Citrix Systems Initiated as Neutral

We initiate coverage for Citrix Systems Inc. (CTXS - Analyst Report) with a Neutral recommendation. The company is a leading provider of virtualization, networking and cloud computing solutions for more than 230,000 organizations worldwide. According to our assessment, the virtualization market will continue to flourish in the long-run with desktop virtualization as its central point. Several enterprises are likely to opt for virtualization solutions as a cost effective method to reduce the amount of server and storage hardware within their set up.
 
Citrix introduced a wide range of virtual desktops that will give users an instant access to their corporate desktops and applications from any other device. The desktop virtualization market is expected to accelerate further in 2010. While server virtualization currently has an addressable market size of approximately 35 million servers worldwide, desktop virtualization has the potential to impact more than 600 million desktop users in corporate environments alone. Research firm Gartner estimated that desktop virtualization will be in 50 million personal computers by 2013.
 
However, major concern for the company is the continuation of weak demand for its historically biggest revenue earning products, the Application Virtualization business. In the third quarter, this segment generated $250 million, declining 8% year over year. This disappointing performance is mainly due to the ongoing global economic turmoil. Geographically, although sales in the Americas region increased by 5% year over year, the weak economic conditions have resulted in a fall of 15% sales in the Europe, Africa, and the Middle East region and a fall of 5% in the Asia Pacific region.
 
We believe that the positives factors are already reflected in the current valuation leaving little room for above market gain.

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