Citrix VDI investments questioned amid Dell merger talk

Citrix's future may include a merger with Dell or some other company, or it may get sold off bit by bit – a concerning prospect for Citrix users.

Citrix has gone from trying to sell off some of its technologies to putting the whole shebang up for sale, leaving Citrix shops to wonder about the future of their legacy technology investments.

Unnamed sources told Reuters this week Citrix has changed its strategy from a piecemeal sale of some underperforming technologies to selling the whole company. The news comes amidst major changes, as long-time CEO Mark Templeton heads toward retirement and the company restructures people and products.

But the push to sell all or parts of the company is happening because Citrix is struggling in the public market, not because its products are bad, said David Johnson, an analyst with Forrester Research, Inc., based in Cambridge, Mass. A merger could allow Citrix to refocus and excel at what it's great at, he said.

"Citrix's end user computing products are strong; their challenge is they got away from their core mission, with cloud and hypervisors to compete with VMware at their own game," Johnson said. "But their EUC portfolio is still great."

Citrix's virtual desktop products lead the server-hosted VDI market, according to a Forrester Research report on server-hosted VDI products published this month.  

A Dell-Citrix merger far-fetched

Though many doubt a Dell-Citrix merger will actually happen, Dell is an interesting prospect because despite its good virtual desktop product vWorkspace, it could benefit from Citrix's Workspace Services technologies and become the strongest hardware and software company in the market, Johnson said.

The outcome of big mergers vary depending on whether the deal is private or public, and for Citrix, merging with a private equity company such as Dell is a better prospect than being acquired by a public company where it still has to carry out its strategy under shareholder scrutiny.

Being out of the watchful eye of investors is nice, but if you get under the watchful eye of a company with a bare cookie jar, how will you feed yourself?
Geoff WoollacottPrincipal analyst, Technology Business Research

But it is unlikely Dell could afford to buy Citrix after taking on the debt to go private; that type of acquisition might eat up every dollar the company has left, said Geoff Woollacott, principal analyst at Technology Business Research, Inc. (TBR), a market analysis firm based in N.H. TBR put an $11.6 billion valuation on Citrix.

"Being out of the watchful eye of investors is nice, but if you get under the watchful eye of a company with a bare cookie jar, how will you feed yourself?" Woollacott said.

"From the IT perspective, there is a fair amount of overlap with a Dell deal. It might be a Hail Mary pass," he added.

If such a merger does take place, there could be some roadmap bumps, but the pace of innovation around Citrix Workspace Services would continue, said Andrew Smith, an analyst with TBR.

But if a tech giant such as Dell doesn't merge with Citrix, the next step is to sell off its assets in pieces, according to the Reuters' report. That could mean the end of some Citrix technologies.

"If you take it apart, some parts will leak, though some parts [of the company] are more severable than others," Johnson said.

Breaking the company apart would be disappointing, especially since Citrix is onto something new, said Simon Bramfitt, an industry analyst and chief technologist for Sphere 3D, a Citrix competitor.

"The company is going through a renaissance," Bramfitt said. "After a few years of mismanagement, Citrix has a very bright future and I'd like to see it given a couple of years to revitalize itself."

Citrix Workspace Services is beginning to catch on. In Q2, Workspace Services accounted for $406 million in revenue, up 3% from Q2 2014. (Citrix's net revenue was $797 million that quarter). Workspace Services also accounted for 10% of license revenue.

VMware will soon compete with Citrix's workspace platform with Project Enzo, which recently became available to qualified beta users.

A selective sale of some assets makes sense to industry watchers who say Citrix must shed parts of the business to focus on its strategic product roadmap with Citrix Workspace Cloud and an application-centered, secure way to conduct work. Citrix is spread too thin today to fully invest in its workspace roadmap, Woollacott said.

"Never confuse a clear view for a short distance," he said. "They can't be all things…it's important to stay focused."

IT shops hip deep in a Citrix product inside the flagship part of the portfolio shouldn't worry about the future of those products; any company that buys them will do so because they are valuable assets, Woollacott said.

Forrester's Johnson also said the strength of Citrix's EUC products make them safe investments, even now.

"No one kills winning products," Johnson said. "At least, they shouldn't."

IT pros should be more concerned about who the next CEO is, Woollacott said, as that person could either drive product innovation forward or straight into the ground.

"But if you are invested in the cats and dogs element of Citrix's portfolio, keep a watchful eye," he said.

Dell declined to comment. Citrix did not respond to request for comment.

Citrix's reorganization underway

The move to be acquired reportedly stems from activist investor firm Elliott Management Corp., a New York hedge fund that owns 7.5% of Citrix. Elliott has publicly pushed Citrix to spin off or sell the GoTo franchise, NetScaler and other technologies.

Earlier this month, Citrix's board of directors authorized the company to repurchase up to an additional $500 million of Citrix common stock, with plans to buy shares on the open market based on timing. This reduces the number of shares on the market, increasing Citrix share value for investors.

As part of the company's product realignment, Citrix is killing XenClient, both as a standalone product and as part of XenDesktop Enterprise and Platinum editions. XenClient Enterprise End-of-Sale is October 1, 2015 with End-of-Maintenance date and End-of-Life date scheduled for December 12, 2015 and December 12, 2016, respectively.

The company also killed its VDI in a Box product earlier this year. End-of-Sale has not been disclosed, but End-of-Maintenance is scheduled for October 31, 2016 and End-of-Life on October 31, 2017, according to Citrix's product lifecycle matrix.

Though Citrix has said it may shed its GoTo product line, the company expanded its GoToAssist portfolio this week with Citrix Concierge and GoToAssist Seeit – both of which give end users real-time access to Citrix customer service. 

Bridget Botelho is Senior News Director of TechTarget's Data Center and Virtualization Media Group and the End User Computing Media Group. Send her an email or follow her on Twitter @BridgetBotelho.

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