CIO Survey Reinforces Desktop Virtualization Thesis. We surveyed 50 CIOs from IT departments of Fortune 1000 or equivalent companies regarding their future expectations for their PC infrastructure. The results of our survey and our channel checks reinforce our thesis that desktop virtualization is now becoming a critical component of many companies’ desktop replacement strategies. Specifically, the average utilization of traditional desktops are expected to decline from 87.8% currently to 74.3% in five years, while survey respondents indicated that virtual desktops would grow from 1.6% of deployments to 8.5% in five years.
Desktop Virtualization: A Multi-billion Dollar Market Opportunity. We expect desktop virtualization software to grow from minimal deployments currently to at least a $1.8 billion market by 2012. Applying the weighted average utilization rates for virtual desktops from our CIO survey to the overall professional PC installed base would imply an installed base of approximately 24.0 million virtual desktops by 2012, which closely mirrors our $1.8 billion market forecast. Importantly, 24.0 million virtual desktops would represent approximately 5.1% penetration of the professional desktop PC installed base in five years, which we view as very achievable given the cost savings and improved performance and flexibility of this desktop delivery model.
XenDesktop To Complement XenApp. While desktop virtualization represents a new, emerging desktop management technology that we expect to broaden the use of thin computing architectures, some investors have been concerned that sales of XenDesktop could cannibalize XenApp sales. The results of our CIO survey boost our confidence in our channel checks that suggest significant cannibalization of Citrix’s XenApp business will not occur, as only 20.5% of total respondents believe that desktop virtualization is a replacement for terminal services solutions. In fact, 43.2% of total respondents view desktop virtualization solutions as a complement to terminal services solutions while the remaining 36.4% see no relationship between the two technologies. Interestingly, CIOs from large corporations with more than 10,000 corporate PCs are the most positive of the complementary nature of the two solutions.
How To Invest In Desktop Virtualization: Citrix Systems. While we expect both Citrix Systems and VMware to attempt to leverage dominant positions in each company’s respective core virtualization market to enter into the desktop virtualization market, we view Citrix Systems as the better-positioned vendor to capitalize on this emerging opportunity, based on the breadth and depth of its product portfolio, as well as its large installed base of more than 70 million end users currently utilizing XenApp.
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Research team:
Philip Winslow, CFA
Tel: +1 (212) 325 6157
philip.winslow@credit-suisse.com
Dennis Simon
Tel: +1 (212) 325 0930
dennis.simson@credit-suisse.com
Bryan McGrath
Tel: +1 (415) 836 6373
bryan.mcgrath@credit-suisse.com
FOR IMPORTANT DISCLOSURE INFORMATION relating to the Firm's investment banking relationships, if any, with companies mentioned in this report and regarding the Firm's rating system, valuation methods, analyst certification and potential conflicts of interest, please refer to the Disclosure Section in the attached report.
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