Activist hedge fund sends open letter to Citrix, claims their execution is "terribly poor." I agree!

Yesterday Elliott Management, a hedge fund firm that owns 7.1% of Citrix's stock, sent an open letter to Citrix's board of directors claiming that Citrix is inefficient and lacks focus.

Yesterday Elliott Management, a hedge fund firm that owns 7.1% of Citrix’s stock, sent an open letter to Citrix’s board of directors claiming that Citrix is inefficient and lacks focus. Elliott also proposed a vision for the “New Citrix” which includes re-focusing on the core components and spinning off or selling non-core products including GoTo and NetScaler.

Elliott is asking for a meeting with Citrix’s board to discuss the proposal, though they wrote that if the board is not receptive then they’d push for change directly. Elliott has a history here, as described by Hoover’s, "Hedge fund firm Elliott Management takes an activist approach to investing, frequently amassing significant but minority stakes in distressed or underperforming companies and attempting to foment change.”

I want to dig into the details of the letter, but before I do, I’d like to say that I agree 100% with everything that Elliott is suggesting and I love their ideas. (And seeing as how Citrix’s stock jumped 7% on the news of this letter, I think I’m not the only one to agree!)

Elliott’s assessment of Citrix’s current state

I guess it’s easiest just to read the letter yourself. To paraphrase, Elliot wrote:

  • Citrix’s stock could be worth $90-100 by the end of 2016. (It was at $66 but jumped to $70 when Elliott’s letter was released.)
  • Every year over the past six years, Citrix’s stock as done substantially worse than any major index or their peer group.
  • Citrix’s business model is overly complex.
  • Citrix’s execution has been “terribly poor” for more than two years.
  • Citrix’s sales & marketing organization is operating “well below industry benchmarks on efficiency and effectiveness, with the weakest metrics among its peers”. They also wrote that the sales organization has a “poor alignment between performance and compensation”
  • "Citrix’s channel strategy is stretched across too many channel partners, with important channel-enablement resources being directed to sub-scale partners”
  • "The recent product-release issues in both XenApp and XenDesktop, marred by critical feature gaps from prior versions . . . demonstrated a disconnect between customer requirements and development roadmaps.”
  • "Citrix’s recent history of funding speculative R&D initiatives without clear route-to-market or tangible competitive advantage must be reevaluated immediately”
  • "Citrix’s product portfolio is too broad for its scale and contains far too many underperforming product lines that consume valuable resources, have low or negative (i.e., loss-making) return profiles, and serve as distractions”
  • "CloudBridge, CloudPlatform and ByteMobile are non-core, are underperforming and are distractions to the management team . . . [and] should be sold or realigned.”
  • The GoTo and NetScaler brands are high-value, but they are not part of the core Workspace Services segment.
  • "Over the past two years, Citrix has suffered a wave of senior-level management departures, which have introduced uncertainty and instability into the organization. In several cases (e.g., Sumit Dhawan and Bob Schultz), these valuable managers have left to join Citrix’s direct competitors”

Elliott’s “New Citrix” Plan

  • Elliott is proposing a new plan which involves “fundamental change” and “effective oversight”
  • GoTo should be sold or spun off. "While we recognize the broad notion of empowering a mobile workforce, this business’s go-to-market strategy, product development roadmap and end-market are absolutely distinct from the core of Citrix”
  • Something should be done with NetScaler, possibly selling it. "NetScaler is an excellent business, and its ADC technology is an industry-leader; however, we believe Citrix has overly relied on the virtualization cross-sell, resulting in significant under-penetration in non-virtualization use-cases and within the telco vertical”
  • Citrix should spend $4.5-$5.3 billion to buy back shares, including taking on debt to do so.

My analysis of this plan

Umm… yes please!

If you look at Elliott’s assessment of Citrix’s current state, what’s not to agree with there? Overly complex business model? Check. Terribly poor execution? Check. Too many channel partners? Check. Product release issues with critical feature gaps from previous versions? Check. Speculative R&D without a clear route to market? Check. Too many underperforming products? Check.

Really the only thing there that anyone could disagree with (unless you work at one of the sub-scale partners) is the selling or spinning off of GoTo and NetScaler. But really those both make sense.

When Citrix acquired the GoTo product line in 2003, we all wondered what that had to do with their core MetaFrame business. And now in 2015, we’re still wondering what that has to do with their core XenDesktop / XenApp business? I mean yeah, the GoTo products are great, but every minute Mark & Co spend thinking about GoToMeeting is a minute they don’t spend thinking about Citrix Workspace Services. Every minute GoToMyPC is mentioned in a Synergy keynote is a minute that thousands of people are not hearing more details about XenApp.

