By Charles King, Pund-IT, Inc. September 21, 2016
“Transformation” is a weighted term in the IT industry. That’s partly due to its widespread use, to the point of being a bromide in all too many circumstances. At the same time, effective transformations do occur in Silicon Valley and other IT hotbeds. While the evolutionary effects sometimes don’t result in what people expect, other times they do deliver the goods.
The transformation of Citrix Systems during the past year or so is one of the latter variety. Last week in Santa Clara, company executives, including CEO Kirill Tatarinov hosted an analyst meeting to discuss Citrix’s current state, its recent progress and future strategic plans. Let’s discuss that.
Getting from there to here
Remember that in July 2015, a year after reporting a YoY drop in net earnings of over $90M (-25%+), Citrix announced changes in its board of directors, the retirement of longtime president and CEO Mark Templeton, and the beginning of a search for a new chief executive. In October, Citrix said it would review options for selling or spinning-off its GoTo product line. Then in January 2016, the company named Tatarinov, formerly EVP of Microsoft’s Business Solutions (Dynamics and ERP products) its new president and CEO.
This was serious stuff for a company that is among the industry’s best known workspace software vendors with a solid presence in many of the world’s largest and best known enterprises. That includes all of the Top 10 companies in aerospace and defense, automotive, banking, chemicals, computers and electronics, healthcare, insurance, investment and pharmaceuticals.
Other Citrix customers? How about the five largest U.S. government agencies, the ten largest U.S. states, the Top 10 ranked U.S. universities, the ten largest U.S. school districts and the world’s Top 5 ecommerce sites. Then again, you can’t have everything. In the case of Citrix, that means only working with just four of the top 5 cloud vendors and only 15 of the Top 20 telcos.
So what are the challenges to Citrix’s business that forced it to consider a new direction? The company has long been at ground zero for the workspace revolution that is reshaping many of the IT industry’s leading vendors. That began with the advent of BYOD policies that dramatically ramped up technological complexity in businesses of every kind, then was immediately followed by the rapid, radical shift to mobile devices and business processes that continues today.
Toss in the widespread adoption of cloud services and solutions by most of Citrix’s customers, along with a rapidly evolving threat landscape for both private and public sector organizations, and the result was a virtual guarantee that CEO Tatarinov’s new gig would fit into the “never a dull moment” category.
After a brief introduction by Citrix CMO, Tim Minahan, Tatarinov kicked off the analyst event with an overview of the company’s current state and forward looking strategy. As noted, Citrix is best known for its traditional workspace solutions, particularly its Xen Family line for delivering and managing Windows productivity and other applications to thousands of physical and virtual desktop clients and other endpoints.
Tatarinov certainly gave those offerings their due respect, highlighting their importance to customers and longstanding strategic partners. But he also emphasized that as workplaces have grown in size, variety and complexity, Citrix has evolved, as well, intent on delivering solutions for: “Any device. Any workload. Any cloud. Any workplace.” Tatarinov also acknowledged that Citrix has to do a better job telling its story and underscoring its value to existing customers and in new markets.
That’s a critical point, since its commercial opportunities are anything but equal. For example, though over three quarters of Citrix’s 400,000+ corporate customers use its core Xen Family offerings, sales revenues from those solutions are growing in low single (percentage) digits. That doesn’t mean the company is reducing its energies there. In fact, it has refocused its efforts around core solutions, and is rapidly delivering new Xen Family innovations.
The number of customers using Citrix’s NetScaler and ShareFile offerings, along with its various cloud services are smaller than those using Xen Family, but those solutions are growing far more robustly and contributing increasingly to the company’s bottom line. Not surprisingly, Citrix’s leadership is focusing considerable attention and energy on growing those businesses.
In fact, Tatarinov noted emphatically that the company is, “All in with the cloud,” and is furthering that effort via its strategic partnership with Microsoft whose Azure is Citrix’s cloud platform of choice. Since Tatarinov became CEO, he and his team have also implemented operational efficiencies that delivered significant enhancements to Citrix’s balance sheet. Those included removing $200M in costs and divesting non-core products. As a result, earnings per share are up 44% YoY, and Citrix is sustaining healthy operating margins of 29%.
That economic stability should serve Citrix well as it pursues future growth. Broadly speaking, the company aims to “redefine the workspaces of the future.” How that translates to the company’s business includes serving 100M total users, 50M total FileShare users and 500k networking instances, as well as selling Citrix Cloud services to over half of new customers, all by 2020.
How possible or likely is it that Citrix will achieve those goals? Overall, the company is in a far better position today than it was a year ago. Tatarinov’s long history in enterprise software, as well as his experience with Microsoft make him an ideal person to lead this transformational effort. The short term results have been good and seem likely to improve so long as Citrix stays close to its core constituencies, delivering the traditional solutions they need to run their organizations and developing new offerings that take advantage of emerging technologies and use cases.
Like many other software vendors, strategic partnerships play critical roles in Citrix’s near term success and long term plans. Microsoft is obviously crucial in this regard for Citrix but so are its relationships with other closely aligned vendors, including Dell, HPE, Lenovo and others. The company also needs to grow and evolve relationships in other spheres and, as a result, is expanding its alliance with Google (around Chromebooks and Android devices), and outreach among strategic partners, including solution and service providers.
While the impressions I took away from the Citrix analyst event were positive, the company continues to face significant challenges. Tatarinov and his team deserve congratulations for a terrific start, but achieving long term stability and excellence is never easy. Citrix also has formidable competitors on many fronts, particularly from VMware and its Horizon virtual desktop solutions.
These points aside, the story presented at Citrix’s analyst event last week was concise and clear sighted, and the company’s future direction and goals appeared both sensible and achievable. Nothing is ever guaranteed in business, let alone Silicon Valley but the transformation that Citrix’s leadership has achieved during the past nine months suggests that additional progress and growth are likely in the months ahead.
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