After Making Turnaround, Citrix Looks To Branch Out
BY MURRAY COLEMAN
INVESTOR'S BUSINESS DAILY
investors.com
Big institutional investors are snapping up shares of Citrix Systems Inc., (CTXS) seeing the company as a comeback kid.
But after reporting a third straight quarter of year-over-year earnings growth, Citrix says it's beyond the turnaround stage. It's ready to start attacking new markets.
"We're moving into a stage that looks very bright," said Mark Templeton, Citrix's chief executive. "Twelve months ago, we were looking at slack demand, work force reductions and out-of-balance inventories. Now, with three great quarters behind us, we feel like we've really turned the corner."
After the markets closed on Wednesday, Citrix posted second-quarter earnings of 18 cents a share, excluding nonrecurring items. That was up from 7 cents in the year-ago period and beat expectations by a penny. Sales rose as well to $143 million, up 22% from $117.5 million.
Three years ago, a falling economy hit Citrix hard. Management compounded the company's problems by mishandling production, distribution and billing.
But amid a shakeup in April 2001, Templeton returned as chief executive after stepping down in 2000. He streamlined operations and refocused Citrix.
"It's a company that's run hot and cold in the past," said Jason Kraft, an A.G. Edwards analyst. "But they're showing an ability now to execute in different economic climates."
Analysts give the company high marks for improving marketing and product development.
"Citrix has changed a lot," said Mark Margevicius, a Gartner Inc. analyst. "They're continuing to morph their products as the market changes."
MetaFrame is Citrix's main software line. It's designed to turn single-user operating systems and applications into multiuser platforms. Corporate information technology managers can install MetaFrame on a server and use it to distribute updates and new programs remotely. That eliminates the need to install applications on each desktop.
But other software makers threaten to steal Citrix's market. Microsoft Corp.'s (MSFT) Windows Server 2003 has built-in functions that perform some of the same tasks as Citrix's software. The release of Windows Server 2003 earlier this year caused Citrix shares to dip, analysts note.
"Some investors were worried that a major rollout by Microsoft would dampen Citrix's growth," said Victor Raisys, a SoundView Technology Group analyst.
But the Windows Server features in question — called Terminal Services by Microsoft — are generally considered useful for only a small group of servers. So larger corporate customers still need MetaFrame, Raisys says.
"MetaFrame is an extension and improvement on Terminal Services," he said. "It has more tools for IT managers to use to control deployments. So a new program like Windows Server 2003 should actually open more doors for MetaFrame."
Citrix is estimated to account for 75% of all sales in the so-called virtual user interface market. But it's a relatively small field. International Data Corp. predicts revenue for all VUI players will hit $1.7 billion in 2007, up from $708 million in 2001.
"Being the dominant player in a small market isn't a very good position to be in if you're trying to convince investors that you're a major software player," said Dan Kusnetzky, an IDC analyst. "So Citrix is trying to recast itself."
Citrix is branching into several complementary markets. All are part of what Kusnetzky refers to as the larger virtual software marketplace. Such software could let IT managers centrally control security. Or it could help remotely manage work flow among different computing systems.
For now, Citrix's main strength is providing virtual access to all sorts of computers from one set of servers. But it's trying to make inroads into these newer branches of virtual software.
Citrix is a minor player in those areas now, says Kusnetzky.
"But they've got the right idea moving into much broader segments of the software market," he said. "If they're successful, they'll find more high-growth opportunities."
If they're not, say analysts, Citrix could find itself a niche player. Right now, IDC ranks Citrix among the top 20 business software players worldwide. The ranking is based on the strength of its product design and technological advancements.
IDC estimates that virtual software as a whole, which includes Citrix's MetaFrame and many of its newer products, should generate about $100 billion in revenue in 2007 vs. $35 billion in 2001.
"They're not trying to do everything in virtual software," said Kusnetzky. "But they're positioning themselves as a player in enough high-growth segments to increase their presence in a much larger (business) software market."
But as the company expands, bigger application developers like Oracle Corp. (ORCL) are expected to try to offer many of the same features as Citrix.
"Citrix has a window of opportunity," said Kusnetzky. "As computing takes a more distributive nature where one system can connect and manage all sorts of other systems, Citrix is going to have to work hard to maintain an edge."
That's exactly what Citrix has in mind, says Templeton.
"We're setting our sights now on breaking through the $1 billion annual revenue barrier," he said. "That would put us in a very elite group." |