Same for NetScaler. NetScaler is awesome. But what does it have to do with Citrix’s core business? Yeah, sure, you need fast, secure, reliable networks to deliver remote applications and data. But there are lots of companies in the application delivery controller market that build those things. Unfortunately Citrix decided to try to force the advanced XenApp, XenDesktop, XenMobile, and Storefront features into NetScaler. This is bad for several reasons:

  • It creates an “us versus them” for all the other ADC vendors. All those other companies like F5, etc. who could be helping Citrix sell are now their competition.
  • The “us versus them” also happens within customers. The Citrix team wants to use advanced features of XenApp, but that requires NetScaler. The customer’s networking team says, “We’re an F5 shop,” so now the Citrix team is kind of stuck.
  • Networking/ADC admins are not Windows/VDI admins. It’s a giant pain for a Windows admin to have to figure out how to install, configure, manage, and secure some networking appliance thing just to get access to all the features they thought were built into their Windows delivery product.

So to me, getting rid of GoTo and NetScaler makes sense. Same for all the other stuff that really has nothing to do with their core. CloudBridge, CloudPlatform, ByteMobile, Grasshopper, OpenVoice, Podio . . .

Heck, while they’re at it, maybe they can ditch XenServer and try to re-friend VMware? (Ehh.. probably it’s too late for that. Too bad they didn’t think of that two years ago.)

What’s up in the air is mobile. Citrix’s entry into the mobile space was weird, because they waited a long time to make a move and then paid a huge price for what was essentially the #4 player in the market at that time. It seems that only recently (like, very recently) have they gotten their act together in the mobile space.

Whether they keep XenMobile really depends on whether the industry continues to believe that “mobile” and “Windows desktops and apps” should come from the same company. At this point I believe that they can, but the jury is still out on that.

Same for ShareFile. Is ShareFile really something that people care about? I guess if they have XenMobile and Worx then it’s just part of that? The problem with having ShareFile is it makes them against companies like Box and Dropbox. If it were me, I would ditch ShareFile and crawl hands and knees to Dropbox and Box and say, “Hey, we want to make your products first-class integration with Worx and XenMobile. What do you need from us?” Because as those companies move to offer more web-based document editing apps, a company like Citrix would be a fantastic partner to help with the “other” apps that are still Windows apps. But as they are now, Citrix has ShareFile and their mobile stuff doesn’t integrate with other cloud-based storage products, so Box and Dropbox are not going to do Citrix any favors.

Citrix’s response to the Elliott letter

Last night Citrix put out a press release which said, "Citrix has always maintained an ongoing dialogue with our shareholders, and we welcome their input. We will review Elliott's suggestions and respond as we do with all shareholders who engage with us. The Citrix Board and management team continually evaluate ideas to drive shareholder value and are committed to acting in the best interests of all our shareholders."

I’m not hearing “no” . . .

So you're telling me there's a chance

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Elliott hits the nail on the head.


I would like to point everyone's focus on point 4) of the 'New Citrix' plan: Management


Whilst the Elliott letter only refers to the very highest levels in their examples, the "brain drain" is *much* more widespread that what is mentioned in the Elliott letter.


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A great read for Citrix management and a good insight into Elliott's playbook... www.bain.com/.../agitators-and-reformers.aspx


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Elliott's diagnosis may be accurate, but its cure is worse than the disease.


My analysis won't come out until next week, but while the story is still fresh consider what would happen if Citrix followed the Elliott plan.


If it divested itself of GoTo and NetScaler, the stock would inevitably rise, for a while, but what then? Elliott has just cut two legs off the stool that supports Citrix leaving it with only the core Xens to hold it up.  You might have noticed that VMware EUC is chasing Citrix down, quickly closing the distance between the two. How long will Citrix last without GoTo and Netscaler to help support it.


Elliott also wants to butcher the R&D budget, you know R&D, that place where the future comes from. And I can't help notice that Elliott didn't mention Octoblu in its assessment. Why not, it has no role in a hyperfocused Citrix chasing the next quarter. Another short term win that sets the company up for a long term decline. Brilliant.


Eillott's plan will create a lean new Citrix perfectly honed to compete against VMware in 2013, but its no bloody use today


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I'd agree with Simon - this sounds a great move to investors where they've only considered a short term  win on their 7%. Ideally the Citrix exec have a better understanding and plan and can counter the arguments and show the vision of expanding netscaler while keeping it closer to home and where they see octoblu, and sharefile making gains.


