Thursday, February 4th, 2010
Citrix Buyout Rumors Make Another Appearance
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Citrix Systems, Inc. (NASDAQ:CTXS) has been a long-standing takeover target for companies like Oracle Corporation (NASDAQ:ORCL) or Cisco Systems, Inc. (NASDAQ:CSCO), as server virtualization continues to grow in popularity.
Citrix Systems, Inc. (CTXS, Free Analysis) is one of the leading providers of server virtualization technologies behind industry-leader VMWare, Inc. (VMW, Free Analysis). And the market itself is estimated to be worth over $11.7 billion by 2011, according to the IDC, as companies look for ways to cut costs and increase efficiency in the workplace.
Virtualization software allows users to take a single server and run several operating systems, which enables multiple users to work in multiple environments on the same server. This allows organizations to realize substantial cost savings by consolidating their computing environments and reducing maintenance and support costs as well.
A Crowded Space with Few Leaders
Many companies have tried to enter the space, but without much success competing against the dominant players. Oracle Corporation (ORCL, Free Analysis), for example, acquired Virtual Iron for an undisclosed amount in May 2009. However, the tech giant has since shut down the company and simply assimilated its code base.
Meanwhile, Microsoft developed its own solution despite being late to the party. The company’s Hyper-V technology lacks many of the features that its competitors possess, but its solutions are some of the cheapest in the marketplace. Ultimately, this has led to pricing pressure within the industry and forced many players to expand their offerings.
Why is Citrix Appetizing as a Buyout?
Citrix Systems acquired XenSource in late 2007, which is a leading provider of enterprise-class virtual infrastructure solutions based on the open source Xen virtualization engine. Interestingly, many other players in the industry rely on this open source engine, which gives the company an edge now in the playing field, as it now controls the development.
Meanwhile, Citrix would represent a relatively cheap entry into the market at approximately $7 billion, even if a hefty premium was assigned. Companies like Cisco Systems (CSCO, Free Analysis) have no current presence in the market, but could obviously stand to benefit as it would be an easy up-sell for their existing product-line.
The Takeaway…
- Server virtualization is a rapidly growing market that many software companies are trying to dominate with limited success.
- Microsoft and Oracle are targeting the lower end market, where VMWare cannot complete on cost.
- Citrix could represent a relatively cheap entry target for networking or server companies looking to enter the market with an easy up-sell path.
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-- Written by David Breen
