Editor’s note: With an interim CEO with a finance background, it is no surprise the Citrix operational transformation plan focuses on cutting costs, holding revenue constant, and boosting margin performance from efficiency measures. Citrix has a big operation in Raleigh, and it is possible the firm will shut down a startup accelerator program located there. So what’s going on? Technology Business Research analyst Andrew Smith takes a look.

HAMPTON, N.H. – With an interim CEO with a finance background, it is no surprise the Citrix operational transformation plan focuses on cutting costs, holding revenue constant, and boosting margin performance from efficiency measures. On Nov. 18, 2015, Citrix announced the divestiture of its GoTo products and the appointment of new CMO Tim Minahan. Minahan was previously CMO of SAP Cloud and worked with interim CEO Bob Calderoni at Ariba. Citrix also announced the elimination of 1,000 employees.

All of these decisions came as a result of the vendor’s strategic operating review, a multiyear plan designed to simplify Citrix’s messaging, optimize the business model, and reduce ongoing operating costs. Delivering more value to shareholder and increasing margins are not new initiatives for Citrix. The vendor has been focused on these objectives for all of 2015, in accordance with its 2015 Restructuring Program launched in January and designed to eliminate 700 full-time positions as well as reduce the vendor’s physical footprint.

Citrix’s announcements come weeks after Citrix reported healthy third quarter revenue of $813 million with year-to-year growth of 7.2%. Citrix’s CEO, Mark Templeton, announced his resignation at the end of 3Q15.

Citrix will convey a value proposition that highlights its growing portfolio of comprehensive offerings designed around XenApp, XenDesktop, ShareFile and NetScaler. To bolster these products, Citrix and Calderoni outlined a comprehensive strategy to increase investment in these core products. Gone are the days of relying on XenDesktop and XenServer virtualization combinations to sustain revenue growth.

We expect Citrix’s virtualization capabilities to be steadily de-emphasized over the next two years as the vendor transitions its focus and builds its midmarket appeal with services-based solutions designed around XenApp, XenDesktop and NetScaler. Citrix will also reduce capacity across low-margin consulting segments, transitioning more capabilities to partners.

Portfolio consolidation will free up the most short-term capital for Citrix to shift to higher-value products. ByteMobile, WorkspacePod, Podio and Startup Accelerator will be the primary products de-emphasized. Supplementing this effort will be the spinout of the GoTo product line, which Citrix believes will accelerate the pace of innovation for core products as well as improve the vendor’s ability to integrate, package and price new deliverables. Ultimately, this will result in a portfolio that is easier for Citrix’s partners to sell and customers to consumer, enhancing revenue growth into 2017.

Citrix will also embark on an operational streamlining strategy to do more with less staff. Citrix expects to yield 27% of its operating savings from the elimination of redundant functions and the streamlining of the number of management layers within the firm. Contract and temporary workers in addition to middle management layers will be streamlined through FY16.

Citrix looks to preserve the number of quota-carrying sales representatives it believes will be more efficient when selling a narrower and more cohesive product portfolio with more closely aligned selling dynamics. To streamline selling expenses, Citrix announced it will consolidate its Japan and APAC selling structure into one, de-emphasize low-margin consulting activities, and seek to take advantage of labor arbitrage benefits by pushing more support functions to lower-cost locations around the globe. The measures are not without risk. Transferring customer support organizations offshore can backfire if the level of service quality declines in the eyes of loyal customers.

TBR assessment

Citrix has identified the core products it wants to invest in and deliver to customers to provide them an enhanced experience, better security and flexibility. Citrix’s greatest challenge will be the subsequent transition of its channel partners as well as sustaining the health of its subscription revenues. Subscriptions account for approximately 10% of Citrix’s revenue, and the vendor wants to grow that to 13% in 2017. SaaS product revenue grew 15% year-to-year to $191 million in 3Q15 and the vendor’s Communications Cloud product family (which includes GoToMeeting, GoToWebinar and GoToTraining Workflow Cloud products) accounted for 63% of total SaaS revenue.

Keeping the ShareFile product line will help Citrix offset some of the subscription revenue losses from GoTo. ShareFile continues to be a standout in delivering subscription-based revenue, growing 38% year-to-year in 3Q15.

Citrix will be challenged by the inevitable productivity drags associated with employee uncertainty about their future until the restructuring plan is completed. Citrix believes it can hold revenue steady in FY16 while it gains operating margin points from the restructuring initiatives. With new management teams in sales, marketing and human resources,

Citrix will undergo a cultural transformation as it seeks to pivot into cloud-enabled workspace solutions and gain broader penetration and permission to play with cloud solution providers and in the ever-challenging SMB market, where many vendors have struggled to gain consistent and profitable revenue streams.

(C) TBR