VMware saw its competition toughen up just a day after its eye-popping debut on the stock market -- but investors didn't seem to fret.
Business software maker Citrix (NASDAQ:CTXS) Systems CTXS said Wednesday that it would shell out $500 million for a small VMware VMW rival called XenSource, which sells "virtualization" software products that help make servers more efficient.
Executives at Citrix say XenSource will make it a strong player in the young virtualization market. Analysts estimate that privately held XenSource's sales this year will probably be less than $5 million, but they give it a chance to grow quickly because of the benefits of virtualization.
"It's a great market," said Michael Cristinziano, vice president of strategic development at Citrix. "It's one of those once-in-a-decade technology shifts."
Cristinziano estimates XenSource sales could rise to $50 million next year and $200 million in 2009.
Citrix already is somewhat in virtualization, but not in the hot server market. Citrix's main business is software that makes it easier to put Windows applications on PCs at remote locations via the Internet.
But some analysts don't see any big competition rising against VMware for a year or longer. VMware is viewed as far ahead in developing the technology. They call Microsoft (NASDAQ:MSFT) MSFT the largest threat for VMware.
"VMware has several years (on) XenSource," said James Gilman, an analyst at Soleil Securities-Cross Research. "That will allow (VMware) to be able to compete and maintain their market share."
VMware became a Wall Street darling Tuesday when its stock soared 76% in its first day of trading. And despite the Citrix announcement, VMware shares rose another 13% on Wednesday. Priced at $29 a share, VMware now trades at 57.71.
Citrix shares fell 1.5% on another down day for the market.
VMware, founded in 1998, pioneered a new type of virtualization. Its software creates multiple "virtual" servers within a physical server. This saves customers money because they can pack more software onto servers. VMware also sells other software and services designed to enhance servers and other hardware.
Analysts put VMware's market share at 85% to 90%, a dominance that lets it command hefty prices. Its sales jumped 89% in the second quarter from the year-ago quarter. Its operating income rose 81%. The company is on pace to do well over $1 billion in sales this year vs. just $74 million as recently as 2003.
Citrix, which passed the $1-billion-per-year sales mark last year, gives XenSource some heft to take on the market juggernaut. Citrix, for example, has some 5,000 resellers to 350 for open-source vendor XenSource.
With XenSource, Citrix gains an entry into the hot server virtualization market. Market trackers forecast sales in this sector to grow at a compound annual rate of 40% for the next few years. Citrix also gets some help with its own desktop virtualization products. Its software lets companies set up desktop systems on multiple machines, using a single server to provide the operating system and applications.
Analysts say Citrix paid a steep price for XenSource, in a deal expected to close this year. But Citrix's Cristinziano says the sum was reasonable given XenSource's assets.
"You pay for what you get," he said.
Under Citrix, XenSource might be able to speed up its development of virtualization tools to close the gap with VMware, says Frank Gillett, an analyst at Forrester Research. (NASDAQ:FORR)
Microsoft, meanwhile, is expected to release its virtualization lineup that competes more head-to-head with VMware in late 2008.
Software sectors usually end up as two-horse races, and virtualization should be no exception, says Walter Pritchard, an analyst at Cowen & Co.
"If you're a No. 3 player in the market, it's not too exciting," he said.
He estimates that VMware's market share will fall to 53% by 2011, mostly due to gains by Microsoft.
Jefferies & Co. analyst Katherine Egbert points to another factor. While Citrix competes with Microsoft to an extent, it also has a long history of working with Microsoft. For that matter, she says, XenSource also has built a strong relationship with the maker of Windows.
The "co-opetition" between Microsoft and Citrix, Egbert says, could present more competition down the road for VMware.
Source: CNN
Business software maker Citrix (NASDAQ:CTXS) Systems CTXS said Wednesday that it would shell out $500 million for a small VMware VMW rival called XenSource, which sells "virtualization" software products that help make servers more efficient.
Executives at Citrix say XenSource will make it a strong player in the young virtualization market. Analysts estimate that privately held XenSource's sales this year will probably be less than $5 million, but they give it a chance to grow quickly because of the benefits of virtualization.
"It's a great market," said Michael Cristinziano, vice president of strategic development at Citrix. "It's one of those once-in-a-decade technology shifts."
Cristinziano estimates XenSource sales could rise to $50 million next year and $200 million in 2009.
Citrix already is somewhat in virtualization, but not in the hot server market. Citrix's main business is software that makes it easier to put Windows applications on PCs at remote locations via the Internet.
But some analysts don't see any big competition rising against VMware for a year or longer. VMware is viewed as far ahead in developing the technology. They call Microsoft (NASDAQ:MSFT) MSFT the largest threat for VMware.
"VMware has several years (on) XenSource," said James Gilman, an analyst at Soleil Securities-Cross Research. "That will allow (VMware) to be able to compete and maintain their market share."
VMware became a Wall Street darling Tuesday when its stock soared 76% in its first day of trading. And despite the Citrix announcement, VMware shares rose another 13% on Wednesday. Priced at $29 a share, VMware now trades at 57.71.
Citrix shares fell 1.5% on another down day for the market.
VMware, founded in 1998, pioneered a new type of virtualization. Its software creates multiple "virtual" servers within a physical server. This saves customers money because they can pack more software onto servers. VMware also sells other software and services designed to enhance servers and other hardware.
Analysts put VMware's market share at 85% to 90%, a dominance that lets it command hefty prices. Its sales jumped 89% in the second quarter from the year-ago quarter. Its operating income rose 81%. The company is on pace to do well over $1 billion in sales this year vs. just $74 million as recently as 2003.
Citrix, which passed the $1-billion-per-year sales mark last year, gives XenSource some heft to take on the market juggernaut. Citrix, for example, has some 5,000 resellers to 350 for open-source vendor XenSource.
With XenSource, Citrix gains an entry into the hot server virtualization market. Market trackers forecast sales in this sector to grow at a compound annual rate of 40% for the next few years. Citrix also gets some help with its own desktop virtualization products. Its software lets companies set up desktop systems on multiple machines, using a single server to provide the operating system and applications.
Analysts say Citrix paid a steep price for XenSource, in a deal expected to close this year. But Citrix's Cristinziano says the sum was reasonable given XenSource's assets.
"You pay for what you get," he said.
Under Citrix, XenSource might be able to speed up its development of virtualization tools to close the gap with VMware, says Frank Gillett, an analyst at Forrester Research. (NASDAQ:FORR)
Microsoft, meanwhile, is expected to release its virtualization lineup that competes more head-to-head with VMware in late 2008.
Software sectors usually end up as two-horse races, and virtualization should be no exception, says Walter Pritchard, an analyst at Cowen & Co.
"If you're a No. 3 player in the market, it's not too exciting," he said.
He estimates that VMware's market share will fall to 53% by 2011, mostly due to gains by Microsoft.
Jefferies & Co. analyst Katherine Egbert points to another factor. While Citrix competes with Microsoft to an extent, it also has a long history of working with Microsoft. For that matter, she says, XenSource also has built a strong relationship with the maker of Windows.
The "co-opetition" between Microsoft and Citrix, Egbert says, could present more competition down the road for VMware.
Source: CNN
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