Citrix said the deal will help the company’s efforts to develop a complete mobile suite that includes GoToMeeting, Podio, and ShareFile. In other words, Citrix just established a mobile niche. This is brilliant for several reasons. For instance, even though the virtualization business is strong today, as noted above, it can’t last forever. While we’ve cited the issue of saturation, the other concern is the very product that gets virtualized: the personal computer.
However, we keep hearing that PCs are dying. And there’s plenty of evidence to suggest that this is no longer just a myth. Inevitably, once PCs are all laid to rest, what will be left of the virtualization business? Any guess? Oracle Corporation (NASDAQ:ORCL), which competes on several levels with Citrix, certainly figured it out when it acquired Acme Packet, Inc. (NASDAQ:APKT), which has one of the best mobile strategies for the enterprise.
This is what Citrix has figured out, and thus, its acquisition of Zenprise, which specializes in mobile device management, or MDM. Mobile devices have already begun to replace desktops and in many cases and are able to do the same things. Citrix will be able to support this new mobile trend while providing full security and other controls. Meanwhile, VMware, although it is still the market leader, has no such recourse.
Although VMware’s Horizon Suite has some similar tools, it is not on par with Zenprise. And if VMware does not immediately address this area, it will find that it has fallen off the totem pole. Plus, with Citrix’s relationship with Cisco Systems, Inc. (NASDAQ:CSCO), the company has a dominant hardware player that it can use to leverage enterprise services, while helping customers lower costs. All of which can help Citrix apply margin pressure to both VMware and Red Hat.
Time to bet long on Citrix
Without question, virtualization and the cloud will remain a critical IT priority for the long term. However, there are also signs that the industry can’t support all of the players vying for the business. For that matter, we haven’t even addressed Microsoft Corporation (NASDAQ:MSFT), which, although has a great relationship with Citrix, also has its own virtualization ambitions.
Nevertheless, as a betting man, my money would be placed on Citrix. Although the stock is far from cheap at a P/E of 40, shares are still undervalued when compared to VMware and Red Hat. Plus, if this company can continue to post revenue growth in the low 20% range and cash flow growth at 33%, these shares can reach $85 by the second half of the year; representing a 15% premium from current levels.
The article Citrix Should Be Spared the Market’s Wrath originally appeared on Fool.com and is written by Richard Saintvilus.
Fool contributor Richard Saintvilus has no position in any stocks mentioned. The Motley Fool recommends Acme Packet, Cisco Systems, and VMware. The Motley Fool owns shares of Microsoft, Oracle, and VMware.
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