Citrix Q3 results find acid in the sweet spot

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Citrix has announced Q3 financial results that, although positive overall, have left its leaders to explain some holes in its performance, notably in the virtualisation space.

Mobility, collaboration and networking specialist Citrix outlined its vision of the “software defined workplace” in its Q3 2014 financial results, saying that “customers are looking for a better way to mobilise their businesses while creating a more secure, flexible and easy-to-use infrastructure”. But that hasn’t translated into a wholly convincing set of numbers.

Citrix’s figures were mixed, if superficially positive: total revenue increased by 6.5 per cent year on year to $759 million, with revenues from the firm’s collaboration portfolio growing by 13 per cent. Mobility and data sharing also performed strongly, delivering growth of more than 50 per cent year-on-year.

However, there were some devils in the detail: overall revenue growth is slowing, and net income fell from $77 million to $44 million for the quarter. Product licence revenues were down by four per cent and desktop and app virtualisation continued to experience what COO and CFO David Henshall called “the general weakness that we’ve seen all year”.

“We are working to address the softness in desktop and app virtualisation where new licences declined year on year, impacting revenue growth for the whole company,” said Henshall, blaming what he called the “broad project-specific segment” for the majority of the decline. “Demand in this area has been impacted by customers focusing on deploying multiple different types of applications, not just Windows apps.”

Because of this weakness, Citrix has reduced its guidance for Q4.

The CEO’s perspective

CEO Mark Templeton acknowledged that the results were a mixed bag. “The pivot of our traditional desktop business, a pause in build-out, and a tighter selling environment in a number of markets, including China, Russia and Japan, were all headwinds to our top line,” he said. “But in Q3, we accelerated our focus on leading the market and industry conversation for mobile workspaces.”

In June, the company introduced the Citrix Workspace Suite, bringing together apps, desktops, data and services under a single licensing structure. “We closed several multimillion-dollar deals in the healthcare and financial services verticals,” said Templeton. “Though still early in the launch, we expect the workspace suite to drive an uptick in strategic account penetration, increasing recurring revenue per customer, and further distancing us from competitors in the market.”

Indeed, Citrix has outlined what Templeton called “a very aggressive roadmap” for the workspace services business, which he said is “designed first to enable simplicity, speed and scale-out for medium and large enterprises and, second, to deliver the industry’s most integrated solution for mobile workspace services, and third, to accelerate growth for Citrix service providers.”

In terms of its networking business, Citrix is “continuing to expand [its]go-to-market coverage and partnerships through technical integrations, OEM products and end-market partnering with Cisco,” said Templeton. “We are also building our go-to-market capacity with new networking centre channels.”

The question of data

Templeton had an interesting take on the strategic issue of data sovereignty, which has grown in importance as EU regulators have taken aim at US cloud dominance – helped somewhat by Edward Snowden’s revelations about government spying programmes, which have called into question the notion of a US safe harbour.

“Data sovereignty has plenty of momentum around the world, I would say led by legislation and regulation in Germany and then by many EU countries following suit at some level,” said Templeton. “Canada has joined that, and then obviously there are some nations like China that are all about data sovereignty by default.

“We expect to see more of that, especially as you see [security]breaches and governments then get the moral authority to find data [sic]. It’s also good for their [EU countries’] economies, because it keeps data centres within a given region or a given country.”

Templeton added that what he called “hyper clouds” within various countries are, in his personal view, “likely to come under government jurisdiction”.

• Recent Q3 earnings headlines

Microsoft: Revenues up 11 per cent year on year, excluding its Nokia phone business (now Microsoft Lumia), driven by cloud and server products.
IBM: Declining sales create weak and transitional results: Revenues down by four per cent, beneath analyst expectations. IBM is paying Globalfoundries $1.5 billion to take its chip unit of its hands.
Google: Revenues up 20 per cent, but profits down as the cost per click (CPC) of its mainstay advertising business continues to fall in the global shift towards mobile business.

About Author

Chris Middleton

Chris Middleton is a widely respected business and technology journalist, author, and magazine editor. In recent years he has been Editor of Computing (where he remains Consulting Editor); co-founder and Managing Editor of Professional Outsourcing – a magazine he developed from scratch and grew to be the leading magazine in its field; Editor of CBR in its most successful year; and co-founder and launch Editor of Sourcingfocus.com. Today, he is co-Director of EastwoodMiddleton Publishing, and founder, designer, and Editor in Chief of Strategist magazine (UK), the boardroom magazine that provides strategic insight for business leaders, and of its mobile-first digital edition at www.iamtheStrategist.com. He is also co-founding Editor of Child Internet Safety magazine, and a contributing Editor of Diginomica.com. Over the years Chris has also written for, among many others, The Guardian, The Times, the BBC, and Computer Weekly. He is the author of several successful books on digital media, and a commissioning editor of more than 50 books.