Citrix Beats Street But New License Sales Slow

During a conference call on Thursday, Citrix announced earnings of $42 million, or 24 cents per share on $188 million in revenue, for the third fiscal quarter that ended Sept. 30. The company beat Wall Street expectations by 4 cents and posted better than expected revenue and earnings figures.

Revenue from license updates increased 62 percent over last year and deferred revenue from Subscription Advantage deals grew 40 percent during the quarter to $202 million. Citrix reported several large customer deals during the quarter including a three-year deal with the U.S. Army, a 4,000 seat deal with German Armed Forces, and a 1,000 seat deal with Huawei Technologies in China.

Still analysts on the earnings call said that overall sales during the quarter from new customer licenses increased only 1 percent sequentially to $3.5 million and declined 2 percent year over year.

Analysts also questioned why the company's third-quarter growth in North America at 15 percent trailed that of Europe at 25 percent and Asia at 31 percent.

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Citrix CEO Mark Templeton praised its sales force and channel partners for success in upselling new products including the MetaFrame Access Suite, Secure Access manager and Password Manager into existing customer sites, but he noted that channel partners are leaving money on the table by not embracing its agent program.

"Our channel partners are not taking full advantage of advisor rewards," Templeton said, noting that the company will push the program harder at its global partner summit in January. "We know when they do it, it will increase their profitability ... and profitability for Citrix."

Citrix said it expects that new promotions and programs aimed at lowering the bar for entry into the Solution Advisor rewards program and lower-price entry point for MetaFrame Access Suite last quarter likely will drive more new business over time.

Citrix also expects significant new business from customers migrating from Windows NT 4.0 terminal services. Microsoft will stop support for NT at the end of the year.

A Merrill Lynch analyst said Citrix is growing in a healthy manner but its channel ought to focus on grabbing more market share now with point solutions from SSL VPN vendors and other ISVs such as VMware and Softricity.

"The real challenge they [Citrix] face is winning initial deals from smaller vendors with point solutions," said Edward Maguire, a vice president at Merrill Lynch. "They need to do a better job of going after beachhead opportunities."

To that end, Citrix recently released a beta preview of its next-generation version of MetaFrame Presentation Server 4.0 that will offer, along with the entire Access Suite, new SmartAccess technology designed to better compete against SSL VPN vendors, sources say. MetaFrame Access Suite 4.0 is due for release in mid-2005, sources added.