Citrix Systems, Inc.

views updated

Citrix Systems, Inc.

6400 N.W. Sixth Way
Fort Lauderdale, Florida 33309
U.S.A.
Telephone: (954) 267-3000
Fax: (954) 267-3100
Web site: http://www.citrix.com

Public Company
Incorporated: 1989
Employees: 1800
Sales: $470.4 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: CTXS
NAIC: 51121 Software Publishers; 541412 Computer Systems Design Services

Citrix Systems, Inc. is the worldwide leader in a niche computer software and services market. Its products enable customers to use a network of computers hooked up to a central server, where the software resides. A large number of employees can have access to the same software and information at the same time using Citrix systems, even if the workers are spread across the country. This solves a number of problems for companies using networks. They do not have to provide all their workers with the same type of computers, and they can use older or cheaper computers. This is called “thin” client/server computing. The term “thin” implies that a low-powered computer can be made to work as well as a “fat,” high-powered, large memory machine with a cutting-edge processor, because the software is at a remote location. Citrix’s first chairman, Edward E. Iacobucci, put it simply for Business Week: “We take any application, deliver it to any device, over any network through any bandwidth.” Iacobucci founded the company and pioneered the thin client/server model. The company’s products include Citrix ICA (Independent Computing Architecture), a licensed technology that enhances server computer processing; MultiWin, a process that allows more than one user at a time to connect to the same centralized server software in discrete sessions; the server software MetaFrame; the portal software systems Nfuse and XPS, and others. Citrix also offers training, maintenance, and support services to its customers worldwide. Citrix users include 99 of the Fortune 100 companies and 90 percent of the Fortune 500. Citrix sells its products and services in over 60 countries. Approximately half of the company’s revenue is generated outside the United States.

From IBM to His Own Company

Citrix Systems was founded by Edward Iacobucci, a software developer with a long-standing bent for business. His family hailed from Argentina, and he attended high school in Atlanta. Though he loved mathematics and science, Iacobucci was also fascinated by business early on, and as a teenager was president of a company set up through the Junior Achievement program. He was introduced to computing at Georgia Tech University in the 1970s, and went on to work for IBM. Iacobucci became acquainted with Microsoft’s entrepreneurial genius Bill Gates when the two worked together on a joint IBM/Microsoft project to develop the operating system known as OS/2. By 1989, Iacobucci had decided to leave IBM. He was offered a job at Microsoft as chief technical officer of its networking group. But Iacobucci instead gathered capital to go out on his own. He began with $3 million, raised on his vision of a more fluid world of computing, where different machines could run on any kind of software, and perhaps devices like televisions and telephones could be used to connect to powerful central software servers. Iacobucci first set up Citrix in Richardson, Texas, but quickly moved back to Coral Springs, Florida, where he had been living while working for IBM. The company began with five engineers, who also left IBM’s Florida offices. The young company’s chief executive was Roger Roberts, a veteran of Texas Instruments. Iacobucci was chairman. Citrix spent two years developing its first product, which was called Citrix Multiuser OS/2. Multiuser was to work with OS/2, which Iacobucci had spearheaded for IBM. It would let more than one worker at a time tap into the operating system, through a central server computer. The company went through a second round of financing, another $3 million, in 1990, and by 1991 was ready to bring out its first product. Just days before Citrix was prepared to ship Multiuser, Microsoft announced that it would drop OS/2 in favor of its new operating system, Windows. This was horrific news for Citrix. With OS/2 now an obsolete technology, Multiuser was virtually useless. Citrix had spent $6 million, and now had little hope of recouping much of this through Multiuser. At a September 1991 board meeting, the members argued about whether to call it quits and shut the company down. But Iacobucci and CEO Roberts were certain that the company’s engineers could start over, and make a Windows version of Multiuser, if only Citrix could get more financing.

Some early investors in Citrix were doubtful that the company could keep going. But eventually they agreed to put up more money, if other investors could be rounded up, to spread the risk some. The company came out of its crisis with another $5 million to keep it afloat until it could sell its new Multiuser. Intel was one big new investor, and another was Microsoft. Microsoft bought between 6 and 7 percent of the young company, and put one of its people on Citrix’s board. So though Microsoft’s ditching of OS/2 had almost capsized Citrix, the software giant then came to the rescue. Over the next four years, Microsoft put a total of $2.4 million into the company. Citrix brought out Multiuser version 2.0 in 1992, and also came out with a network software support service called A + Server Series. Citrix also worked out a licensing agreement with Microsoft for its Windows NT server software. It began working on a new product called Win View for Networks. Revenue for 1992 was $1.8 million, and the company had about 50 employees. By the next year, revenue had jumped to $5 million. For 1994, its fifth year in business, Citrix brought in $10 million, and the word about its thin client/server products was spreading.

