Citrix Systems (CTXS) : Desktop Virtualization

Desktop virtualization involves separating the physical location where the PC desktop resides from where the user is accessing the PC. A remotely accessed PC is typically either located at home, at the office or in a data center. The user is located elsewhere, perhaps traveling, in a hotel room, at an airport or in a different city. The desktop virtualization approach can be contrasted with a traditional local PC, where the user directly accesses the desktop operating system and all of its peripherals physically (using the local keyboard, mouse and video monitor hardware directly).

When a desktop is virtualized, its keyboard, mouse and video display (among other things) are typically redirected across a network via a desktop remoting protocol (such as RDP, ICA, VNC, etc). The network connection carrying this virtualized desktop information is known as a “desktop access session”.

The data center is the desktop. Wall Street has underappreciated this area because they are focusing more on the growth of server virtualization. This creates an opportunity for the average Joe investor.

It is expected that the desktop virtualization software market should grow from current levels (small usage) to over $1.5 billion by 2011. In the same time-frame, it is also estimated by savvy investors and people in the know, like me, to grow to over 25 million end users, representing only about 6% of the corporate desktop PC installed base.

Any IT organization worth it’s pound of flesh is constantly looking for ways to reduce the cost of maintaining existing IT systems. The corporate desktop sucks more dollars out of a cost structure than IT managers care to put up with. Hardware and software costs typically account for 20%-30% of the total cost of the corporate desktop, with the remaining 70%-80% of the cost consisting of IT maintenance. Desktop virtualization would lower the annual cost of ownership of computing by 40%-50%, versus high-cost workstations. There is also a potential 5%-10% reduction in cost for low-end PCs.

Currently, it appears that desktop virtualization technology has developed to the point where it can be applied to the corporate desktop environment, thus improving performance, increased flexibility, personalization, and reducing operating expenses.

One way to play this area is Citrix Systems (CTXS). Both CTXS and VMW are seeking to leverage dominant positions in each of their core virtualization markets to enter into the desktop virtualization market. However, CTXS appears to be better positioned to capitalize on the opportunity at hand. The reason is based on the breadth and depth of it’s product portfolio, as well as a large installed based of over 70 million end users.

CTXS is the most leveraged play on desktop virtualization. The company will soon release it’s Citrix XenDesktop solution, which has the most feature-rich desktop virtualization software on the market.

I realize that many of you are excited about VMW. This is also a good choice, but not as attractive as CTXS, in my opinion.

Note: If you buy CTXS based on this post, beware that investing involves risk, and you might lose money.