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Citrix Turns to Desktop Virtualization

Citrix, lacking growth in its core software business of application virtualization, is turning to desktop virtualization.


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, a software company best known for its Presentation Server product now known as XenApp, is seeking fresh growth areas to revitalize its top line.

Lacking growth in its core software business of application virtualization, Citrix is turning to desktop virtualization, a product area long hyped as the next big thing with little to show for it -- until now. Citrix acquired


for around $500 million in October 2007. XenSource develops server and desktop virtualization tools; at the time of the acquisition, XenSource generated minimal revenue.

Desktop virtualization decouples the operating system from a desktop PC and allows the OS to be loaded from a network server. This adds complexity to an IT environment but also gives managers more control over applying patches and keeping computers secure. Desktop virtualization also enables thin-client computing, a system in which desktop PCs are stripped of hardware such as hard drives and major computing power. Data is stored and processing is conducted at the centralized server, ensuring that sensitive data is closely monitored and controlled.

Citrix emerged as a leader in the fourth quarter, generating $30 million in desktop virtualization revenue for the quarter. Combined with its server virtualization product, Citrix Essentials, growth in the segment was 150% on a year-over-year basis. The company strongly established itself as the leader of the pack, although it faces stringent competition.

Server virtualization pioneer and leader


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Red Hat

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are building desktop and server virtualization tools, hoping to build from server operating system roots.

As enterprise PC upgrades continue, particularly on the heels of Microsoft's Windows 7 release, desktop virtualization is a tool that corporations will closely evaluate. Leaking of sensitive data is becoming a major cost to companies and organizations, and well-managed desktop virtualization could play a crucial role in mitigating the problem.

Desktop virtualization could be a major growth opportunity for Citrix and it appears that the acquisition of XenSource is beginning to pay off. If the company's fourth-quarter performance becomes a trend, the stock could be viewed as undervalued and ripe for appreciation.

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