What’s going on at Citrix?

Shedding GoTo Meeting business could allow the company to refocus on XenApp and virtual desktop products

Tim Walsh, senior IT Architect at the Donald C. Cook Nuclear Plant in Michigan, is a happy Citrix Systems customer. But he wasn’t surprised to learn this week that the company that makes most of its revenue from virtual client computing technologies is embarking on a major restructuring that will include spinning off of its GoTo Meeting family of collaboration products.

“I never really saw where the GoTo Meeting business fit into their virtualization strategy,” said Walsh, who manages a 2,000-user deployment of Citrix XenDesktop and Citrix XenApp, two of the market’s leading desktop and application virtualization products.

News of the shakeup, which will break GoTo Meeting and affiliated products into an independent, publicly traded company while resulting in about 1,000 employees being cut through two rounds of restructuring, is somewhat of a reckoning for the company. Customers and analysts say that while potentially painful in the short-term, it could help Citrix maintain its leadership in a lucrative, $3 billion virtual application market.

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The collaboration and productivity products that will be spun out – which include GoTo Meeting, GoTo Webinar, GoTo Training and OpenVoice (an audio conferencing service) –net about $600 million in sales annually, the company said. Remaining with Citrix will be what the company calls its core products, which include XenApp and XenDesktop, but also XenMobile (a mobile management software), ShareFile (a sync and share service) and NetScaler (a network optimization product). In 2014 across all of its products – including the GoTo family - Citrix earned about $3.1 billion in revenue. XenApp and XenDesktop enable virtual client computing – meaning the desktop and applications run in a central location and are accessed by end users on thin-clients or their own devices.

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It’s a big move for a company, but one that analysts say is needed. “More than anything right now, Citrix needs focus,” says Forrester principal analyst David Johnson.

It’s been a somewhat tumultuous past few years for Citrix. On the technology side, the company took a gamble two years ago, says IDC analyst Robert Young. Citrix reengineered XenApp and XenDesktop to more tightly integrate and allow them to run on the same server and OS. It was a necessary move, Young said, but it provided an opening for VMware, Citrix’s biggest competitor in the virtualization market.

VMware began an aggressive push into the end user computing market during that time. The company hired Sanjay Poonen from SAP to run its End User Computing business; it bought enterprise mobility management vendor AirWatch; added a virtual application product named ThinApp to complement its Horizon virtual desktop product; VMware also partnered with NVIDIA to allow graphics-intense applications like computer aided design programs to work in virtual environments. Citrix spending significant engineering efforts on replatforming its products allowed VMware to increase its market share.

Forrester still lists Citrix as the leader in the virtual desktop infrastructure market, but in recent years VMware has crept into a leadership category of the research firm’s Wave report. IDC estimates that Citrix holds a 40% market share in virtual client computing – which includes virtual desktops and apps – but VMware is gaining market share while Citrix’s revenues have flattened. IDC projects virtual client computing to be a $4.4 billion market by 2019.

On the corporate side, things have been shaky at Citrix too. In June activist investors Elliott Management Group took a keen interest in the company. This is the same group that took a minority stake in EMC, which spurred that company’s buyout by Dell for $67 billion. A month after Elliott’s arrival, Citrix’s long-time CEO Mark Templeton announced he would retire – after a 14-year run as CEO and having flirted with the idea of stepping down years prior. Elliott gained a seat on the company’s board of directors at the time as well.

With the restructuring announced this week, some things are still uncertain. Citrix’s current CEO – Bob Calderoni – still has an “interim” slapped in front of his title. When announcing the restructuring this week Calderoni said Citrix would evaluate in the coming months which of its other products it would “rationalize” – meaning potentially cut. One seen as a target is the company’s collaboration platform named Podio. Over the next half-year it will shed 1,000 jobs – about one-tenth of its workforce through two rounds of cuts. A Citrix partner – who did not want to be quoted as to not strain relations with the company – said the departure of many senior executives at the company during the past few years has hurt it as well.

Citrix announced the restructuring after Wall Street trading hours on Tuesday, and the company’s stock dropped 10%. Some financial analysts are taking a wait-and-see approach. “Overall, we view management's operational announcements as necessary for the future of the business, but see increased near-term execution risk and continued lackluster growth,” Pacific Crest Securities analyst Rob Owens noted, according to Investors Business Daily. Some have speculated that perhaps Citrix is trimming down its business to prepare it for a sale.

Tech analysts say this week’s moves make sense though. The GoTo Meeting side of the business has not aligned with its virtualization products; they appeal to a different buying audience and have little overlap. Johnson, the Forrester analyst, says customers of the company’s virtualization tools shouldn’t worry. “Business as usual,” he says. If anything, these moves should allow Citrix to double-down on investments in XenApp and XenDesktop.

Customers don’t seem to be taking the news too hard though. Walsh, the IT architect from Michigan, attended a Citrix user group meeting a day after news of the restructuring broke, which included about 15 other users and two local Citrix representatives. Reflecting the business as usual approach many customers are taking, Walsh said none of the customers at the meeting mentioned the news, and Citrix representatives were mum about it. One of the biggest restructurings in the company’s history didn’t even come up in conversation.

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