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Citrix Becomes Latest Cloud Consolidator

Posted on Wednesday, Sep 1st 2010

Early this week, Citrix (NASDAQ:CTXS), a leader in virtualization with annual revenue of $1.58 billion, announced its plans to acquire VMLogix, a leading provider of virtualization management for private and public clouds. The VMLogix acquisition is expected to close in the third quarter, and Citrix plans to use the technology from VMLogix to extend the Citrix OpenCloud platform and add an intuitive self-service interface to to its popular XenServer virtualization platform. Gartner expects the market for server virtualization management to reach $2 billion in 2014, growing at a compound annual rate of 39.2%. Let’s take a closer look.

Mike Vizard of CTO Edge says Citrix is attempting to promote the proprietary approaches to virtual switching and cloud computing management that have been taken by VMware and Cisco. According to Wes Wasson, chief marketing officer for Citrix, as cloud computing continues to rapidly evolve, the need for open standards that promote interoperability is quickly becoming a major industry issue affecting the rate of cloud computing adoption.

In July, Citrix reported second quarter revenue of $458 million, up 12%. Net income was $48 million or $0.25 per share versus $43 million or $0.23 per share last year. The company repurchased shares for $101 million and ended the quarter with $1.41 billion in cash and marketable securities. Q1 coverage is available here.

During the quarter, Citrix closed eighteen customer transactions of over $1 million each, including several deals over $5 million. New license sales were $149 million, up 15% from last year, driven by growth in both the Desktop and Data Center businesses. Revenue from license updates increased 13% due to strong customer interest in the XenDesktop Trade-up program. Tech Services grew 35% and Online SaaS revenue was $89 million, up 18% driven by 35% growth in Web Collaboration.

The Desktop business, which includes both Application and Desktop Virtualization solutions, generated revenue of $290 million, up 15%, with revenue from XenDesktop, a desktop virtualization tool at $60 million. During the earnings call, CEO Mark Templeton said demand for XenDesktop was driven by the unstoppable wave of new iPads, Macs, and smartphones often with the client’s CIO leading the charge.

The Data Center and Cloud Computing business, which provides Application Networking and Server Virtualization solutions, generated revenue of $74 million, up 20%, with the NetScaler customer base increasing 50% mainly in the enterprise market.

Citrix expects third quarter revenue of $450 million to $460 million and EPS of $0.31 to $0.32. It raised its fiscal 2010 revenue guidance to $1.81 billion to $1.83 billion from $1.765 billion to $1.78 billion. It expects EPS of 1.27 to $1.31 versus earlier guidance of $1.29 to $1.34. The stock is trading around $58 with market cap of about $10.85 billion. It hit a 52-week high of $59.53 on August 20.

Chart forCitrix Systems, Inc. (CTXS)

Concur in its third quarter results reported revenue of $75 million, up 20%. Net income was $3.7 million, or $0.07 per share, down from $7.2 million, or $0.14 per share last year. Q2 coverage is available here.

The American Express Company acquired 1.28 million shares of common stock of Concur for $50 million and increased its stake in Concur from 13% to 15%. Concur and American Express launched a cobranded version of Concur Breeze, an online expense reporting service for American Express Commercial Card mid-market clients that automates and streamlines the submission, review, and approval of all business expenses. Concur Breeze is also available as a mobile application for Android, BlackBerry, and iPhone smartphones.

Cash and investments, net of customer funding liabilities and debt, grew approximately $23.7 million by quarter end. Concur successfully raised $287.5 million in principal amount via 2.5% senior convertible notes due in 2015. It expects to use the net proceeds from the senior convertible note offering for general corporate purposes, including potential acquisitions and strategic transactions.

Concur expects net income per share for the fourth quarter to be $0.06 and for fiscal 2010 to be $0.39. Concur expects revenue for fiscal 2010 to grow 18% from fiscal 2009.The stock is trading around $46 with market cap of about $2.4 billion. It hit a 52-week high of $48.18 on August 2.

Chart forConcur Technologies, Inc. (CNQR)

NetSuite (NYSE:N) early in August reported second quarter revenue of $47.1 million, up 17%. Net loss widened to $7.2 million or $0.11 per share from $5 million or $0.08 per share last year. Non-GAAP EPS was $0.03 per share, beating analyst estimates of $0.01 per share, on revenue of $43.7 million. The company ended the quarter with $98.2 million in cash. Q4 coverage is available here.

Chris Kanaracus of IDG reports that Intacct is taking on NetSuite with a new project accounting application and a partnership with SaaS project management vendor Clarizen. NetSuite in 2008 had acquired OpenAir, a software similar to Clarizen.

NetSuite raised its 2010 outlook. Analysts expect non-GAAP earnings of $0.07 per share on revenue of $185 million. Its earlier revenue guidance was $181 million to $185 million. It also announced that current chief financial officer Jim McGeever will take over as chief operating officer, and Ron Gill will be the new chief financial officer effective July 1. The stock is trading around $19 with market cap of about $1.2 billion. Its 52-week range is $11.62–$19.21.

Chart forNetSuite Inc. (N)

According to IDC, the SaaS market had worldwide revenues of $13.1 billion in 2009, and IDC expects it to reach $40.5 billion by 2014, representing a CAGR of 25.3%. Consolidation is happening at all levels of cloud computing, both applications (SaaS) and infrastructure. SaaS vendors Taleo, SuccessFactors, RightNow, and Salesforce.com have already started consolidating, and Citrix is the latest cloud computing consolidator but at the infrastructure level.

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