There were a variety of ways corporations could network their computers, and the thin client/server model did not seem ideal to everyone. But Citrix products were able to solve certain problems neatly. One user was the giant food corporation Nestle. The company’s U.S. headquarters were in Glendale, California, and the office responsible for preparing its U.S. taxes was in Stamford, Connecticut. The Stamford office used Citrix network software to connect with the head office and four regional headquarters. Before using Citrix, each regional office collected its relevant tax information and forwarded it to the Stamford office, often laboriously backing things up on diskettes or CDs. Software upgrades were difficult to coordinate. The Citrix system allowed all the relevant parties access to the same information and same software programs simultaneously, though offices were on the East coast, the West coast, and in St. Louis and Ohio. Many other large corporations found that Citrix could help them with similar situations. By 1995, Citrix had made enough of a name for itself to venture a public stock offering. The company introduced its stock on the Nasdaq exchange in December, 1995, and saw its share price double from $15 to $30 on the first day. The company closed the year with net revenues of $14.5 million.

Working with Microsoft in the 1990s

Citrix’s fortunes increased rapidly after its public offering. Its products were unique, and many customers found them invaluable. Citrix launched WinFrame in 1995, which allowed Microsoft’s leading Windows software to be distributed through networks. Though not everyone agreed on this, proponents of the thin-client model claimed that Citrix users could save 25 to 30 percent over the cost of owning a similar set-up of standard PCs in a local area network. While some industry analysts claimed the thin-client market was actually quite small, others saw vast possibilities for Citrix as its software caught on. The company forged alliances with a host of other computer companies. It had marketing arrangements with Sun Microsystems and with Netscape, with another leading network company, Wyse, and with hardware makers like Motorola Citrix also worked with software companies like PeopleSoft and dozens of others, so that its network solutions were pushed by a variety of people all through the computer industry.

Citrix’s relationship with Microsoft was key to the company’s growth. Microsoft’s Windows was exceedingly popular, and Citrix allowed network users to run Windows, even if they used Macintosh computers, which had a completely different operating system. The two companies were deeply intertwined. Iacobucci had known Bill Gates for years, Microsoft was a major investor in Citrix, and much of Citrix’s growth was due to the demand for access to Windows. But Microsoft shocked Citrix in 1997 when it announced that it was considering building its own version of Windows networking technology, supplanting Citrix with a home-grown Microsoft product. Citrix’s stock plummeted on this news, as it did not seem possible for Citrix to survive without Microsoft. Yet in some ways, Microsoft’s new plan didn’t make sense. At that point, no one besides Citrix made anything like what Citrix made, so there was no chance of Microsoft licensing the technology from another company. And it would take Microsoft some time to develop a comparable program, probably years. Iacobucci flew to Microsoft’s headquarters in Redmond, Washington, with a crew of advisors and negotiators and prepared for a long stay. The Citrix team camped out in a suite of apartments and hammered out an agreement with Microsoft over a period of months. Finally Citrix announced that it had signed a new licensing agreement with Microsoft, promising Citrix $75 million immediately, and another $100 million spread over several years. Microsoft would endorse Citrix’s Windows networking systems for five more years.

Company Perspectives:

As a global leader in application server software and related services, Citrix Systems, Inc. offers innovative organizations the ability to run any application on any device over any connection. With a Citrix solution in place, now everything computes.

While Citrix proclaimed itself quite happy with the new arrangement with Microsoft, others in the computer industry saw the 1997 licensing agreement as the beginning of the end. There seemed to be nothing to prevent Microsoft from going ahead with its own networking technology, so that sooner or later, Citrix would become obsolete. This was the kind of charge that had been leveled against Microsoft frequently. It was such a big player that it seemed able to dictate who would live and who would die among other companies in the industry. Media reports of Citrix’s new agreement were full of doom. The company’s success had turned sour, according to a March 17, 1997 article in Business Week, and an InfoWorld article of May 19, 1997, asked whether Microsoft was “building a partnership or giving Citrix a stay of execution.”