Nice find there Michael Keen - thanks for sharing.  


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There's a difference between "cutting R&D" and "cutting speculative R&D without a clear route to market."


If Xens is such a bad business, then why not cut it and just keep GoTo and NetScaler?


Getting rid of the non-related businesses would let Citrix focus on their core and partner with the best-of-breeds to round out their solution--the same strategy they used in the 1990s to great success.


The company now, by buying all these 3rd and 4th rate players in tangential markets is acting more like Cisco, CA, or Symantec of the 90s.


Octoblu? Come on. Citrix is not Google or Apple. You can't give 20min of a keynote to a science project while missing core features and skipping talking about the stuff that people actually care about.


Yeah, I get it that that's the whole point of R&D, and we don't know which science projects will turn into gold, and without speculative R&D we wouldn't have post it notes and velco and transistors.. but again, Citrix has some major core problems right now with their core products. They don't need a moon shoot, they need a COO.


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This letter is unfortunately hilarious.  Let's see where this goes.  CItrix notoriously treats their salespeople like doodoo and the proof is in the results.  Christoph is correct by stating that brain drain is a many levels of the management team - not just the senior leadership.  Anybody who has worked there for their entire careers should move on to get different experience.  The old mantra heralding Citrix culture is exactly what's holding the company back.


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I agree with most of the points.  Get back to core business that made Citrix great, the Xens are keepers (even Xenserver and Xenmobile), I like that Xenserver was given back to the community but its still in their back pocket which I really like, heck, many people really like it.  VMWare isn't for everyone with the high price tag.  Ditch the GOTO stuff and Podio.  For me the jury is still out on sharefile, i guess it fits in with the whole anywhere, anytime, access stuff, sure it's cool.  Podio though?  Ditch that crap.  Losing Sumit ,who cares, that guy has a really angry face all the time, like he is pissed at the world or something.  My wife said he would scare trick or treaters.  Netscaler needs to stay, i completely disagree with that, it just goes with XA/XD.  Poor marketing, hell yea!  Anyone remember Xendesktop App Edition?  People are still confused about which product to buy, xenapp or xendesktop.  I say change the name of both product to something like Xenstuff and tell everyone we merged them and call it a day.  I run Xendesktop since v5 so I already started with FMA (thank God) and people say to me "Don't you wish you could run apps?"  I just shake my head and tell them yes i can already do that and have been able to for years now, i'm sorry you didnt get the Citrix memo.  


Citrix is a kick ass company for their core products, hence why the world is not running to Horizon like VMW would have you to believe unless they give it away for free.  I do agree with Elliott, they need to get back to business and stop trying to be what everyone else thinks they should be.  


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Citrix's primary problem is that their core business is in a market segment whose future is behind it. XenApp (RDSH/SBC) has peaked, and XenDesktop (VDI) will never peak. This forces Citrix to try to expand into new related markets, or seemingly so. This is a tough proposition for any tech firm, especially one that is so synonymous with its original segment.


Of all Citrix's expansions only XenMobile seems natural to me, and even that one is problematic, as Brian points out (and is also on route to directly compete with Microsoft, something Citrix never likes to do.)


BTW, has given all of the above, I find VMware EUC strategy confusing as well. Maybe Elliott should also write VMware a letter.


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Citrix should have paid a little more attention to their core and invested more development and acquisition dollars on technologies which add value to their stack. Things like best of breed User Environment Management, end to end application life cycle tools, decent monitoring and instrumentation, better integration with other vendors (SCCM/SCOM) and in the latter stages decent application layering and disk optimisation.  Instead, they diversified their interests too far, things like Podio and the Goto products are ok, but they detract from core values.


In the places they did invest they did a half hearted and long winded  job of integrating, take PvD and EdgeSight....in both of these cases ended up with technologies which did not scale like the core product (XenDesktop),  and never delivered the value they promised.


Their Cloud portfolio is a disjointed and nightmarish platform to deploy (who has integrated XenApp/XenDesktop, Cloud Platform and Cloud Portal and can honestly say it was a pleasurable experience?


I disagree with spinning off NetScaler, it has become an indispensable part of the core, supporting remote access, and is now tightly(ish) integrated with sharefile and XenMobile ...and does a pretty good job here.


Citrix lost their way about 3 years ago, should've taken the opportunity to hire a CEO with real vision and refocused the business.


Citrix is a land of never ending missed opportunities and VMWare are now stealing a march.


