Citrix Acquires XenSource, Heats Up Virtualization Market

By John Burke, Principal Research Analyst
Aug. 16, 2007

Citrix (NASDAQ:CTXS) plans to spend $500 million in stocks and cash to buy privately held virtualization vendor, XenSource, lending significant financial and marketing muscle to XenSource as a competitor to VMWare (NYSE: VMW), and significantly shifting the balance of power in the virtualization space.

XenSource builds proprietary extensions to and layered products around the open source Xen hypervisor--software that runs on the bare metal of a server or PC, virtualizes the hardware, and allows virtual machines to run on top of it.  (XenSource was founded by Xen's creators). This week, XenSource released XenEnterprise 4, intended as direct competition to VMWare's VMWare Infrastructure 3, featuring high-end functions such as live migration of virtual machines among physical servers, but with significantly lower price points.

From Citrix's perspective, the deal brings in-house strong virtualization technology that aids it both in its traditional terminal services-based niche and in its more recent "Dynamic Desktop" initiative.  Enterprises increasingly are coupling Citrix Presentation Server with VMWare to create on-demand application and terminal-services farms. Dynamic Desktop encompasses the whole range of centralized desktops, from net-booting systems to fully virtualized PCs running on server farms in the data center.

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