Well, yesterday was results day, which does make for some interesting reading. I’m often surprised by how the bigger news feeders interpret these results. I kind of assume that as professional journalists who have to work their way through different press-releases on a daily basis, they would know more than I do.
What prompted this e-mail was an article by The Register:
The article is entitled “Citrix: A long run to VMware: XenDesktop’s big quarter”. It makes quite a trivial point in that, despite the fact that VMware is the larger company, Citrix made larger profits. But dig a little deeper in the stats and the article and you will soon realize that all is not as rosy in the garden as you might think.
1. Citrix profits are “UP a meager three-tenths of one percent when compared to the same quarter last year”. What? We are now measuring in fractions a 1% growth.
2. Product license actually fell by 15%, but what pulled Citrix out of the doldrums was legacy upgrade licenses of $149.3m, which contributed 8%. Clearly, renewals are an important part of any ISVs business, but it gives the impression that Citrix is being held up by products bought in the past, not by a surge of new business.
3. In contrast, VMware’s sales were “DOWN one-tenth of a percent to $455.7m and its net income was driven down by the cost of doing business by 37.8 percent to $32.5m.” Again we're talking about fractions of a % which, when you're talking in billions of dollars, is serious money to you and me. The worrying thing here is the growth in costs, which typically will happen when a company is growing. You see sales are DOWN, compared to the bonkers years when the market was doing well. This kind of thinking, where you are always comparing the value of companies based on comparing previous quarterly results, without any reference to the larger economic cycle, is faulty to me. It reminds me of previous downturns when companies release profits warnings, which I sometimes humorously paraphrase as “You know that totally bonkers growth/sales/profit we had when the good times were rolling, well, now the good times aren’t rolling and we are doing slightly less well than we did then…” Why? Panic selling and all-around doom and gloom.
4. The killer statement is one that is tucked away here in The Register's article, “Citrix did not provide numbers, but in the first quarter the XenDesktop and XenServer products together accounted for $7m in sales, which means sales of these products in Q2 came to $10.5m.”.
Hang on did I read that right? You buy a company (Xen) for $500m and it’s making a quarterly sales (not profit by the way) of $10.5m? And this is the company that is meant to take on VMware? VMware which derives ALL its sales from selling virtualization products (there are no legacy presentation server licenses to prop up VMW sales, remember!). Clearly, Citrix has made some in roads by giving their product away for free, while charging for the upper-end features. This is shown by the more than 100,000 downloads prior to the release of the XenServer 5.1 product in June. But as The Register states, “…letting people monkey around with freebie software isn’t the same thing as making money.”
What would I love to see? I would love to see VMW buy CTXS. Then we would have the best of both worlds (the best of server virtualization and the best of desktop virtualization/server-based computing). Man, that would make those guys in Redmond take a step back and think. However, I doubt that such a merger would get past the competition regulation!
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