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Now I would like to hear form the other 92.9% of the shareholders


PS- these 'experts in Citrix" are running an end of life version of Citrix Access Gateway as their employee login page


cag.elliottmgmt.com/.../External


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I dont agree with this comment: The “us versus them” also happens within customers. The Citrix team wants to use advanced features of XenApp, but that requires NetScaler. The customer’s networking team says, “We’re an F5 shop,” so now the Citrix team is kind of stuck.I am a large customer in Europe and most large customers have more then one brand of ADC. F5 is not the centre of the universe and I use both in fact. On the subject of execution this kind of seems obvious to me. You have the same people running critical functions like Finance who have been in the same role for 10+ years. So how do you ever see outside the square?


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@Steve G


Mic Drop!


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Hey Simon-- the people throwing the stones are running the old unsupported Access Gateway and Windows 2003


Kind of makes you look at their letter in a slightly different light :)


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Remind me, when does 2003 Server goes EoL?


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Great post and discussion, it feels like watching ET saying ouch to Elliot. I have to say that Brian is not 100% right to 100% agree with Elliot. Why is that?


Elliot is a private equity firm, in other words they don’t care about Citrix long term. All they care about is having the world believe they can restructure the company to operate well and want to sell off the Online and Netscaler businesses to ensure they make their quick buck to cover their recent portfolio position while they streamline things to take even more profits medium term. In other words they want to secure their money first and sell a $3B online business and $2B Netscaler-data center-cloud  business (these are ~ valuations not revenue from what I have read online) and then believe they can restructure the remaining $6B desktop/mobile business to greater growth by cutting costs and focusing on the core business. Elliot like lots of these exec types as others have noted have low IQ when it comes to how things really work. Equally when they say people like Bob Shultz (useless at Citrix) was a win for VMware from Citrix, it shows how clueless they are and fall for the BS for the standard MBA BS playbooks vs. understanding the real issue is that the people who matter one or two levels below have left or uncertain about the their future as a best case.


I say meh to the Elliot hypothesis. They are going to cut costs out of desktop/mobile and increase growth… The chances of that happening are almost zero. Just look at what happened to Symantec and BMC as examples. Symantec specifically cut their sales force and that resulted in revenue decline. So I say meh to the belief that you can alone cut your way to growth. Just imagine those poor Citrix employees. Hey folks, we’ve sold off the two businesses that were growing, and now we are all going to cut more thanks to Elliot and hope you stay and grow with us prett pretty please and hope with less resources you will sell more and innovate for less earning potential, emmm... The top talent will run for the hills if this happens is my prediction and no doubt VMware and others are waiting to catch the best people. Partners will also crap themselves as their Netscaler businesses take a dump and have to think hard about how to survive especially as the letter also says less partners, so clearly more screwing partners and margin stealing from partners is coming to every deal moving forward, throwing our years of relationships and work done out of the window. It pisses me off!


Citrix will need to innovate to grow, however this requires more focus and a new CEO who is in it for the long term. I love Mark, but his time is done and he and the board have failed to execute and brought us to where we are today. No succession plan has been put in place, no viable number two has been groomed so there is no hope long term. It’s time for a change at the top including the board, as without a committed commander at the top I find it hard to believe any meaningful future for Citrix, except a sale of the company while they can.


For sure sell off the Online business to keep the dogs of Wall Street at bay for a while, but Netscaler has to stay else a major end to end value prop is destroyed, no matter what people think of price, F5 etc. Also keep XenMobile if you really can show a difference medium term vs. InTune. If they don’t have the balls to compete with InTune directly then build on top and play the MS b i t c h game that you have done for years and hope that drives growth.


At the same time shut down other junk and kill useless acquisitions like Octoblu, which have nothing to do with Citrix anytime soon.  Really think about getting rid of sharefile and shutting down all that expense that has very little to do with the core. Citrix also needs to stop buying other junk like Sanbollocks and should only acquire leading strategic things. They should have bought Nutanix and raised debt to do it. That would have shown commitment to the space, not freaking Sanbollocks, then trying to tell us you are pivoting to IoT. That is a fantasy disconnected from reality and should be policed by a responsible board that should all be fired as they have pissed away shareholder and employee value.


Citrix needs to acquire some good assets and be willing to compete with Microsoft directly also who are eating their lunch at the low end of the market if they want to grow. For goodness sake, grow a pair and go and acquire something like Unidesk or even AppSense/RES/LiquidwareLabs and stop worrying about what Microsoft would say and compete to solve problems that matter vs. science projects like App Disk Layering that won’t work for years and will suck even more than App-V.


