But there are plenty of good reasons for investors to wait to see how new management, new products, and forthcoming indicators of sales growth pan out. Until these unknown factors become clear, it will be difficult for the stock to break out of its slump. |
