Fort Lauderdale, Fla.-Based Software Firm Needs to Fuel Growth, Analysts Say
The Miami Herald
Mar. 2--Citrix Systems, the darling of South Florida's high-tech community since the company's inception in 1989, has essentially been a one-trick pony.
Granted, the Fort Lauderdale company has reached almost $600 million in revenue on the back of software that allows applications to be accessed from a central server, saving companies the time and expense of installing programs on individual computers and other devices.
Going forward, Citrix must rely on new products to fuel the high-octane growth that investors expect from high-tech companies, analysts say.
This week, Citrix takes a big step in transitioning to a multiproduct company when it unveils its latest software to a gathering of more than 1,000 of its resellers in Hollywood. Resellers will be responsible for marketing the software to corporate customers.
The software, code-named South Beach, capitalizes on the migration of computing to the Internet. The South Beach portal server creates a personalized Web environment where employees, customers and suppliers can access information, services and software applications using a variety of devices. Citrix likes to refer to it as the "virtual workplace."
"It's around the whole idea of having the office come to you instead of you having to go to the office," explains Mark Templeton, Citrix's chief executive. "So the benefit for the user of the virtual workplace is they get work-time flexibility. They can work when they need to or want to, wherever they need to or want to."
Citrix has dominated the server-based computing world and may be on its way to becoming a $1 billion software company. Duplicating that success in the portal market will be difficult given the intense competition and the drop in capital spending by companies grappling with a sluggish economy.
The pending release of South Beach hasn't done much to pump up Citrix's stock, which hit a 52-week low last month after Citrix revised its outlook downward. Perhaps also holding the stock down are persistent rumors that Microsoft Corp. may eventually compete with Citrix's core technology. Microsoft licensed Citrix technology for use in the Redmond, Wash., company's operating system in 1997, but that agreement ends next quarter.
Followers of Citrix still regard the company as a favorite.
"In the new world that I see, it's going to be one of the top 10 software companies" within 24 months, predicts Michael E. Stanek, an analyst with Lehman Bros.
Having played the part of start-up company, Citrix is preparing for its next role.
"In all of software history, there are fewer than 50 independent software companies that have been able to cross over the $1 billion revenue mark," CEO Templeton notes. "And today, there are actually less than 25 that are over it. We feel very, very well-positioned not only to break through, but to stay through."
Templeton declines to say when Citrix should reach that mark, but he predicts the annual growth rate of its core technology -- MetaFrame -- should range anywhere from 15 percent to 30 percent. Using the low end of the estimate, Citrix would break the $1 billion barrier in 2004.
And that doesn't take into account sales of South Beach, its new portal product. Citrix has yet to officially name the product, and it hasn't disclosed what the software will cost. Still, Tom Ernst, an analyst with Thomas Weisel Partners in San Francisco, says sales of South Beach could reach $75 million next year, its first full year on the market.
"This is a company trying to reach a point where they're a strategic part of companies' infrastructure, much in the same way as a Microsoft and Oracle have become," Ernst says. "I think it's doable, but it's certainly not a guarantee."
Citrix has been bundling NFuse, a portal product it developed, with MetaFrame. NFuse allows users to access Windows and Unix applications over the Web. To accelerate its involvement in the portal market, Citrix last year paid about $185 million to acquire Sequoia Software Corp. of Columbia, Md.
Sequoia developed the technology to access applications for such things as customer-relations management and enterprise-resource management. There was just one problem: The Sequoia technology literally took months to implement. So Citrix has spent the last year redeveloping the technology so it can be implemented more quickly and easily, Templeton says.
Citrix relies on a group of about 8,500 resellers to market its products, about 1,000 of whom will be introduced this week to South Beach at the Westin Diplomat Resort and Spa in Hollywood. About 500 resellers initially will be trained and certified to sell and support South Beach, which is expected to be available by the end of June. In the meantime, resellers will be able to presell South Beach.
"South Beach is the way they're advertising their introduction into the portal market, and everybody and their brother is in the portal market now," says Keith Holcomb, chief operating officer of Aspedient Technologies, a Citrix reseller based in Miami.
Holcomb says companies like IBM and San Jose-based BEA Systems already have introduced some portal products, so Citrix will be playing catch-up. One advantage Citrix has is a sales channel to market South Beach to its existing customers, he says.
Even if Citrix is somewhat behind the competition, many see its move into the portal market as critical because of the migration of applications to the Web.
