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Nov 03

End of the Year – Citrix Revenues Still Have Me Scratching My Head

Citrix, VMwarePost by Mike DiPetrilloAdd comments

Last week Citrix released their earnings for Q3 2008. XenDesktop and XenServer combined to give them $7 million for the quarter. This brought back my initial thoughts of why the purchase of XenSource late last year even makes business sense. I’m not talking technology here since they have a fine product – I’m talking about the business numbers. Personally if I go out and spend $500 million on a company I want to make that money back in at least 3 years so I can start adding to my coffers after that.

To date Citrix has made $14 million off XenServer and XenDesktop ($3 MM in Q1; $4 MM in Q2; $7 MM in Q3). At this run rate they will make their $500 MM back sometime in 2020 (assumes $10 MM per quarter). Here I thought Microsoft would be late to the game with a target of releasing yesterday’s technology in 2010. Citrix may be closer with the technology side but I’m fearful they won’t be around long enough to do anything with it.

When I originally wrote about this in February Simon Crosby (CTO of Citrix) accused me of trying to prove that I passed high school math. Well, Simon, I passed high school math. I was actually the captain of the high school math team and had 4 years of calculus in college. With all of that I still can’t make business sense on this acquisition and the payback to Citrix.

Later in the year I wrote about the impact for Citrix partners vs VMware partners when looking at revenue opportunities. With $7 MM in Citrix revenue for Q3 versus $473 MM for VMware in the same quarter, if you’re a virtualization partner which slice of pie would you rather be fighting for?

So if there’s anyone out there that can explain the business sense (not the technical sense) of how this was a good thing then please feel free to comment away. If anything else we’ll at least have an interesting conversation.

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  • Armchair General
    The Xen acquisition was about heading off a potential threat to Citrix real business, Presentation Server. "Follow the money". Half a billion to hedge against a VMWare/VDI threat to your core business doesnt sound so bad.
  • Yeah, but that hedge just isn't paying off. No one is buying it (or very few are), it's chewing up resources that could be used for XenApp, and the money still could have been spent better somewhere else. Time will tell of course but as you can see from current revenues they aren't doing that great with this new found wealth. $9 MM in sales for server and desktop combined? Pathetic. Go to a comment on another post for the details.

    http://www.mikedipetrillo.com/mikedvirtualizati...
  • That's a really valid point, Dave!
  • Dave
    Here's another interesting math problem. If Citrix put $500 million in a 4% CD, how much they can make?
    That's $20 million, more than what they can make from Xenserver and without any work. In addition, they can still keep their $500M in the bank.
  • Scott,

    I guess you have a point. One of the reasons I'll never run or own a company that makes purchases that don't make me money. I own a small aircraft leasing company with about a dozen aircraft. I don't buy large jets since they won't pay themselves back. Sure it would take me into a new market and broaden my customer base but I just can't afford to float that drain on the business. I guess companies like Citrix and Microsoft are making so much money from their customers that they can afford to waste a half a billion here and there. I really wish my little company was in that spot.
  • Scott
    Perhaps it's not your math skills but business savvy. Not all acquisitions, purchases, mergers, takeovers, what have you, are done for pure ROI reasons. There are market strategy, sector placement and expansion reasons that drive some of these things. Microsoft, as one example, has made many of them that made no sense financially.
  • Stu
    What I find most interesting is that the numbers for XenServer on it's own don't seem to be anywhere. XenDesktop probably accounts for 80% of that $14mil, and nothing in the core of that product (ie portICA and the broker) came from the XenSource acquisition.
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