Editor’s note: Raleigh-based Sharefile is a source of strength for Citrix, but the tech giant continues to struggle as indicated in its quarterly earnings report Wednesday despite a major restructuring. “Technology Business research believes it is critical that Citrix continues to manage costs in order to minimize negative impacts to its profitability while it weathers the transition,” writes analyst Andrew Smith.
HAMPTON, N.H. – Citrix’ revenue increased 1% year to year in 1Q15 to $761 million. Earlier this month the vendor reduced its revenue guidance from approximately $790 million to $760 million, primarily as a result of foreign exchange headwinds. The continued strength of the U.S. dollar has created difficulty for many software vendors looking to gain traction in markets outside of North America.
TBR expects currency headwinds to continue during 1Q15, and this dynamic only exacerbates Citrix’ situation by forcing the vendor to grow revenues in weakening markets where increased discounting is increasingly the norm.
Regardless of the macroeconomic environment, Citrix looks to return to higher revenue growth rates through dedication to its restructuring plan. In January Citrix announced a reduction in its workforce by 700 full-time employees, approximately 7% of total headcount. The vendor will incur approximately $40 million in restructuring costs during as part of the plan, and said during its 1Q15 earnings call that it plans to have most restructuring complete by 2Q15.
With Citrix’s restructuring comes a renewed focus on both product delivery and partner capabilities, which the vendor will rely on to transform into a solution-oriented, as-a-service business as it enters 2016. TBR believes it is critical that Citrix continues to manage costs in order to minimize negative impacts to its profitability while it weathers the transition.
Major reorganizations of employees and product units may only take until the second quarter of this year; but the reorganization of business models from license to subscription will create revenue headwinds over a much longer time period as the vendor seeks to establish a new customer pipeline and increased renewal rates to sustain long-term growth.
Despite 8% year-to-year SaaS revenue growth, Citrix is still establishing a foundation for cloud services adoption, aimed at improved partner and product capabilities
Citrix is combating the erosion of its transactional product and licensing business as customers adopt more subscription based services for their desktop, networking, and virtualization needs. Citrix identified this transition as a key reason for revenue softness in 1Q15, and CEO Mark Templeton said during the company’s 1Q15 earnings call that the vendor is now on a course to becoming an entirely SaaS-based business. This transformation will be driven by changes to Citrix’s sales and product portfolio in order to more efficiently target customers.
Citrix launched a new channel specialization program in January, designed to help partners enhance their customer appeal by focusing on application delivery, networking, and mobility. Citrix believes that enhancing partner capabilities will help it gain traction, particularly in the small to medium-end of the market where adoption of its products has lagged competitors like Amazon Web Services (AWS).
TBR believes bringing partners and service providers closer to the customer, and in tune with customer needs, is critical for Citrix as is looks to extend its engagements beyond traditional desktop and application virtualization. However, product customization is only one piece of the puzzle. Citrix’s industry vertical partner capabilities are lag competitors.
Technology vendors like Dell and IBM have reoriented along industry sales lines in the past months in order to drive traction. Citrix plans a similar move to drive partner solution delivery within its existing customer bases in healthcare, education, manufacturing and financial services. TBR expects this reorientation to take several quarters before it reflects significantly on Citrix partner revenue contributions, but the vendor is well positioned as a platform- and desktop-agnostic provider to execute on this vision.
Citrix is also working to establish better integration across its portfolio and business units in order to keep pace with customer application demand and provide the integration and security customers demand, ultimately enabling better solution and services delivery. Customized and off the shelf applications requiring centralized management, security, and device integration are the long-term solution opportunities for Citrix.
To drive adoption and retain customer renewal rates Citrix will focus on simplifying consumption of its products through a services provider model that puts a premium on faster sales cycles, lower selling costs, and solution-based sales. This model is a departure from the norm for Citrix, which TBR believes will be detrimental to its product and license revenues in the short term. However, it is a step in the right direction to enhance the interoperability of its major product lines, and generate cross-sales of high-growth SaaS products such as ShareFile, GoToMeeting, and RightSignature across core Workspace Services delivery infrastructure solutions, e.g. XenDesktop, XenMobile and XenApp.