Daniel M. Kusnetzky, who follows software developments for consulting firm International Data Corp., says demonstrations of the portal software highlight some powerful tools.
"Citrix faces a problem, however," Kusnetzky says. "Their demonstration . . . looks just like the demo-ware others are showing. Citrix hasn't really found a way of distinguishing themselves."
Criticism is nothing new for Citrix. For years, critics have been saying it was just a matter of time before Microsoft invaded Citrix's turf and offered a technology similar to MetaFrame.
Such talk erupted again last fall when Lehman Bros.' Stanek raised the possibility of a relationship developing between Microsoft and New Moon Systems, a San Jose software maker that has a product that competes with Citrix's MetaFrame.
The rumors may have contributed to a decline in Citrix's stock in the fall, but no deal ever materialized. Yet because Citrix works so closely with the Windows operating system, the questions continue to dog the company.
At Citrix's annual conference in Orlando last year, Bob Kruger, the company's chief technology officer, addressed the issue.
"People have asked me . . . how do you dance with the gorilla?" Kruger said. "Well, the answer is you've got to be really light-footed. You've got to stay out of his way. You've got to be observant and understand where the sweet spots are in the marketplace."
Even Microsoft tried to quell concerns in a December statement. "We value our relationship with Citrix greatly and continue to view Citrix as a leading provider of solutions that solve the critical application access problems faced by our mutual customers," said Charles Stevens, vice president of Microsoft's enterprise partner group.
Templeton and analysts deny there's any significance to the end of Citrix's five-year licensing agreement with Microsoft in a few months. Microsoft licensed Citrix's technology in 1997 -- rather than develop it itself -- and paid the Fort Lauderdale company $175 million.
Templeton expressed doubt that Microsoft would now offer its own version of MetaFrame.
"Why would they do that when we're already doing the key thing that they're looking for, and that is driving the adoption of the Windows platform?" Templeton says. "I don't understand the economic incentives for aggressively competing with us."
South Florida's most-prized start-up technology company was founded in 1989 by Edward E. Iacobucci, who had led the IBM team in Boca Raton that developed the OS/2 operating system.
Iacobucci was Citrix's technological visionary until the company badly misfired on its earnings target in the second quarter of 2000 and its shares lost about 70 percent of their value. Iacobucci left Citrix and Templeton relinquished his title as chief executive, though he remained the highest-ranking executive. In an odd twist, Citrix's board reinstated Templeton as CEO following a nearly yearlong search for a new boss.
In his second stint leading Citrix, Templeton says Citrix has been successful in penetrating its existing customer base. In the past, it had difficulty infiltrating companies beyond individual departments.
"We actually have some research that shows that our opportunity in just the MetaFrame area is $8 billion," he says. "Just to give you some context, since the company was founded in 1989, we have cumulatively less than $2 billion in revenue for everything we've sold."
Still, Microsoft can't rely on MetaFrame exclusively to drive its growth, some say.
"Long term, they will be challenged to clearly define their strategy to bring other software technologies to bear on their solution," says David Friedlander, analyst with Giga Information Group, a technology advisory group in Cambridge, Mass. "They'll need to do this in a time frame that will protect them from the sort of leveling off in the growth of MetaFrame."
In January, Citrix lowered its forecast for MetaFrame's growth to 15 percent from 20 percent, a letdown after a strong fourth quarter when revenue jumped 28 percent and profits climbed 32 percent. At the same time, rumors spread that some of Citrix sales staff had bolted, Templeton says.
Nervous investors pushed the stock to a new 52-week low of $13.50 last month, before it regained some altitude last week. It closed at $15.25 on Friday. Two years ago, the stock was trading above $118.50.
Where Citrix goes after it introduces South Beach, Templeton won't say. But he says a lot more technologies and products can be offered in the context of the virtual workplace. And it's sitting on more than $700 million in cash that it could use for acquisitions.
"The bigger issue for Citrix surrounds new products," says Michael Cristinziano, an analyst with Gerard Klauer Mattison in New York. "They will be the swing factor with respect to growth. . . . While MetaFrame could be seen to be a grand slam, I would hope South Beach could be a double, and hopefully Citrix can follow up with a bunch of singles.
"If the portal strategy is not successful, I would blame the execution, not the strategy," Cristinziano adds. "Now we have to see how they execute."
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(c) 2002, The Miami Herald. Distributed by Knight Ridder/Tribune Business News. CTXS, MSFT,
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