Citrix buys XenSource, shakes up virtualization market

Citrix has shaken up the virtualization market by agreeing to acquire Xensource. It is spending about US$500 million for the virtual infrastructure specialist, a sale price that assumes about $107 million will be paid in unvested stock options.

The acquisition moves Citrix into adjacent server and desktop virtualization markets, which Citrix has projected will grow to be worth nearly $5 billion over the next four years.

Announcing the deal, it said the combination of Citrix and XenSource “brings together significant customer, technical, channel and go-to-market synergies” which would allow it to extend its leadership in the broader application delivery infrastructure market. It said the link-up would add “key enabling technologies that make the end-to-end computing environment far more flexible, dynamic and responsive to business change.”

It said the deal, which is expected to close in the fourth quarter, would also strengthen each company’s strong partnership with Microsoft and commitment to the Windows platform.

Speculation about the deal has been rife in recent days. Among other things, it will put Citrix into competition with VMware, whose recent IPO and share price soar confirms it as the darling of the virtualization industry, with more than 85 per cent market share.

Sergei Beloussov, chairman and CEO of virtualization vendor SWsoft, said: “Why would Citrix do that? I’m surprised, as it puts Citrix in competition with companies they don’t want to be in competition with. If anyone had bought XenSource, I would have expected it to be HP or IBM.”

The move was urged on Citrix by financial analysts at Credit Suisse. “In our opinion, one of the Xen developers — either XenSource or Virtual Iron — could represent an attractive target for Citrix, as we believe that hypervisor and associated management solutions would be complementary to Citrix’s long-term vision of offering scalable application and desktop delivery,” wrote Credit Suisse’s Philip Winslow and Dennis Simson.

Recent trends have seen increasing interest in the use of virtualization technology to provide a similar benefit to Windows Terminal Services, but without the loss of performance and end user control that Citrix technology entails.

It should also mean that virtualizing Citrix servers, which allows IT managers to consolidate them and whose benefits virtualization software vendor SWsoft has in particular been keen to stress, will over time become easier and offer more performance than it does today. As Winslow and Simson point out, “Using a server virtualization solution enables administrators to use larger servers as the infrastructure for a [Citrix] Presentation Server implementation.”