Citrix seems to have forgotten that they used to win on experience and management. The experience gap is closing fast, but Citrix has failed to do much in management over the last few years. The new Citrix Workspace Cloud shows the kind of potential there is for infrastructure management for remoted desktops and apps. Double down there, screw the rest of the noise and make it awesome, that’s how you will beat VMware, who clearly are moving up the management stack beyond just published desktop and published application management.


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What is good for Wall Street and stock price is not necessarily good for Citrix customers.  Yes, Citrix lost their way several years ago and that was obvious to anyone paying attention to the last few years Synergy keynotes.   As a customer, we make extensive use of NetScaler and XenMobile Enterprise, including ShareFile (configured for on-prem.)  All these products are tightly integrated within my environment to provide the much sought after ‘Anytime, anywhere, any device’ nirvana we have long sought to achieve.  Just as we are achieving the goal, this investment group is seeking to upset the balance by taking away functionality.  I immensely disagree with the notion that NetScaler is not “part of the core Workspace Services segment” as it is the defining difference helping to deliver an end-to-end solution and a key difference between Citrix and its competitors.  Much of Elliot’s vision is for short term financial gain and not a game plan for a viable company in the long term that is  able to compete against the likes of VMware, who is already close on their heels.  Don’t through the baby out with the bath water.  Also, recall that Elliot just got done doing the same to EMC and VMWare in January and holds a key stakes in those companies.  Conflict of interest?


A couple years ago, Citrix would have been a huge win as an acquisition target for VMware when they had little overlap, now they have spent the equivalent in closing the gap.


What to clear out of the barn: Podio, OctoBlue, CubeFree, X1 Mouse and the folks behind these efforts that lead to this distraction.


I agree with AppDetective on most fronts, except ShareFile  :-)


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selling netscaler would mean end to whole product line in the long term. Just because who ever competitor picks that product up is a winning team for sure.  I get the citrix tactics here. delivering apps(xenapp), delivering virtual desktops (xendesktop), delivering them securely to remote users (netscaler), delivering data (sharefile), entering the mobile space more deeply(xenmobile) and now cloud management and IoT. sounds like a good plan and definitely IoT is the future..but I don't think these goto* products and xenserver are "core" products... and different products add different value..for example- adding framehawk will bring value to existing product but does not necessarily boost up the sales.. but xenmobile, sharefile etc will bring more sales to the table. so in that way it is logical that they acquire new companies so they have new products to sell, but that should not happen on the expense of old products because then they start to lose ground there.


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I think that the world and the App Delivery business is more complicated than this, for me the solutions (and some opinions) given are somewhat one-dimensional.


Surely Elliot's advice is, shareholder value is such a temporary result after all. I think Citrix gas and will gave a good overall App Delivery propostion and they are right in their belief that to enrichen this proposition by integrating more deatures over and over again (including integrating IoT capabilities) means selling a better or ar least more complete solution than direct competitors, meanwhile, it seems business models change to 'anything as a service' more and more. Therefore I am not so sure it'd be a good thing to sell off the online (GoTo, Podio) stuff. It may need more (maybe to much) time to really integrate, but still.....


If Citrix could combine XD broker, StoreFront, XenMobile, NetScaler into preconfigured appliances on a preconfigured XenServer hypervisor (being 'core components') and add extra 'add-ons' or 'plug-ins' for additional online connectivity (and ShareFile), wouldn't that make an interesting roadmap?


And next to this 'app delivery appliance' the same thing 'cloudified' (so you could start your private cloud with this App Deliver platform, keep control over the data you'd like to keep 'inside' and then connect and integrate third party cloud technology)?


That would be my guess, completely in sync with the vision that Citrix 'always' had and still has about our digital workspace. I believe Mark Templeton is a true believer in such a solution which makes him a fine candidate to make it happen.


Maybe this is a lot easier to write down than to actually execute, maybe my ideas are also simplified or one-dimensional, but I would very much like a strategy like this, all the more so because the competition only buys and maintain all kinds of seperate solutions whereas the added value is in integrating it into a complete and easy (cloud-ready) App Deliver Platform.


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Disagree on the sentiment on R&D- things like Octoblu are major future potentials. Industry leaders such as Intel, HP, etc are projecting IoT to be a 15 + Trillion dollar market.


Now some dumb ass investor things they shouldn't invest a few millions dollars with that upside?


Typical unintelligent, greedy, short term thinking coming from Wall Street


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@Simon Windows 2003 is EOL next month, July 14th, I know because for fun I am decommissioning my last 2003 server that day in my office :)


www.microsoft.com/.../windows-server-2003


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