Written by: Philip Winslow and Dennis Simson
Does Citrix Need Its Own Hypervisor? We believe that Citrix may be interested in acquiring core virtualization infrastructure and management tools as part of a strategy to broaden its product portfolio to better address the next-generation data center—based on our analysis of the desktop virtualization market as well as recent feedback from industry participants, combined with management’s recent public comments that virtualization and systems management are areas of potential interest for acquisition.
Implications. In our opinion, one of the Xen developers—either XenSource or Virtual Iron—could represent an attractive target for Citrix, as we believe that hypervisor and associated management solutions would be complementary to Citrix’s long-term vision of offering scalable application and desktop delivery. While these companies’ virtual infrastructure management tools are more immature versus more-established vendors, if Citrix can develop robust management software through increased R&D while leveraging the open source Xen hypervisor, Citrix could establish itself as a strong competitor in both desktop and server virtualization within two to three years. Acquiring XenSource could also strengthen Citrix’s relationship with Microsoft. Conversely, while timing and pricing for any potential transaction is unknown, the near-term implication of an acquisition of either vendor would likely be some EPS dilution.
OS Virtualization Complements Desktop Server Efforts. In our opinion, combining virtualization technologies to separate the three primary components of the traditional desktop infrastructure “stack”—operating system, application, and presentation—can produce a Virtual Desktop Utility (VDU) that parallels the theme of utility computing. In addition to these virtualization components, desktop/session management and virtual infrastructure management software tools are required to enable allocation of desktops, user mapping, and management of pooled desktops. Citrix currently maintains presentation and application virtualization technologies with Presentation Server and Project Tarpon, as well as user mapping tools in Desktop Server, but the company currently only partners with OS virtualization vendors for hypervisor and virtual infrastructure management tools to complete its desktop virtualization solution.
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Philip Winslow, CFA
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