I thought resurrecting this story from the South Florida Journal might bring some perspective. Note Mr. Ed I's candor and his recitation of the events of Mar-May 97. The ensuing year has brought nothing to sway my opinion of Mr. Ed I's savvy, nor of his insight into his former college roommate and OS/2 soul-mate. 'Course, I could be completely wrong for which I'll pay dearly...
December 22, 1997
Citrix Stands Firm
Going toe-to-toe with Microsoft built reputation, prospects
What a difference a year can make in the volatile world of high tech stocks.
After experiencing a 12-month topsy-turvy odyssey that saw its stock price tumble from $40 to $9.75, only to soar as high as $84, Citrix Systems is enjoying a calm year end.
In Citrix-land, however, calm is a relative term. Take this week. On Monday the stock dropped about $6, closing at $64.75. By the close of markets on Tuesday, it had gained about $4, to close at $68.88 .
Such fluctuations have become so frequent that the founder of the software company, Edward Iacobucci, is no longer alarmed by them.
The year has been "hectic," Iacobucci said. "We've come to realize that you can't do anything about the ups and downs. In fact, we have a lot of people that view the dips as buying opportunities."
With analysts rating Citrix a "strong buy," there is little concern that daily fluctuations will have a real effect on the company's promising future.
Chris Galvin, an analyst with Hambrecht & Quist, has 1998 estimates of $195 million in revenue and $2.10 per share, up from 1997 estimates of $1.46 per share. "It's been an amazing year for Citrix. They've really risen from the ashes," Galvin said.
Iacobucci suspects some of the recent stock fluctuations may be "motions of private investors, who are not as in tune with the basic fundamentals of the business."
What really matters, he said, is whether the company is in tune with itself .
And Iacobucci believes that loyalty and belief in the company's value is what got Citrix through its tumultuous year.
Making a stand
Citrix's darkest moment came in February, when it went head to head with the company it has long depended on, Microsoft Corp.
Citrix's core product, WinFrame, is computer software that lets older computers connect to a powerful central computer to run Microsoft Windows-based applications. WinFrame sells for about $6000 and allows up to 15 PCs to connect and create a network.
Microsoft initially agreed to let Citrix incorporate its technology into Windows NT, Microsoft's operating system for large computer networks. Citrix repackaged the hybrid product and sold it as WinFrame.
This year, several major technology licenses between Citrix and Microsoft were up for renegotiation. In February, Microsoft announced that it might develop its own multiuser software. That meant it would compete with the product it had for so long relied on Citrix to make.
When word spread that Microsoft was hedging on renegotiations, Citrix's stock took its first hit, falling from $40 to $26.25, and a few days later spiraling to around $10.62.
Iacobucci set up camp in Seattle during the negotiations while Citrix President Roger Roberts held the fort at headquarters in Fort Lauderdale. "We didn't want to pollute the good things that were going on here with the seesaw that we were experiencing there," he said.
Iacobucci, who from his days as a programmer at IBM had built relationships with Microsoft's Bill Gates and Paul Maritz, didn't expect the negotiations to be adversarial.
"The negotiations were no different from what we normally do," he said. "The difference is that we had intense public spotlight on it because it was the first time we went through something like this as a public corporation. There were a lot of people with vested interest in how we resolved it."
But from the outset, Iacobucci took a position and stuck to it. He believed Microsoft could not replicate Citrix's multiuser software.
"We had a pretty good sense of what Microsoft could and couldn't go do on their own," he said.
The turnaround
With negotiations dragging, the climate at Citrix headquarters was unusually optimistic. Employees were buoyed by the fact that Sears had placed a huge order on the heels of Citrix's stock plunge.
The loyalty factor carried the company through the rough times, said Iacobucci, who describes the mood at Citrix as "an interesting blend of motivation, a little bit of anxiety and a lot of determination."
The company had no layoffs and was actually doing a lot of hiring. The only employee lost was "an engineer who fell in love over the Internet and moved to Australia," Iacobucci said.
Employees didn't want to cave in to Microsoft. "If anything, we had to rein everybody back because they wanted to go for the throat," he said.
For such a small company to have such a big attitude felt great, Iacobucci admits. "But that's not in the best interest of our shareholders."
Finally, in May, the negotiations were resolved. Citrix signed a licensing agreement with Microsoft. Under the terms of the deal, Microsoft got access to key features of Citrix technology. Citrix can't sell the updated versions of NT packaged as WinFrame, but NT buyers still have to buy a separate Citrix software package to let remote machines run NT programs from the server.
Citrix also got $75 million up front plus up to $100 million in royalties based on future NT sales and a promise that Microsoft wouldn't compete with it for 30 months.
The impact on Citrix's stock price was instant. The stock climbed from $19 to $32 in one day.
Closer than ever
Iacobucci thinks the licensing agreement has strengthened Citrix's relationship with Microsoft, making Citrix less dependent than ever on the computer giant .
"A year ago we licensed everything from Microsoft and resold everything, including Microsoft. With this agreement, there is some core technology that we license back to Microsoft which should have been in their product to start with," he said. "The only reason we developed it is because they didn't want to. It wasn't something they thought was important, but we thought it was an important market.
"Now everything we do, we own. So from next year and beyond we're not dependent on Microsoft in the sense that the basic products available will require no modifications," he said. " We don't have to license anything from Microsoft. We don't own a royalty anymore and there's no leverage point there."
Great positioning
Hambrecht & Quist analyst Chris Galvin attributes Citrix's comeback to finally securing the licensing deal with Microsoft and to its positioning in the market.
"A large factor in their success is that they make something that no one else does," Galvin said. "We think the next few quarters are going to continue to be strong."
Iacobucci believes that focusing on recruiting a talented workforce is what will keep Citrix's success intact.
Last year there were about 150 employees, including a customer support staff of 20, based in a 17,000 square foot office in Coral Springs.
Today the staff has ballooned to nearly 300, and the customer support team is 175-people strong. Citrix's office space in Fort Lauderdale occupies 100,000 square feet.
"The bottom line in our business is recruiting," said Iacobucci, adding that the company has been scouring computer science graduates from some of the nation's top universities. "Once you recruit, what remains is execution. And execution in this business is about people."
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