Despite Virtualization Hype, Citrix Tanks Today & Ahead (CTXS, VMW, MSFT)

Citrix Systems Inc. (NASDAQ: CTXS) is getting shelled after its earnings report.  The company’s net fell 4% to $0.33 EPS, and non-GAAP earnings before items was $0.48 EPS. Revenue rose 4% to $415.7 million.  First Call had estimates at $0.47 EPS and $432.24 million.  This was also slightly disappointing from its prior guidance of $0.46 to $0.48 EPS and $425 million to $440 million in revenues.

Unfortunately, its guidance is for contractions when analysts werelooking for gains.  It sees Q1 revenue down about 5%, but analystswere looking for a gain of about 6% at almost $401.5 million.  Thecompany also gave 2009 guidance with projections of flat revenuesrather than a 7% gain to $1.71 billion analysts had projected.

Despite a drop of 1.1 points, the company listed its gross margin at88.8%.  The drop of 6% in Asia-Pacific revenues offset the gains inNorth America and in EMEA.

The company is also slashing about 10% of its global workforce on topof prior cost cutting initiatives.  Cost cuts will result in a chargenext quarter of $19 million to $23 million, and the company sees $50 million inannual savings as a result.

It would be easy to claim that virtualization isn’t paying off for thecompany after its acquisition of XenSource that is now the company’sXenApp.  But perhaps the question that should be brought up is just howbad results would be had the company not gone harder intovirtualization via an acquisition.

VMware (NYSE: VMW) dominates the virtualization space.  And nowMicrosoft (NASDAQ: MSFT) is marketing its own "relatively free"virtualization product.  Virtualization is supposed to save money, butimplementation can be a hassle.

Citrix closed up over 3% at $24.19 in regular trading, but shares aredown almost 8% at $22.28 in after-hours trading.  Again, it would beeasy to blame its efforts in virtualization.  But that other questionseems to be the real issue.

Jon C. Ogg
January 28, 2009