None of this naysaying seemed to prevent Citrix from growing even more rapidly after the 1997 agreement. The company opened new headquarters in Fort Lauderdale in 1997 to house its 300 employees. Revenues for 1997 were $124 million, but the company’s market capitalization was enormous, at $2.2 billion. The company had no debt and an expanding market niche as more and more corporations caught on to the thin-client model.

The company was on a rapid upward trajectory. Revenues almost doubled between 1997 and 1998, to $248.6 million, while market capitalization soared to $4.4 billion. Its stock had recovered from its plunge, and by February 1998 was up to $78. The company stepped up its marketing efforts. It hosted a conference on “Thinergy,” expounding its thin-client gospel to a global audience in 1998. That year Citrix also licensed its ICA (Independent Computing Architecture) protocol to IBM and to a major keyboard manufacturer, Key Tronics. The agreements with hardware manufacturers put Citrix closer to the goal Iacobucci had always had for it—to run sophisticated software from simple devices. Iacobucci envisioned the next wave of “thin” machine as an “information device” as opposed to a conventional computer. “. . . you take your keyboard, plug it into a phone jack and a monitor, and that’s it,” he speculated in a 1998 interview with Fortune. Iacobucci was imagining an essential transformation of the computing world. Meanwhile, his company was making real inroads, both in the United States and abroad. By 1999, the company had two development offices in the United States, its Florida headquarters, and international sales offices in England, France, Germany, Japan, Denmark, Ireland, Australia, and in several other countries. The worldwide thin-client market was said to have increased 35 percent over 1997, according to one industry study, and Citrix was doing a large portion of its business abroad.

Up and Down with the Technology Market

The thin-client model seemed to really take off in 1999. Citrix counted the number of customers using its systems as 15 million by 1999, and this was almost double the number of users in 1998. Though Citrix had the leading thin-client technology, it wasn’t the only company endorsing the model. IBM, Microsoft, Compaq, Dell, Hewlett-Packard and Sun Microsystems—practically all the big names in computing—came out with thin-client-related products in 1999. Many of these were produced under agreements with Citrix. The new buzz word for 1999 was ASP, for application service provider, which was essentially an Internet-based version of the thin-client idea. ASP technology was only beginning to be viable by 1999, but it seemed like the next big thing, and Citrix was already on top of it.

By early 2000, Citrix shares rode to a high of $122. It had sold its systems to huge, well-known companies such as Sears, Roebuck and AT&T. Its revenue had jumped over 60 percent over 1999, to $403 million, and it seemed poised for a further spurt of growth. The server software market was expected to grow to $60 billion in total sales by 2002, and Citrix already had a 40 percent share of the so-called application management segment of that market. Citrix’s CEO, Mark Templeton, predicted that revenue for Citrix would reach $5 billion within five years, as information technology managers increasingly switched to server and Web-based computing systems. Citrix seemed to be in an enviable position. Though it had direct competitors, such as software maker Santa Cruz Operations, Inc., it was by far the best-known and most widely used technology in the market.

The company had been exceedingly optimistic about its prospects. Then in June 2000, Citrix announced that it was revising its earnings estimates downward for the second quarter. The cutback was small and still represented growth compared to the same period a year earlier. But investors were stunned and dropped the stock. From over $100, Citrix shares fell to under $20, and founder and chairman Edward Iacobucci abruptly left the company. CEO Mark Templeton was also asked to resign. It was a strange episode, as nothing had really gone wrong at Citrix. The revised earnings estimate was said to reflect the fact that some sales to large corporate customers took longer to close. So though sales were still growing, profits were taking longer to show up. Less than a year later, Templeton was back at the helm. The company had searched for a new chief executive, hunting in particular for someone with expertise in selling to larger clients. But in the end, it found that Templeton was the best choice, and he was reinstated. In mid-2001 Citrix also completed a major acquisition, buying up the Sequoia Software Corp. for $185 million. Sequoia made what were known as Web-portal software products, which allowed Web sites to be used like corporate databases. Citrix was keen to get in on Web-based technology, and the Sequoia acquisition gave Citrix what it called “the best technology on the market” according to a June 28 article in the Washington Post. Citrix was able to post a sizeable profit in the next quarter, showing net income growth of over 50 percent compared to the same period a year earlier. Citrix’s stock price remained far lower than it had been in its heyday in early 2000. But this perhaps reflected the uncertainty that afflicted the entire technology sector at the time. The company seemed to be continuing with the business plan it had held for years. In 2001, it came out with a new software, MetaFrame XP for Windows, and it won awards for this and for its Nfuse product. It planned to release a new Web-based software, which it had gained through Sequoia, in early 2002.